ck0001683471-20210731
PROSPECTUS
AAF FIRST PRIORITY CLO BOND
ETF
(AAA)
Listed
on NYSE Arca, Inc.
November 30,
2021
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved
of these securities or passed upon the accuracy or adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
The AAF First Priority CLO
Bond ETF (the “Fund”) seeks capital preservation and income.
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Shareholder
Fees
(fees
paid directly from your investment) |
None |
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Annual
Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
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| Management
Fee |
0.25% |
| Distribution
and/or Service (12b-1) Fees |
0.00% |
| Other
Expenses |
0.00% |
| Total
Annual Fund Operating Expenses |
0.25% |
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This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. The
Example does not take into account brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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| 1
Year: |
$26 |
3
Years: |
$80 |
5
Years: |
$141 |
10
Years: |
$318 |
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in the Total Annual Fund Operating Expenses
or in the Example, affect the Fund’s performance. For the fiscal period
September 8, 2020 (commencement of operations) through July 31, 2021, the
Fund’s portfolio turnover rate was 34% of the average value of its
portfolio.
The
Fund is an actively-managed exchange-traded fund (“ETF”) that pursues its
investment objective by investing, under normal circumstances, at least 80% of
its net assets (plus any borrowings made for investment purposes) in AAA rated
first priority debt tranches of U.S. dollar-dominated collateralized loan
obligations (“CLOs”).
CLOs
are trusts that are typically collateralized by a pool of loans, which may
include, among others, domestic and foreign senior secured loans, senior
unsecured loans and subordinate corporate loans, including loans that may be
rated below investment grade or equivalent unrated loans. The Fund may invest in
CLOs of any maturity. The Fund is actively managed and does not seek to track
the performance of any particular index.
The
Fund principally invests in CLOs with the following criteria:
Rated
AAA
No
CLO, at the time of purchase by the Fund, will have a rating that is below AAA
(or equivalent by a nationally recognized statistical rating organization
(“NRSRO”)). An NRSRO is a credit rating agency that issues credit ratings that
the SEC permits other financial firms to use for certain regulatory purposes.
After purchase, a CLO’s rating may decline below the minimum rating required by
the Fund for purchase. In such cases, Alternative Access Funds, LLC (the
“Adviser”), the Fund’s investment adviser, will consider whether continuing to
hold the CLO is in the best interest of the Fund.
Broadly
Syndicated Senior-Secured Loans
The
underlying collateral pool for each CLO must be comprised primarily (typically
90%) of broadly syndicated senior-secured first lien loans. A Broadly Syndicated
Loan CLO (“BSL CLO”) is a CLO that limits the amount of loan collateral whose
offering size is typically less than $250MM to a maximum of approximately 5% of
the portfolio. No investments will be made in middle market CLOs, CBOs, ABS CDOs
and synthetic CLOs.
First
Priority Tranches Only
The
Fund will invest only in the senior-most tranches of CLOs. The cash flows from a
CLO trust are generally split into two or more portions, called tranches,
varying in risk and yield. Senior tranches are paid from the cash flows of the
underlying assets before the junior tranches and equity, or “first loss,”
tranches. Losses are first borne by the equity tranches, then by the junior
tranches, and finally by the senior tranches. Senior tranches pay the lowest
interest rates but are generally safer investments than more junior tranches
because, should there be any default, senior tranches are typically paid first.
For the avoidance of doubt, the CLOs that the Fund purchases will be the
senior-most tranches, consisting of floating rate bonds that rank first in
priority of payments, at the time the CLO is issued. The Fund will not purchase
CLO tranches that have subsequently become the senior-most tranches due to
amortization of previously more senior tranches.
Minimum
Offering and Tranche Size
The
Fund will only invest in a CLO with a minimum initial total deal size of $300
million and minimum initial AAA tranche size of $150 million.
Maximum
Positions Size
The
Fund will not invest more than 5% of its total assets in any single security.
Maximum
CLO Manager Exposure
The
Fund will not invest more than 10% of its total assets in any single CLO
manager.
Maximum
Weighted Average Rating Factor
Each CLO will have a maximum Weighted
Average Rating Factor (the “WARF”) (the “Maximum WARF”), at the time of
purchase, of less than the greater of: a) 3,000, and b) the median WARF value of
all outstanding broadly syndicated CLOs (as determined by the Adviser). WARF is
a measure that is used by credit rating companies to indicate the quality of a
CLO by aggregating the credit ratings of the CLO’s holdings into a single
numerical value. If no WARF is calculated by the trustee of a particular CLO,
the Adviser will at its discretion invest only in a CLO that it believes would
not exceed the Maximum WARF. After purchase, a CLO’s WARF may exceed the Maximum
WARF. In such cases, the Adviser will consider whether to continue to hold the
CLO. Additional information about the WARF is located in the “Additional
Information About the Fund” section.
The
principal risks of investing in the Fund are summarized below. The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with those of other funds. Each risk
summarized below is considered a “principal risk” of investing in the Fund,
regardless of the order in which it appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value (“NAV”),
trading price, yield, total return and/or ability to meet its
objective. The following risks could affect the value of your investment in
the Fund:
•Collateralized
Loan Obligations Risk.
A
CLO
is a trust collateralized by a pool of credit-related assets. Accordingly, CLO
securities present risks similar to those of other types of credit investments,
including default (credit), interest rate and prepayment risks. The extent of
these risks depend largely on the type of securities used as collateral and the
class of the CLOs in which the Fund invests. In addition, CLOs are often
governed by a complex series of legal documents and contracts, which increases
the risk of dispute over the interpretation and enforceability of such documents
relative to other types of investments. There is also a risk that the trustee of
a CLO does not properly carry out its duties to the CLO, potentially resulting
in loss to the CLO.
•Collateralized
Loan Obligations
Leveraging
Risk. CLOs
are typically leveraged, and such leverage will magnify the loss on CLO
investments, which may in turn magnify the loss experienced by the Fund. The
cumulative effect of the use of leverage with respect to any investments in a
market that moves adversely to such investments could result in a substantial
loss that would be greater than if the Fund’s investments were not leveraged.
The Fund intends to invest only in the most senior tranches of CLOs (those that
are also AAA-rated), which generally are less affected by the effects of
leverage than more junior tranches.
•Cyber
Security, Market Disruption and Operational Risk. The
Fund and its service providers, as well as exchanges and market participants
through or with which the Fund trades and other infrastructures and services on
which the Fund or its service providers rely, are susceptible to ongoing risks
related to cyber incidents and the risks associated with financial, economic,
health, labor and other global market developments and disruptions. Cyber
incidents, which can be perpetrated by a variety of means, may result in actual
or potential adverse consequences for critical information and communications
technology, systems and networks that are vital to the operations of the Fund
and/or its service providers. A cyber incident or sudden market disruption could
adversely affect the Fund. In such instances, the Fund’s ability to calculate
its NAV correctly in a timely manner or to process trades or Fund or shareholder
transactions may be adversely affected, including over a potentially extended
period. The Fund and its service providers may directly bear these risks and
related costs. The Fund and its service providers also may be affected by
quarantines and similar measures enacted by governments in response to COVID-19,
which continues to obstruct the regular functioning of business workforces
(including requiring employees to work from external locations and their homes).
Accordingly, the risks described above are heightened under current
conditions.
•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 a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant.
◦Trading. Although
Shares are listed for trading on the NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than Shares.
•Fixed
Income Risk.
Current market conditions and the actions of governmental authorities and
regulators in response to COVID-19 and its far-reaching effects present
heightened risks to fixed-income investments, including the CLOs in which the
Fund invests, and the fixed income market, generally. Such risks could be
further heightened if such market conditions become more volatile or the
governmental and regulatory actions are unexpectedly or suddenly reversed or are
ineffective in achieving their desired outcomes. In addition, the current
environment is exposing fixed-income and debt markets to significant volatility
and reduced liquidity for Fund investments.
