ck0001683471-20210430
PROSPECTUS
Core
Alternative ETF
(CCOR)
Listed
on NYSE Arca, Inc.
August 31,
2021
The
SEC has not approved or disapproved of these securities or passed upon the
accuracy or adequacy of this Prospectus. Any representation to the contrary is a
criminal offense.
TABLE
OF CONTENTS
The Core Alternative ETF (the
“Fund”) seeks capital appreciation and capital preservation with a low
correlation to the broader U.S. equity market.
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 |
1.05% |
| Distribution
and/or Service (12b-1) Fees |
0.00% |
| Other
Expenses |
0.02% |
| Total
Annual Fund Operating Expenses |
1.07% |
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Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. The
Example does not take into account brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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| 1
Year: |
$109 |
3
Years: |
$340 |
5
Years: |
$590 |
10
Years: |
$1,306 |
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in the Total Annual Fund Operating Expenses
or in the Example, affect the Fund’s performance. For the fiscal year ended
April 30, 2021, the Fund’s portfolio turnover rate was 8% of the average value of its
portfolio.
To
achieve it investment objective, the Fund uses a combination of several
strategies to produce capital appreciation while reducing risk exposure across
market conditions.
The
Fund invests primarily in U.S. equity securities that tend to offer current
dividends. The Fund focuses on high-quality companies that have prospects for
long-term total returns as a result of their ability to grow earnings and their
willingness to increase dividends over time. These stocks typically – but not
always – will be large-cap, and will show potential for increasing dividends.
The Fund seeks to be diversified across industry sectors and regions. Under
normal circumstances, the Fund also sells exchange-traded index call options and
purchases exchange-traded index put options. Writing index call options reduces
the Fund’s volatility, provides steady cash flow, and is an important source of
the Fund’s return, although it also reduces the Fund’s ability to profit from
increases in the value of its equity portfolio. The Fund also buys index put
options, which can protect the Fund from a significant market decline that may
occur over a short period of time. The value of an index put option generally
increases as the prices of the stocks constituting the index decrease, and
decreases as those stocks increase in price. From time to time, the Fund may
reduce its holdings of put options, resulting in an increased exposure to a
market decline. The combination of the diversified stock portfolio, the steady
cash flow from the sale of index call options, and the downside protection from
index put options is intended to provide the Fund with the majority of the
returns associated with equity market investments while exposing investors to
less risk than other equity investments.
The
Fund opportunistically invests where option pricing provides favorable
risk/reward models and where gains can be attained independent of the direction
of the broader U.S. equity market. The Fund uses proprietary models and analysis
of historical portfolio profit and loss information to identify favorable option
trading opportunities, including favorable call and put option spreads. In
addition, the Fund’s investment strategy, with respect to both equity investing
and options trading, takes into account fundamental business and macroeconomic
factors (e.g.,
interest rates, strength of the dollar, and rate of domestic economic growth).
However, the Fund employs discretionary trading models, and outputs from these
models influence but do not dictate equity investment and options trading
decisions. The Fund typically rebalances its equity holdings on a quarterly
basis. The Fund aims to preserve capital, particularly in down markets
(including major market drawdowns), by using put option spreads as a form of
mitigation risk. Option
positions
are held until either they expire or are liquidated to either capture gains as
option expirations approach or to adjust positions to reduce or prevent losses
and to take other potentially profitable positions.
While
the Fund’s exposure to sectors may change over time, as of June 30, 2021, the
Fund had significant exposure to companies in the consumer discretionary,
consumer staples, financial services, industrials, and information technology
sectors.
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:
•Derivatives
Risk. Put
and call options are referred to as “derivative” instruments since their values
are based on, or derived from, an underlying reference asset, such as an
index. Derivatives
can be volatile, and a small investment in a derivative can have a large impact
on the performance of the Fund as derivatives can result in losses in excess of
the amount invested. The return on a derivative instrument may not correlate
with the return of its underlying reference asset. Derivative instruments may be
difficult to value and may be subject to wide swings in valuations caused by
changes in the value of the underlying instrument. Other risks of investments in
derivatives include risks that the transactions may result in losses that
partially or completely offset gains in portfolio positions and risks that the
derivative transaction may not be liquid. Derivative instruments may create
economic leverage in the Fund, which magnifies the Fund’s exposure to the
underlying instrument.