◦Call
Risk.
During periods of falling interest rates, an issuer of a callable bond held by
the Fund may “call” or repay the security before its stated maturity, and the
Fund may have to reinvest the proceeds at lower interest rates, resulting in a
decline in the Fund’s income.
◦Credit
Risk.
Debt issuers and other counterparties may not honor their obligations or may
have their debt downgraded by ratings agencies.
◦Extension
Risk.
During periods of rising interest rates, certain debt obligations will be paid
off substantially more slowly than originally anticipated and the value of those
securities may fall sharply, resulting in a decline in the Fund’s income and
potentially in the value of the Fund’s investments.
◦Interest
Rate Risk.
An increase in interest rates may cause the value of fixed-income securities
held by the Fund to decline. The Fund may be subject to a greater risk of rising
interest rates due to the current period of historically low rates and the
effect of potential government fiscal policy initiatives and resulting market
reaction to those initiatives.
Variable
and floating rate securities may increase or decrease in value in response to
changes in interest rates, although generally to a lesser degree than
fixed-income securities.
◦Floating
Rate Notes Risk:
Securities with floating or variable interest rates can be less sensitive to
interest rate changes than securities with fixed interest rates, but may decline
in value if their interest rates do not rise as much, or as quickly, as interest
rates in general. Conversely, floating rate securities will not generally
increase in value if interest rates decline. A decline in interest rates may
result in a reduction of income received from floating rate securities held by
the Fund and may adversely affect the value of the Fund’s shares. Generally,
floating rate securities carry lower yields than fixed notes of the same
maturity. The interest rate for a floating rate note resets or adjusts
periodically by reference to a benchmark interest rate. The impact of interest
rate changes on floating rate investments is typically mitigated by the periodic
interest rate reset of the investments. Securities with longer durations tend to
be more sensitive to interest rate changes, usually making them more volatile
than securities with shorter durations. Floating rate notes generally are
subject to legal or contractual restrictions on resale, may trade infrequently,
and their value may be impaired when the Fund needs to liquidate such loans.
Benchmark interest rates, such as the LIBOR, may not accurately track market
interest rates.
◦Income
Risk: The
Fund’s income may decline if interest rates fall. This decline in income can
occur because most of the debt instruments held by the Fund will have floating
or variable interest rates.
◦Privately
Issued Securities Risk: The
Fund may invest in privately-issued securities, including those that are
normally purchased pursuant to Rule 144A or Regulation S under the Securities
Act of 1933. Privately-issued securities typically may be resold only to
qualified institutional buyers, in a privately negotiated transaction, to a
limited number of purchasers, or in limited quantities after they have been held
for a specified period of time and other conditions are met for an exemption
from registration. Because there may be relatively few potential purchasers for
such securities, especially under adverse market or economic conditions or in
the event of adverse changes in the financial condition of the issuer, the Fund
may find it more difficult to sell such securities when it may be advisable to
do so or it may be able to sell such securities only at lesser prices than if
such securities were more widely held and traded. At times, it also may be more
difficult to determine the fair value of such securities for purposes of
computing the Fund’s NAV due to the absence of an active trading market. There
can be no assurance that a privately-issued security previously deemed to be
liquid when purchased will continue to be liquid for as long as it is held by
the Fund, and its value may decline as a result.
•LIBOR
Discontinuance or Unavailability Risk.
The CLO debt in which the Fund may invest bears interest based upon LIBOR
(London InterBank Offered Rate), which is intended to represent the rate at
which contributing banks may obtain short-term borrowings from each other in the
London interbank market. On March 5, 2021, the U.K. Financial Conduct Authority
(“FCA”) publicly announced that (i) immediately after December 31, 2021,
publication of the 1-week and 2-month U.S. Dollar LIBOR settings will
permanently cease; (ii) immediately after June 30, 2023, publication of the
overnight and 12-month U.S. Dollar LIBOR settings will permanently cease; and
(iii) immediately after June 30, 2023, the 1-month, 3-month and 6-month U.S.
Dollar LIBOR settings will cease to be provided or, subject to the FCA’s
consideration of the case, be provided on a synthetic basis and no longer be
representative of the underlying market and economic reality they are intended
to measure and that representativeness will not be restored. There is no
assurance that the dates announced by the FCA will not change or that the
administrator of LIBOR and/or regulators will not take further action that could
impact the availability, composition or characteristics of LIBOR or the
currencies and/or tenors for which LIBOR is published, and we recommend that you
consult your advisors to stay informed of any such developments. Public and
private sector industry initiatives are currently underway to implement new or
alternative reference rates to be used in place of LIBOR, such as the Secured
Overnight Financing Rate (SOFR). There is no assurance that any such alternative
reference rate will be similar to or produce the same value or economic
equivalence as LIBOR or that it will have the same volume or liquidity as did
LIBOR prior to its discontinuance or unavailability, which may affect the value
or liquidity or return on certain of the Fund’s investments and result in costs
incurred in connection with closing out positions and entering into new
trades.
•Limited
Operating History. The
Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•Liquidity
Risk. Liquidity
risk refers to the possibility that the Fund may not be able to sell or buy a
security or close out an investment contract at a favorable price or time.
Consequently, the Fund may have to accept a lower price to sell a security, sell
other securities to raise cash, or give up an investment opportunity, any of
which could have a negative effect on the Fund’s performance. Infrequent trading
of securities also may lead to an increase in their price volatility. While CLOs
in which the Fund seeks to invest are expected to be highly liquid and supported
by an active market, it is possible that they may be characterized as illiquid
securities under adverse market conditions resulting in a limited market for the
resale of CLOs or affecting the liquidity in the fixed income market, generally.
•Management
Risk.
The
Adviser continuously evaluates the Fund’s holdings, purchases, and sales with a
view to achieving the Fund’s investment objective. However, achievement of the
stated investment objective cannot be guaranteed. The Adviser’s judgment about
the markets, the economy, or companies may not anticipate actual market
movements, economic conditions or company performance, and these factors may
affect the return on your investment.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
these factors, including the impact of the coronavirus (COVID-19) pandemic and
related public health issues, growth concerns in the U.S. and overseas,
uncertainties regarding interest rates, trade tensions and the threat of tariffs
imposed by the U.S. and other countries. These developments as well as other
events could result in further market volatility and negatively affect financial
asset prices, the liquidity of certain securities and the normal operations of
securities exchanges and other markets. It is unknown how long circumstances
related to the pandemic will persist, whether they will reoccur in the future,
whether efforts to support the economy and financial markets will be successful,
and what additional implications may follow from the pandemic. The impact of
these events and other epidemics or pandemics in the future could adversely
affect Fund performance.
•Transactions
in Cash Risk.
The Fund intends to effect its creations and redemptions primarily for cash,
rather than in-kind securities. Paying redemption proceeds in cash rather than
through in kind delivery of portfolio securities may require the Fund to dispose
of or sell portfolio investments at an inopportune time to obtain the cash
needed to pay redemption proceeds. This may cause the Fund to incur certain
costs such as brokerage costs, and to recognize gains or losses that it might
not have incurred if it
had paid redemption proceeds in kind. As a
result, the Fund may pay out higher or lower annual capital gains distributions
than ETFs that redeem in kind. In addition, the costs imposed on the Fund will
decrease the Fund’s NAV unless the costs are offset by a transaction fee payable
by an AP.
Performance information for the Fund is not
included because the Fund did not have a full calendar year of performance prior
to the date of this Prospectus. In the future, performance
information for the Fund will be presented in this section. Updated performance
information is available on the Fund’s website at www.AAFETFs.com.
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| Adviser |
Alternative
Access Funds, LLC |
| Portfolio
Manager |
Peter
Coppa has been the portfolio manager of the Fund since its inception in
2020 |
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a deposit of
cash totaling the NAV of the Creation Units.
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. The difference in the bid and
ask prices is referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at www.AAFETFs.com.
Fund
distributions are generally taxable as ordinary income or capital gains (or a
combination), unless your investment is in an individual retirement account
(“IRA”) or other tax-advantaged account. Distributions on investments made
through tax-deferred arrangements may be taxed later upon withdrawal of assets
from those accounts.
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
The
Fund’s investment objective has been adopted as a non-fundamental investment
policy and may be changed without shareholder approval upon written notice to
shareholders.
The
Fund’s principal investment strategies are discussed in the “Fund Summary”
section. Principal investment strategies are those that the Adviser will use on
a day-to-day basis to achieve the Fund’s investment objective. This section
provides more information about these strategies, as well as information about
some additional strategies that the Fund’s Adviser uses, or may use, to achieve
the Fund’s objective. Additional information about these investment strategies
and practices and related risks is also provided in the Fund’s Statement of
Additional Information (“SAI”). The Fund may also use strategies and invest in
securities that are not described in this Prospectus, but that are described in
the SAI. The investments and strategies discussed below are those that the
Adviser will use under normal market conditions.
The
Fund may borrow to the extent permitted by the Investment Company Act of 1940,
as amended (the “1940 Act”). At times, the Fund may be required to segregate or
earmark certain assets determined to be liquid by the Adviser (generally,
short-term investment grade fixed income securities) to cover
borrowings.
The
Fund may invest in shares of other ETFs whose underlying investments are
consistent with the Fund’s investment objective. As a shareholder in an
investment company, the Fund would bear its pro-rata portion of an ETF’s
expenses, including advisory fees, in addition to its own expenses. Although the
1940 Act limits investments by registered investment companies in the securities
of other investment companies, registered investment companies, including the
Fund, are permitted to invest in certain ETFs beyond the limits set forth in the
1940 Act, subject to certain terms and conditions including entering into an
agreement with such ETF.
Any
percentage limitations with respect to the investment of the Fund’s assets or
quality requirement of issues or issuers in which the Fund invests are applied
at the time of purchase. In anticipation of or in response to adverse market or
other conditions or atypical circumstances as determined by the portfolio
manager, such as unusually large cash inflows or redemptions, the Fund may
temporarily hold all or a portion of its assets in U.S. Government securities,
money market funds, cash or cash equivalents. Under such conditions, the Fund
may not invest in accordance with its investment objective or principal
investment strategies and may not achieve its investment objective.
An
NRSRO is a credit rating agency that issues credit ratings that the SEC permits
other financial firms to use for certain regulatory purposes.
In
accordance with Rule 35d-1 under the 1940 Act, the Fund will invest, under
normal circumstances, at least 80% of its net assets, plus any borrowings made
for investment purposes, in AAA-rated first priority debt tranches of U.S.
dollar-dominated CLOs. The foregoing policy may be changed without shareholder
approval upon 60 days’ written notice to shareholders.
For
temporary defensive purposes, the Fund may invest in short-term instruments such
as commercial paper and/or repurchase agreements collateralized by U.S.
government securities, corporation obligations, municipal debt securities, MBSs,
or convertible securities. Taking a temporary defensive position may result in
the Fund not achieving its investment objective.
WARF
is calculated by the trustee of a CLO on a monthly basis. It is a numerical
representation of the aggregate credit risk of the underlying portfolio of
loans. It is calculated as a weighted average of the Moody’s Rating Factor
values for each of the individual loans in the CLO portfolio. The table below
provides a mapping between Moody's Rating Factors and Moody's credit ratings of
each loan.
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| Moody’s
Rating |
Moody’s
Rating Factor |
| Aaa |
1 |
| Aa1 |
10 |
| Aa2 |
20 |
| Aa3 |
40 |
| A1 |
70 |
| A2 |
120 |
| A3 |
180 |
| Baa1 |
260 |
| Baa2 |
360 |
| Baa3 |
610 |
| Ba1 |
940 |
| Ba2 |
1350 |
| Ba3 |
1766 |
| B1 |
2220 |
| B2 |
2720 |
| B3 |
3490 |
| Caa1 |
4770 |
| Caa2 |
6500 |
| Caa3 |
8070 |
| Ca-C |
10000 |
The
Fund’s Maximum WARF constraint effectively imposes credit quality limitations on
the CLOs that are eligible for inclusion in the Fund’s portfolio. While the
Maximum WARF seeks to limit the Fund’s exposure to the risks of investing in
lower-rated CLOs, such as CLOs with exceedingly large balances of low-rated (B3,
Caa, Ca-C) loans, whether by design or due to credit migration, it also may
limit the upside performance potential of the Fund’s investments in
CLOs.
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. Just as in the Fund’s summary section, the principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with those of other funds. Each risk summarized below is
considered a “principal risk” of investing in the Fund, regardless of the order
in which it appears.
•Collateralized
Loan Obligations Risk.
A CLO is a trust typically collateralized by a pool of credit-related assets,
which may include, among others, domestic and foreign senior secured loans,
senior unsecured loans, and subordinate corporate loans, including loans that
may be rated below investment grade or equivalent unrated loans. The cash flows
from the trust are split into two or more portions, called tranches, varying in
risk and yield. The riskiest portion is the “equity” tranche, which bears the
bulk of defaults from the bonds or loans in the trust and serves to protect the
other, more senior tranches, including those in which the Fund intends to
invest, from default in all but the most severe circumstances. Because it is
partially protected from defaults, a senior tranche from a CLO trust typically
has higher ratings and lower yields than its underlying securities, and can be
rated investment grade. Despite the protection from the equity tranche, CLO
tranches can experience substantial losses due to actual defaults, increased
sensitivity to defaults due to collateral default and disappearance of
protecting tranches, and market anticipation of defaults. CLO securities present
risks similar to those of other types of credit investments, including default
(credit), interest rate and prepayment risks, and the extent of these risks
largely depends on the type of securities used as collateral and the class of
the CLO in which the Fund invests. In addition, CLOs are often governed by a
complex series of legal documents and contracts, which increases the risk of
dispute over the interpretation and enforceability of such documents relative to
other types of investments. There is also a risk that the trustee of a CLO does
not properly carry out its duties to the CLO, potentially resulting in loss to
the CLO. CLOs are also inherently leveraged vehicles and are subject to leverage
risk. A CLO may be characterized as an illiquid security due to a limited market
for the resale of such CLO or adverse market conditions affecting CLOs,
generally.
In
seeking to mitigate market disruptions related to the COVID-19 pandemic, the
Federal Reserve has, as part of its many economic interventions, included
AAA-rated CLO paper within the scope of certain of its stimulus programs. In
particular, on March 17, 2020, the Federal Reserve began accepting AAA-rated CLO
bonds as collateral for its Primary Dealer Credit Facility and, on April 9,
2020, the Federal Reserve announced that it would include AAA-rated CLO paper as
part of its Term Asset-
Backed
Securities Loan Facility. There is no guarantee that the Federal Reserve will
continue to provide such validation and support of CLOs and, if it ceases to do
so, any subsequent restart of the CLO markets could be adversely affected.
•Collateralized
Loan Obligations Leveraging Risk.