•Dividend
Paying Security Risk. Securities
that pay high dividends as a group can fall out of favor with the market,
causing these companies to underperform companies that do not pay high
dividends. Also, companies owned by the Fund that have historically paid a
dividend may reduce or discontinue their dividends, thus reducing the yield of
the Fund.
•Equity
Investing Risk. The
values of equity securities could decline generally or could underperform other
investments due to factors affecting a specific issuer, market or securities
markets generally.
•ETF
Risks.
The Fund is an exchange-traded fund (“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.
•Hedging
Risk. Options
used by the Fund to reduce volatility may not perform as intended. There can be
no assurance that the Fund’s option strategy will be effective. It may expose
the Fund to losses, e.g.,
option premiums, to which it would not have otherwise been exposed if it only
invested in U.S. government bonds or U.S. government bond ETFs. Further, the
option strategy may not fully protect the Fund against declines in the value of
its portfolio securities.
•Large
Capitalization Companies Risk. The
Fund’s investments in large capitalization companies (i.e.,
companies with more than $5 billion in capitalization) may underperform other
segments of the market because large capitalization companies may be unable to
respond quickly to new competitive challenges, such as changes in technology and
consumer tastes, and may not be able to attain the high growth rate of
successful smaller companies, especially during extended periods of economic
expansion.
•Management
Risk. The
Fund is actively managed using proprietary investment strategies and processes.
There can be no guarantee that the investment adviser’s judgments about the
attractiveness, value and potential appreciation of particular investments and
strategies for the Fund will be correct or produce the desired results or that
the Fund will achieve its investment objective. If the investment adviser fails
to accurately evaluate market risk or appropriately react to current and
developing market conditions, the Fund’s share price may be adversely
affected.
•Market
Events Risk. 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 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, such as the U.S.
presidential election, 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. As a result, the
risk environment remains elevated.
•Models
and Data Risk.
When Models and Data prove to be incorrect or incomplete, any decisions made in
reliance thereon expose the Fund to potential risks. Some of the models used to
construct the Fund are predictive in nature. The use of predictive models has
inherent risks. For example, such models may incorrectly forecast future
behavior, leading to potential losses. In addition, in unforeseen or certain
low-probability scenarios (often involving a market disruption of some kind),
such models may produce unexpected results, which can result in losses for the
Fund. Furthermore, because predictive models are usually constructed based on
historical data supplied by third parties, the success of relying on such models
may depend heavily on the accuracy and reliability of the supplied historical
data.
•Options
Risk. The
prices of options may change rapidly over time and do not necessarily move in
tandem with the price of the underlying securities. Writing index call options
reduces the Fund’s ability to profit from increases in the value of the Fund’s
equity portfolio, and purchasing put options may result in the Fund’s loss of
premiums paid in the event that the put options expire unexercised. To the
extent that the Fund reduces its put option holdings relative to the number of
call options sold by the Fund, the Fund’s ability to mitigate losses in the
event of a market decline will be reduced. When the Fund sells an option, it
gains the amount of the premium it receives, but also incurs a liability
representing the value of the option it has sold until the option is either
exercised and finishes “in the money,” meaning it has value and can be sold, or
the option expires worthless, or the expiration of the option is “rolled,” or
extended forward. The value of the options in which the Fund invests is based
partly on the volatility used by market participants to price such options
(i.e.,
implied volatility). Accordingly, increases in the implied volatility of such
options will cause the value of such options to increase (even if the prices of
the options’ underlying stocks do not change), which will result in a
corresponding increase in the liabilities of the Fund under such options and
thus decrease the Fund’s NAV.
•Sector
Risk. To
the extent the Fund invests more heavily in particular sectors of the economy,
its performance will be especially sensitive to developments that significantly
affect those sectors. The Fund may invest a significant portion of its assets in
the following sectors and, therefore, the performance of the Fund could be
negatively impacted by events affecting each of these sectors.