CLOs are typically leveraged, and such leverage will magnify the loss on CLO
investments, which may in turn magnify the loss experienced by the Fund. The
cumulative effect of leverage with respect to any investments in a market that
moves adversely to such investments could result in a substantial loss that
would be greater than if the Fund’s investments were not leveraged. For example,
a liquidity crisis in the global credit markets could cause substantial
fluctuations in prices for leveraged loans and high-yield debt securities and
limited liquidity for such instruments. In addition, loans underlying the CLOs
in which the Fund may invest may be made to finance highly leveraged corporate
transactions. The highly leveraged capital structure of the borrowers in such
transactions may make such loans especially vulnerable to adverse changes in
economic or market conditions.
A
CLO is subject to a “waterfall” or a set of rules that dictates how the
principal and interest proceeds from the underlying portfolio of corporate loans
will be allocated among the tranches. These proceeds are allocated first to the
most senior tranches, then sequentially lower through the other tranches, and
finally to the equity. Any potential losses in the underlying loan portfolio
will be realized in reverse sequential order and absorbed first by the equity
tranche, then the non-senior debt tranches, and finally the most senior bonds.
In this sense, the non-senior tranches can be viewed as inherently leveraged
since they are not first in priority of payments; in the same vein, the most
senior tranche of a CLO (the target assets for the Fund) can be view as
unlevered.
The
Fund will invest in the most senior tranches of CLOs (those that are also AAA
rated), floating rate bonds that rank first in priority of payments, only. So,
while certain junior tranches of CLOs may be viewed as inherently leveraged, the
Fund’s holdings generally will be less affected by the effects of leverage as
they are protected from losses to some extent by the presence of junior
tranches.
•Cyber
Security, Market Disruption and Operational Risk. The
Fund and its service providers, as well as exchanges and market participants
through or with which the Fund trades and other infrastructures and services on
which the Fund or its service providers rely, are susceptible to ongoing risks
related to cyber incidents and the risks associated with financial, economic,
health, labor and other global market developments and disruptions. Cyber
incidents, which can be perpetrated by a variety of means, may result in actual
or potential adverse consequences for critical information and communications
technology, systems and networks that are vital to the operations of the Fund
and/or its service providers. A cyber incident or sudden market disruption could
adversely affect the Fund, including its operation or investments, its service
providers or its shareholders by, among other things, interfering with the
processing of shareholder transactions or other operational functionality,
adversely affecting the Fund’s ability to calculate its NAV or other data,
causing the release of private or confidential information, impeding trading,
causing reputational damage, and subjecting the Fund to fines, penalties or
financial losses or otherwise adversely affecting the operations, systems and
activities of the Fund, its service providers and market intermediaries. These
types of adverse consequences also could result from other operational
disruptions or failures arising from, for example, processing errors, human
errors, and other technological issues. In each case, the Fund’s ability to
calculate its NAV correctly in a timely manner or process trades or Fund or
shareholder transactions may be adversely affected, including over a potentially
extended period. The Fund and its service providers may directly bear these
risks and related costs. The Fund and its service providers also may be affected
by quarantines and similar measures enacted by governments in response to
COVID-19, which are continuing to obstruct the regular functioning of business
workforces (including requiring employees to work from external locations and
their homes). Accordingly, the risks described above are heightened under
current conditions.
•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 a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the business or
significantly reduce their business activities and no other entities step
forward to perform their functions.
◦Costs
of Buying or Selling Shares.
Investors buying or selling Shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers, as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of Shares. In addition, secondary market investors will also incur the cost of
the difference between the price at which an investor is willing to buy Shares
(the “bid” price) and the price at which an investor is willing to sell Shares
(the “ask” price). This difference in bid and ask prices is often referred to as
the “spread” or “bid/ask spread.” The bid/ask spread varies over time for Shares
based on trading volume and market liquidity, and is generally lower if Shares
have more trading volume and market liquidity and higher if Shares have little
trading volume and market liquidity. Further, a relatively small investor base
in the Fund, asset swings in the Fund and/or increased market volatility may
cause increased bid/ask spreads. Due to the costs of buying or selling Shares,
including bid/ask spreads, frequent trading of Shares may significantly reduce
investment results and an investment in Shares may not be advisable for
investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. Although it is expected that the market price of Shares will
approximate the Fund’s NAV, there may be times when the market price of Shares
is more than the NAV intra-day (premium) or less than the NAV intra-day
(discount) due to supply and demand of Shares or during periods of market
volatility. This risk is heightened in times of market volatility or periods of
steep market declines and periods when there is limited trading activity for
Shares in the secondary market, in which case such premiums or discounts may be
significant. The market price of Shares during the trading day, like the price
of any exchange-traded security, includes a “bid/ask” spread charged by the
exchange specialist, market makers or other participants that trade Shares. In
times of severe market disruption, the bid/ask spread can increase
significantly. At those times, Shares are most likely to be traded at a discount
to NAV, and the discount is likely to be greatest when the price of Shares is
falling fastest, which may be the time that you most want to sell your Shares.
The Adviser believes that, under normal market conditions, large market price
discounts or premiums to NAV will not be sustained because of arbitrage
opportunities.
◦Trading.
Although Shares are listed for trading on the Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange “circuit breaker”
rules, which temporarily halt trading on the Exchange when a decline in the
S&P 500 Index during a single day reaches certain thresholds (e.g.,
7%, 13%, and 20%). Additional rules applicable to the Exchange may halt trading
in Shares when extraordinary volatility causes sudden, significant swings in the
market price of Shares. There can be no assurance that Shares will trade with
any volume, or at all, on any stock exchange. In stressed market conditions, the
liquidity of Shares may begin to mirror the liquidity of the Fund’s underlying
portfolio holdings, which can be significantly less liquid than Shares.
•Fixed
Income Risk. Current
market conditions and the actions of governmental authorities and regulators in
response to COVID-19 and its far-reaching effects present heightened risks to
the fixed income market generally. Such risks could be further heightened if
such market conditions become more volatile or the governmental and regulatory
actions are unexpectedly or suddenly reversed or are ineffective in achieving
their desired outcomes. In addition, the current environment is exposing
fixed-income and debt markets to significant volatility and reduced liquidity
for Fund investments.
◦Call
Risk.
During periods of falling interest rates, an issuer of a callable bond held by a
Fund may “call” or repay the security before its stated maturity, and a Fund may
have to reinvest the proceeds at lower interest rates, resulting in a decline in
the Fund’s income.
◦Credit
Risk.
Debt issuers and other counterparties may not honor their obligations or may
have their debt downgraded by ratings agencies. This risk may be especially
acute with respect to high yield securities, whose issuers are particularly
susceptible to failure to meet repayment obligations principal under current
conditions. An issuer may suffer adverse changes in its financial condition or
be adversely affected by economic, political or social conditions that could
lower the credit quality (or the market’s perception of the credit quality) of a
security, leading to greater volatility in the price of the security and the
value of the Fund. A change in the credit quality rating of a security can
affect its liquidity and make it more difficult for the Fund to sell. Although
credit quality may not accurately reflect the true credit risk of a security, a
change in the credit quality rating of a security or an issuer can have a rapid,
adverse effect on the instrument’s liquidity and make it more difficult for the
Fund to sell at an advantageous price or time. The risk of the occurrence of
these types of events is especially heightened under current conditions. Any
applicable limitation on the credit quality of a security in which the Fund may
invest is applied at the time the Fund purchases the security.
Credit
quality is a measure of the issuer’s expected ability to make all required
interest and principal payments in a timely manner. An issuer with the highest
credit rating has a very strong capacity with respect to making all payments. An
issuer with the second highest credit rating has a strong capacity to make all
payments, but the degree of safety is somewhat less. An issuer with the lowest
credit quality rating may be in default or have extremely poor prospects of
making timely payment of interest and principal. Investment grade securities are
fixed-income securities that have been determined by a nationally recognized
statistical rating organization to have a medium to high probability of being
paid (although there is always a risk of default), or which, if unrated, have
been determined by the Adviser to be of comparable quality. If nationally
recognized statistical rating organizations assign different ratings to the same
security, the Fund will use the higher rating for purposes of determining the
security’s credit quality.
◦Extension
Risk.
During periods of rising interest rates, certain debt obligations will be paid
off substantially more slowly than originally anticipated and the value of those
securities may fall sharply, resulting in a decline in a Fund’s income and
potentially in the value of the Fund’s investments.
◦Interest
Rate Risk.
Longer term fixed income instruments and zero coupon bonds are generally more
sensitive to interest rate changes than shorter-term fixed income instruments.
Generally, the longer the average maturity of the fixed income investments in
the Fund, the more the Fund’s share price will fluctuate in response to interest
rate changes. If an issuer calls
or
redeems an investment during a time of declining interest rates, the Fund might
have to reinvest the proceeds in an investment offering a lower yield, and
therefore might not benefit from any increase in value as a result of declining
interest rates. Securities with floating interest rates, such as syndicated bank
loans, generally are less sensitive to interest rate changes, but may decline in
value if their interest rates do not rise as much or as fast as interest rates
in general. Changes in government or central bank policy, including changes in
tax policy or changes in a central bank’s implementation of specific policy
goals, may have a substantial impact on interest rates, and could have an
adverse effect on prices for fixed income securities and on the performance of
the Fund. In particular, interest rates in the U.S. are at or near historically
low levels and as a result, fixed income securities markets may experience
heightened levels of interest rate risk. Any unexpected or sudden reversal of
the fiscal policy underlying current interest rate levels could adversely affect
the value of the Fund. There can be no guarantee that any particular government
or central bank policy will be continued, discontinued or changed, nor that any
such policy will have the desired effect on interest rates.
There
is a risk that interest rates across the financial system may change, sometimes
unpredictably, in response to a variety of factors, such as central bank
monetary policies, inflation rates and general economic conditions. Very low or
negative interest rates may magnify the Fund’s susceptibility to interest rate
risk and diminish yield and performance (e.g.,
during periods of very low or negative interest rates, the Fund may be unable to
maintain positive returns). Changes in fixed-income or related market
conditions, including the potential for changes to interest rates and negative
interest rates, may expose fixed-income or related markets to heightened
volatility and reduced liquidity for Fund investments, which may be difficult to
sell at favorable times or prices, causing the value of the Fund’s investments
and NAV per share to decline. A rise in general interest rates also may result
in increased redemptions from the Fund. Very low, negative or changing interest
rates also may have unpredictable effects on securities markets in general,
directly or indirectly affecting the Fund’s investments, yield and
performance.
In
response to the outbreak of COVID-19, as with other serious economic
disruptions, governmental authorities and regulators are enacting significant
fiscal and monetary policy changes, including providing direct capital infusions
into companies, creating new monetary programs and lowering interest rates
considerably. These actions present heightened risks to fixed-income and debt
instruments, and such risks could be even further heightened if these actions
are unexpectedly or suddenly reversed or are ineffective in achieving their
desired outcomes. In addition, the current environment is exposing fixed-income
and debt markets to significant volatility and reduced liquidity for Fund
investments.
◦Floating
Rate Notes Risk.
Securities with floating or variable interest rates can be less sensitive to
interest rate changes than securities with fixed interest rates, but may decline
in value if their interest rates do not rise as much, or as quickly, as interest
rates in general. Conversely, floating rate securities will not generally
increase in value if interest rates decline. A decline in interest rates may
result in a reduction of income received from floating rate securities held by
the Fund and may adversely affect the value of the Fund’s shares. Generally,
floating rate securities carry lower yields than fixed notes of the same
maturity. The interest rate for a floating rate note resets or adjusts
periodically by reference to a benchmark interest rate. The impact of interest
rate changes on floating rate investments is typically mitigated by the periodic
interest rate reset of the investments. Securities with longer durations tend to
be more sensitive to interest rate changes, usually making them more volatile
than securities with shorter durations. Floating rate notes generally are
subject to legal or contractual restrictions on resale, may trade infrequently,
and their value may be impaired when the Fund needs to liquidate such loans.
Benchmark interest rates, such as the LIBOR, may not accurately track market
interest rates.
◦Income
Risk. The
Fund’s income may decline if interest rates fall. This decline in income can
occur because most of the debt instruments held by the Fund will have floating
or variable interest rates.
◦Privately
Issued Securities Risk. Normally,
CLOs are privately-offered and sold, and thus, not registered under the federal
securities laws. Where an active dealer market exists for a CLO, the CLO may be
eligible for resale to certain qualified institutional buyers, such as the Fund,
under the Rule 144A “safe harbor” from the registration requirements of the 1933
Act. The Fund may invest in privately-issued CLOs, including those that are
purchased pursuant to Rule 144A or Regulation S under the 1933 Act.
Privately-issued securities typically may be resold only to qualified
institutional buyers, in a privately negotiated transaction, to a limited number
of purchasers, or in limited quantities after they have been held for a
specified period of time and other conditions are met for an exemption from
registration. Because there may be relatively few potential purchasers for such
securities, especially under adverse market or economic conditions or in the
event of adverse changes in the financial condition of the issuer, the Fund may
find it difficult to sell such securities when it may be advisable to do so or
it may be able to sell such securities only at prices lower than if such
securities were more widely held and traded. At times, it also may be more
difficult to determine the fair value of such securities for purposes of
computing the Fund’s NAV due to the absence of an active trading market. There
can be no assurance that a privately-issued security previously deemed to be
liquid when purchased will continue to be liquid for as long as it is held by
the Fund, and its value may decline as a result.
•LIBOR
Discontinuance or Unavailability Risk.
The CLO debt in which the Fund may invest bears interest based upon LIBOR
(London InterBank Offered Rate). LIBOR is intended to represent the rate at
which contributing banks may obtain short-term borrowings from each other in the
London interbank market. On March 5, 2021, the U.K. Financial Conduct Authority
(“FCA”) publicly announced that (i) immediately after December 31, 2021,
publication of the 1-week and 2-month U.S. Dollar LIBOR
settings
will permanently cease; (ii) immediately after June 30, 2023, publication of the
overnight and 12-month U.S. Dollar LIBOR settings will permanently cease; and
(iii) immediately after June 30, 2023, the 1-month, 3-month and 6-month U.S.
Dollar LIBOR settings will cease to be provided or, subject to the FCA’s
consideration of the case, be provided on a synthetic basis and no longer be
representative of the underlying market and economic reality they are intended
to measure and that representativeness will not be restored. There is no
assurance that the dates announced by the FCA will not change or that the
administrator of LIBOR and/or regulators will not take further action that could
impact the availability, composition or characteristics of LIBOR or the
currencies and/or tenors for which LIBOR is published, and we recommend that you
consult your advisors to stay informed of any such developments. Public and
private sector industry initiatives are currently underway to implement new or
alternative reference rates to be used in place of LIBOR. There is no assurance
that any such alternative reference rate will be similar to or produce the same
value or economic equivalence as LIBOR or that it will have the same volume or
liquidity as did LIBOR prior to its discontinuance or unavailability, which may
affect the value or liquidity or return on certain of the Fund’s investments and
result in costs incurred in connection with closing out positions and entering
into new trades.
•Limited
Operating History. The
Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•Liquidity
Risk. Liquidity
risk refers to the possibility that the Fund may not be able to sell or buy a
security or close out an investment contract at a favorable price or time.
Consequently, the Fund may have to accept a lesser price to sell a security,
sell other securities to raise cash, or give up an investment opportunity, any
of which could have a negative effect on the Fund’s performance. Infrequent
trading of securities also may lead to an increase in their price volatility.
While the CLOs in which the Fund seeks to invest are expected to be highly
liquid and supported by an active market, it is possible that they may be
characterized as illiquid securities under adverse market conditions resulting
in a limited market for the resale of CLOs or affecting the liquidity in the
fixed income market, generally.
In
addition, during periods of reduced market liquidity or in the absence of
readily available market quotations for particular investments in the Fund’s
portfolio, the ability of the Fund to assign an accurate daily value to these
investments may be difficult and the Adviser may be required to fair value the
investments. Fair value determinations are inherently subjective and reflect
good faith judgments based on available information. Accordingly, there can be
no assurance that the determination of a security’s fair value in accordance
with the Fund’s valuation procedures will in fact approximate the price at which
the Fund could sell that security at that time (i.e.,
the sale price could differ, sometimes significantly, from the Fund’s last
valuation for the security). Investors who purchase or redeem shares of the Fund
on days when the Fund is holding fair valued securities may receive fewer or
more shares or lower or higher redemption proceeds than they would have received
if the Fund had not fair valued the securities or had used a different valuation
methodology. These risks may be magnified in a rising interest rate environment
and if the Fund holds a significant percentage of fair valued or otherwise
difficult to value securities, the Fund may be particularly susceptible to the
risks associated with valuation.
Liquidity
risk also refers to the risk of unusually high redemption requests, redemption
requests by certain large shareholders such as institutional investors or asset
allocators, or other unusual market conditions that may make it difficult for
the Fund to sell investments within the allowable time period to meet
redemptions. Meeting such redemption requests could require the Fund to sell
securities at reduced prices or under unfavorable conditions or access
additional means of liquidity, which would reduce the value of the Fund. This
risk is especially acute under current market conditions.
•Management
Risk.
The
Adviser continuously evaluates the Fund’s holdings, purchases and sales with a
view to achieving the Fund’s investment objective. However, achievement of the
stated investment objective cannot be guaranteed. The Adviser’s judgment about
the markets, the economy, or companies may not anticipate actual market
movements, economic conditions or company performance, and these factors may
affect the return on your investment. In fact, no matter how good a job the
Adviser does, you could lose money on your investment in the Fund, just as you
could with other investments. If the Adviser is incorrect in its assessment of
the income, growth or price realization potential of the Fund’s holdings or
incorrect in its assessment of general market or economic conditions, then the
value of the Fund’s shares may decline.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
economic, political and global macro factors, including public health issues,
growth concerns in the U.S. and overseas, uncertainties regarding interest
rates, trade tensions and the threat of tariffs imposed by the U.S. and other
countries. These developments as well as other events could result in further
market volatility and negatively affect financial asset prices, the liquidity of
certain securities and the normal operations of securities exchanges and other
markets, which could have an adverse effect on the Fund.
The
respiratory illness COVID-19 caused by a novel coronavirus has resulted in a
pandemic and major disruption to economies and markets around the world,
including the United States. The pandemic has resulted in a wide range of social
and economic disruptions, including closed borders, voluntary or compelled
quarantines of large populations, stressed healthcare systems, reduced or
prohibited domestic or international travel, supply chain disruptions, and
so-called “stay-at-home” orders throughout much of the United States and many
other countries. Financial markets have experienced extreme volatility and
severe losses, and trading in many instruments has been disrupted. Some sectors
of the economy and individual issuers have experienced particularly large
losses. Such disruptions may continue for an extended period of time or reoccur
in the future to a similar or greater extent. Liquidity for many instruments has
been greatly reduced for periods of time. In response to these disruptions, the
U.S. government and the Federal Reserve have taken extraordinary actions to
support the domestic economy and financial markets, resulting in very low
interest rates and in some cases negative yields. It is unknown how long
circumstances related to the pandemic will persist, whether they will reoccur in
the future, whether efforts to support the economy and financial markets will be
successful, and what additional implications may follow from the pandemic. The
impact of these events and other epidemics or pandemics in the future could
adversely affect Fund performance.
•Transactions
in Cash Risk.
The Fund intends to effect its creations and redemptions primarily for cash,
rather than in-kind securities. Paying redemption proceeds in cash rather than
through in kind delivery of portfolio securities may require the Fund to dispose
of or sell portfolio investments at an inopportune time to obtain the cash
needed to pay redemption proceeds. This may cause the Fund to incur certain
costs such as brokerage costs, and to recognize gains or losses that it might
not have incurred if it had paid redemption proceeds in kind. As a result, the
Fund may pay out higher or lower annual capital gains distributions than ETFs
that redeem in kind. In addition, the costs imposed on the Fund will decrease
the Fund’s NAV unless the costs are offset by a transaction fee payable by an
AP.
Information
about the Fund’s daily portfolio holdings is available at www.AAFETFs.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
SAI.
Alternative
Access Funds, LLC, located at 2150 Park Place, Suite 100, El Segundo, California
90245, serves as the investment adviser for the Fund. The Adviser, subject to
the oversight of the Board, provides an investment management program for the
Fund and manages the day-to-day investment of the Fund’s assets. The Adviser
also arranges for transfer agency, custody, fund administration, distribution
and all other services necessary for the Fund to operate. The Adviser is an
SEC-registered investment adviser. For the services it provides to the Fund, the
Adviser is entitled to a unified management fee, which is calculated daily and
paid monthly, at an annual rate based on the Fund’s average daily net assets as
set forth in the table below.
|
|
|
|
|
|
| Fund |
Management
Fee |
| AAF
First Priority CLO Bond ETF |
0.25% |
Pursuant
to an investment advisory agreement between the Trust, on behalf of the Fund,
and the Adviser (the “Advisory Agreement”), the Adviser has agreed to pay all
expenses of the Fund except the fee payable to the Adviser under the Advisory
Agreement, interest charges on any borrowings, dividends, and other expenses on
securities sold short, taxes, brokerage commissions and other expenses incurred
in placing orders for the purchase and sale of securities and other investment
instruments, acquired fund fees and expenses, accrued deferred tax liability,
extraordinary expenses, and distribution (12b-1) fees and expenses (if any).
The
Fund is managed by Peter Coppa.
Mr.
Coppa has more than 19 years of experience in the asset management business,
running corporate debt hedge funds and CLOs. Prior to joining the Adviser, Mr.
Coppa spent 14 years as Managing Director at Marathon Asset Management (“MAM”).
He has experience in value and event-driven distressed investing, dynamic
hedging and portfolio management, corporate financial analysis, and
macro-economic research. From 2009 to 2017, Mr. Coppa was a portfolio manager
for MAM’s distressed and credit opportunities fund. He has invested in dozens of
special credit opportunities throughout his career, in sectors including, but
not limited to, airlines, telecommunications, metals and mining, energy and
power, and a variety of sovereigns. Prior to 2009, Mr. Coppa was an analyst and
trader for MAM’s credit opportunities, structured credit and convertible
arbitrage funds. He began his career as a credit analyst at Delaware
Investments. Mr. Coppa received a B.S. in economics from The Wharton School at
the University of Pennsylvania.
The
Fund’s SAI provides additional information about the Portfolio Manager’s
compensation structure, other accounts managed by the Portfolio Manager, and the
Portfolio Manager’s ownership of Shares.
Quasar
Distributors, LLC (the “Distributor”) is the principal underwriter and
distributor of the Fund’s shares. The Distributor’s principal address is 111
East Kilbourn Avenue, Suite 2200, Milwaukee, Wisconsin 53202. The Distributor
will not distribute shares in less than whole Creation Units, and it does not
maintain a secondary market in the shares. The Distributor is a broker-dealer
registered under the Securities Exchange Act of 1934 and a member of the
Financial Industry Regulatory Authority, Inc. (“FINRA”). The Distributor has no
role in determining the policies of the Fund or the securities that are
purchased or sold by the Fund and is not affiliated with the Adviser, or any of
their respective affiliates.
U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services,
located at 615 East Michigan Street, Milwaukee, Wisconsin 53202, serves as the
administrator and transfer agent for the Fund.
U.S.
Bank National Association, located at 1555 N. Rivercenter Drive, Suite 302,
Milwaukee, Wisconsin 53212, serves as the custodian for the Fund.
Morgan,
Lewis & Bockius LLP, located at 1111 Pennsylvania Avenue, N.W., Washington,
D.C. 20004, serves as legal counsel to the Trust.
Cohen
& Company, Ltd., located at 1350 Euclid Avenue, Suite 800, Cleveland, Ohio
44115, serves as the Fund’s independent registered public accounting firm. The
independent registered public accounting firm is responsible for auditing the
annual financial statements of the Fund.
The
Fund issues and redeems Shares only in Creation Units at the NAV per share next
determined after receipt of an order from an AP. Only APs may acquire Shares
directly from the Fund, and only APs may tender their Shares for redemption
directly to the Fund, at NAV. APs must be a member or participant of a clearing
agency registered with the SEC and must execute a Participant Agreement that has
been agreed to by the Distributor, and that has been accepted by the Fund’s
transfer agent, with respect to purchases and redemptions of Creation Units.
Once created, Shares trade in the secondary market in quantities less than a
Creation Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Individual Shares are listed for trading on the secondary market on the Exchange
and can be bought and sold throughout the trading day like other publicly traded
securities.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the spread between the
bid and the offer price in the secondary market on each leg of a round trip
(purchase and sale) transaction. In addition, because secondary market
transactions occur at market prices, you may pay more than NAV when you buy
Shares, and receive less than NAV when you sell those Shares.
Shares
are held in book-entry form, which means that no stock certificates are issued.
The Depository Trust Company (“DTC”) or its nominee is the record owner of all
outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial owner of Shares, you
are not entitled to receive physical delivery of stock certificates or to have
Shares registered in your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other securities that you hold in book entry or
“street name” through your brokerage account.
The
Fund imposes no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly with the Fund, are an essential part of the ETF process and help
keep Share trading prices in line with NAV. As such, the Fund accommodates
frequent purchases and redemptions by APs. However, frequent purchases and
redemptions for cash may increase tracking error and portfolio transaction costs
and may lead to the realization of capital gains. To minimize these potential
consequences of frequent purchases and redemptions, the Fund employs fair value
pricing and may impose transaction fees on purchases and redemptions of Creation
Units to cover the custodial and other costs incurred by the Fund in effecting
trades. In addition, the Fund and the Adviser reserve the right to reject any
purchase order at any time.
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. The values of non-U.S.
dollar denominated securities are converted to U.S. dollars using foreign
currency exchange rates generally determined as of 4:00 p.m., London time. 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. Registered investment
companies are permitted to invest in the Fund beyond the limits set forth in
section 12(d)(1), subject to certain terms and conditions, including that such
investment companies enter into an agreement with the Fund.
The
Fund intends to pay out dividends, if any, and distribute any net realized
capital gains to its shareholders at least annually. The Fund will declare and
pay capital gain distributions, if any, in cash. Distributions in cash may be
reinvested automatically in additional whole Shares only if the broker through
whom you purchased Shares makes such option available. Your broker is
responsible for distributing the income and capital gain distributions to you.
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax adviser
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws.
The
Fund intends to elect and to qualify each year for treatment as a regulated
investment company (a “RIC”). If it meets certain minimum distribution
requirements, a RIC is not subject to tax at the fund level on income and gains
from investments that are timely distributed to shareholders. However, 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).
The
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long the Fund owned the investments that generated them,
rather than how long a shareholder has owned his or her Shares. Sales of assets
held by the Fund for more than one year generally result in long-term capital
gains and losses, and sales of assets held by the Fund for one year or less
generally result in short-term capital gains and losses. Distributions of the
Fund’s net capital gain (the excess of net long-term capital gains over net
short-term capital losses) that are reported by the Fund as capital gain
dividends (“Capital Gain Dividends”) will be taxable as long-term capital gains,
which for non-corporate shareholders are subject to tax at reduced rates of up
to 20% (lower rates apply to individuals in lower tax brackets). Distributions
of short-term capital gain will generally be taxable as ordinary income.
Dividends and distributions are generally taxable to you whether you receive
them in cash or reinvest them in additional Shares.
Distributions
reported by the Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided holding period and other requirements are met. “Qualified dividend
income” generally is income derived from dividends paid by U.S. corporations or
certain foreign corporations that are either incorporated in a U.S.
possession
or eligible for tax benefits under certain U.S. income tax treaties. In
addition, dividends that the Fund receives in respect of stock of certain
foreign corporations may be qualified dividend income if that stock is readily
tradable on an established U.S. securities market. The Fund's investment
strategies will significantly limit its ability to distribute dividends eligible
to be treated as qualified dividend income. Corporate shareholders may be
entitled to a dividends received deduction for the portion of dividends they
receive from the Fund that are attributable to dividends received by the Fund
from U.S. corporations, subject to certain limitations. The Fund’s investment
strategies will significantly limit its ability to distribute dividends eligible
for the dividends received deduction for corporations.
Under
recently issued final Treasury Regulations, a RIC that receives business
interest income may pass through its net business interest income for purposes
of the tax rules applicable to the interest expense limitations under Section
163(j) of the Internal Revenue Code of 1986, as amended (the “Code”). A RIC’s
total “Section 163(j) Interest Dividend” for a tax year is limited to the excess
of the RIC’s business interest income over the sum of its business interest
expense and its other deductions properly allocable to its business interest
income. A RIC may, in its discretion, designate all or a portion of ordinary
dividends as Section 163(j) Interest Dividends, which would allow the recipient
shareholder to treat the designated portion of such dividends as interest income
for purposes of determining such shareholder’s interest expense deduction
limitation under Section 163(j). This can potentially increase the amount of a
shareholder’s interest expense deductible under Section 163(j). In general, to
be eligible to treat a Section 163(j) Interest Dividend as interest income, you
must have held your shares in the Fund for more than 180 days during the 361-day
period beginning on the date that is 180 days before the date on which the share
becomes ex-dividend with respect to such dividend. Section 163(j) Interest
Dividends, if so designated by the Fund, will be reported to your financial
intermediary or otherwise in accordance with the requirements specified by the
Internal Revenue Service (the “IRS”).
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from the Fund.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by the Fund before
your investment (and thus were included in the Shares’ NAV when you purchased
your Shares).
You
may wish to avoid investing in the Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your
investment.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
the Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
your Shares from non-U.S. shareholders generally are not subject to U.S.
taxation, unless you are a nonresident alien individual who is physically
present in the U.S. for 183 days or more per year. The Fund may, under certain
circumstances, report all or a portion of a dividend as an “interest-related
dividend” or a “short-term capital gain dividend,” which would generally be
exempt from this 30% U.S. withholding tax, provided certain other requirements
are met. Different tax consequences may result if you are a foreign shareholder
engaged in a trade or business within the United States or if a tax treaty
applies.
Under
legislation generally known as “FATCA” (the Foreign Account Tax Compliance Act),
the Fund is required to withhold 30% of certain ordinary dividends it pays to
shareholders that are foreign entities and that fail to meet prescribed
information reporting or certification requirements.
Under
the “backup withholding” provisions of the Internal Revenue Code”, the Fund (or
a financial intermediary, such as a broker, through which a shareholder owns
Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage (currently 24%) of the taxable distributions and sale or redemption
proceeds paid to any shareholder who fails to properly furnish a correct
taxpayer identification number, who has underreported dividend or interest
income, or who fails to certify that he, she or it is not subject to such
withholding.
Backup
withholding is not an additional tax. Any amounts withheld under the backup
withholding rules may be allowed as a refund or a credit against a holder’s U.S.
federal income tax liability, provided the required information is timely
furnished to the Internal Revenue Service.
Any
capital gain or loss realized upon a sale of Shares generally is treated as a
long-term capital gain or loss if Shares have been held for more than one year
and as a short-term capital gain or loss if Shares have been held for one year
or less. However, any capital loss on a sale of Shares held for six months or
less is treated as long-term capital loss to the extent of Capital Gain
Dividends paid with respect to such Shares. Any loss realized on a sale will be
disallowed to the extent Shares of the Fund are acquired, including through
reinvestment of dividends, within a 61-day period beginning 30 days before and
ending 30 days after the disposition of Shares. The ability to deduct capital
losses may be limited.
The
cost basis of Shares of the Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Internal Revenue Code of 1986, as
amended. 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.
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered, plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The IRS may
assert, however, that a loss that is realized upon an exchange of securities for
Creation Units may not be currently deducted under the rules governing “wash
sales” (for an AP who does not mark-to-market its holdings) or on the basis that
there has been no significant change in economic position. APs exchanging
securities should consult their own tax adviser with respect to whether wash
sale rules apply and when a loss might be deductible.
The
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. The Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in kind. As a result, the Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
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.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in the Fund. It is not a substitute for
personal tax advice. You also may be subject to state and local tax on Fund
distributions and sales of Shares. Consult your personal tax adviser about the
potential tax consequences of an investment in Shares under all applicable tax
laws. For more information, please see the section entitled “Federal Income
Taxes” in the SAI.
Interest
and other income received by the Fund with respect to foreign securities may
give rise to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. If as of the close of a taxable year more than 50% of the
value of the Fund’s assets consists of certain foreign stock or securities, the
Fund will be eligible to elect to “pass through” to investors the amount of
foreign income and similar taxes (including withholding taxes) paid by the Fund
during that taxable year. This means that investors would be considered to have
received as additional income their respective shares of such foreign taxes, but
may be entitled to either a corresponding tax deduction in calculating taxable
income, or, subject to certain limitations, a credit in calculating federal
income tax. If the Fund does not so elect, it will be entitled to claim a
deduction for certain foreign taxes incurred by the Fund. The Fund (or a
financial intermediary, such as a broker, through which a shareholder owns
Shares) will notify you if it makes such an election and provide you with the
information necessary to reflect foreign taxes paid on your income tax
return.
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, the Fund is authorized to
pay an amount up to 0.25% of its average daily net assets each year for certain
distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Fund, and there are no plans to impose
these fees. However, in the event Rule 12b-1 fees are charged in the future,
because the fees are paid out of Fund assets, over time these fees will increase
the cost of your investment and may cost you more than certain other types of
sales charges.
Information
regarding how often Shares traded on the Exchange at a price above (i.e.,
at a premium) or below (i.e.,
at a discount) the NAV per share is available on the Fund’s website at
www.AAFETFs.com.
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange is not
responsible for, nor has it participated in the determination of, the timing,
prices, or quantities of Shares to be issued, nor in the determination or
calculation of the equation by which Shares are redeemable. The Exchange has no
obligation or liability to owners of Shares in connection with the
administration, marketing, or trading of Shares.
Without
limiting any of the foregoing, in no event shall the Exchange have any liability
for any lost profits or indirect, punitive, special, or consequential damages
even if notified of the possibility thereof.
The
Adviser and the Fund make no representation or warranty, express or implied, to
the owners of Shares or any member of the public regarding the advisability of
investing in securities generally or in the Fund particularly.
The
following financial highlights table shows the financial performance information
for the Fund’s five most recent fiscal years (or the life of the Fund, if
shorter). Certain information reflects financial results for a single share of
the Fund. The total returns in the table represent the rate that you would have
earned or lost on an investment in the Fund (assuming you reinvested all
distributions). This information has been audited by Cohen & Company, Ltd.,
the independent registered public accounting firm of the Fund, whose report,
along with the Fund’s financial statements, is included in the Fund’s annual
report, which is available upon request.
|
|
|
|
|
|
|
|
|
|
|
|
| AAF
First Priority CLO Bond ETF |
| Financial
Highlights |
| For
a Share Outstanding Throughout the Period |
|
|
|
|
|
|
Period
Ended
July
31, 2021(1) |
|
| Net
Asset Value, Beginning of Period |
|
$ |
25.00 |
|
|
|
|
|
|
| Income
from investment operations: |
|
|
|
|
Net
investment income(2) |
|
0.25 |
|
|
|
Net
realized and unrealized gain on investments(6) |
|
0.02 |
|
|
| Total
from investment operations |
|
0.27 |
|
|
|
|
|
|
| Less
distributions paid: |
|
|
|
| From
net investment income |
|
(0.22) |
|
|
| Total
distributions paid |
|
(0.22) |
|
|
|
|
|
|
| Capital
share transactions: |
|
|
|
|
Transaction
fees |
|
0.03 |
|
|
| Total
transaction fees |
|
0.03 |
|
|
|
|
|
|
| Net
Asset Value, End of Period |
|
$ |
25.08 |
|
|
|
|
|
|
|
Total
return, at NAV(3) |
|
1.21 |
% |
(4) |
|
Total
return, at Market(3) |
|
0.98 |
% |
(4) |
|
|
|
|
| Supplemental
Data and Ratios: |
|
|
|
| Net
assets, end of period (000’s) |
|
$10,033 |
|
|
|
|
|
|
| Ratio
of expenses to average net assets |
|
0.25 |
% |
(5) |
| Ratio
of net investment income to average net assets |
|
1.11 |
% |
(5) |
| Portfolio
turnover rate |
|
34 |
% |
(4) |
(1)The
Fund commenced investment operations on September 8, 2020.
(2)Per
share net investment income was calculated using average shares
outstanding.
(3)Total
return in the table represents the rate that the investor would have earned or
lost on an investment in the Fund, assuming reinvestment of
distributions.
(4)Not
annualized for periods less than one year.
(5)Annualized
for periods less than one year.
(6)Due
to timing of capital share transactions, the per share amount of net realized
and unrealized gain (loss) on investments varies from the amounts shown in the
Statement of Operations.
AAF
First Priority CLO Bond ETF
|
|
|
|
|
|
|
|
|
|
|
|
Adviser
|
Alternative
Access Funds, LLC
2150
Park Place, Suite 100
El
Segundo, California 90245 |
Transfer
Agent
and
Administrator
|
U.S.
Bancorp Fund Services, LLC
d/b/a
U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
| Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
1350
Euclid Avenue, Suite 800
Cleveland,
Ohio 44115 |
Distributor |
Quasar
Distributors, LLC
111
East Kilbourn Avenue, Suite 2200
Milwaukee,
Wisconsin 53202 |
| Custodian |
U.S.
Bank National Association
1555
N. Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212 |
Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue, NW
Washington,
DC 20004-2541 |
Investors
may find more information about the Fund in the following
documents:
Statement
of Additional Information: The
Fund’s SAI provides additional details about the investments of the Fund and
certain other additional information. The SAI is on file with the SEC and is
herein incorporated by reference into this Prospectus. It is legally considered
a part of this Prospectus.
Annual/Semi-Annual
Reports: Additional
information about the Fund’s investments is available in the Fund’s annual and
semi-annual reports to shareholders. In the annual
report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund’s performance.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Fund by contacting the Fund at c/o U.S. Bank Global
Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701 or by calling
1-800-617-0004.
Shareholder
reports and other information about the Fund are also available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
•Free
of charge from the Fund’s Internet web site at www.AAFETFs.com; or
(SEC
Investment Company Act File No. 811-23226)