◦Consumer
Discretionary Sector Risk.
Consumer discretionary companies are companies that provide non-essential goods
and services, such as retailers, media companies and consumer services. These
companies manufacture products and provide discretionary services directly to
the consumer, and the success of these companies tied closely to the performance
of the overall domestic and international economy, interest rates, competition
and consumer confidence.
◦Consumer
Staples Sector Risk.
The Fund may invest in companies in the consumer staples sector, and therefore
the performance of the Fund could be negatively impacted by events affecting
this sector. Companies in the consumer staples sector, including those in the
food and beverage industries, may be affected by general economic conditions,
commodity production and pricing, consumer confidence and spending, consumer
preferences, interest rates, product cycles, marketing campaigns, competition,
and government regulations.
◦Financial
Services Sector Risk. Performance
of companies in the financial services sector may be adversely impacted by many
factors, including, among others, government regulations, economic conditions,
credit rating downgrades, changes in interest rates, and decreased liquidity in
credit markets. This sector has experienced significant losses in the recent
past, and the impact of more stringent capital requirements and of recent or
future regulation on any individual financial company or on the sector as a
whole cannot be predicted.
◦Industrial
Sector Risk. Issuers
in the industrial sector are affected by supply and demand, both for their
specific product or service and for industrial sector products in general. The
products of such issuers may face obsolescence due to rapid technological
developments and frequent new product introduction. Government regulations,
world events, economic conditions and exchange rates affect the performance of
companies in the industrial sector. Issuers in the industrial sector may be
adversely affected by liability for environmental damage, product liability
claims and exchange rates. The industrial sector may also be adversely affected
by changes or trends in commodity prices, which may be influenced by
unpredictable factors.
◦Information
Technology Sector Risk. Technology companies face intense
competition, both domestically and internationally, which may have an adverse
effect on profit margins. Technology companies may have limited product lines,
markets, financial resources or personnel. The products of technology companies
may face obsolescence due to rapid technological developments and frequent new
product introduction, unpredictable changes in growth rates and competition for
the services of qualified personnel. Companies in the technology sector are
heavily dependent on patent and intellectual property rights. The loss or
impairment of these rights may adversely affect the profitability of these
companies.
The following
performance information indicates some of the risks of investing in the
Fund. The bar chart shows the Fund’s performance for calendar
years ended December 31. The table illustrates how the Fund’s average annual
returns for the 1-year and since inception periods compare with those of a broad
measure of market performance. The Fund’s past performance, before and after
taxes, does not necessarily indicate how it will perform in the future. Updated
performance information is available on the Fund’s website at www.corealtfunds.com.
Prior
to the commencement of the Fund’s operations on December 18, 2019, the Fund
operated as the Cambria Core Equity ETF (the “Predecessor Fund”), a series of
Cambria ETF Trust, an open-end investment company registered under the
Investment Company Act of 1940 (the “1940 Act”) that had the same investment
objective and strategies as the Fund since the Predecessor Fund’s inception on
May 23, 2017. The Fund assumed the NAV and performance history of the
Predecessor Fund. Performance
shown in the bar chart and table for periods prior to December 18, 2019 is that
of the Predecessor Fund and is not the performance of the Fund.
The Fund’s objectives, policies, guidelines, and restrictions are in all
material respects equivalent to those of the Predecessor Fund, which was created
for reasons entirely unrelated to the establishment of a performance record. The
Predecessor Fund was reorganized into the Fund at the inception of the Fund.
The Predecessor Fund’s past
performance is not necessarily an indication of how the Fund will perform in the
future.
Calendar Year Total
Returns
The calendar year-to-date total return of the
Fund as of June 30, 2021 was
4.02%. During the period of time shown in the bar
chart, the highest quarterly return
was 5.59% for the quarter ended December 31, 2018, and
the lowest quarterly return was
-2.60% for the quarter ended March 31,
2018.
Average
Annual Total Returns
(for
periods ended December 31, 2020)
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Alternative ETF |
1-Year |
Since
Inception* |
| Return Before
Taxes |
3.53% |
5.03% |
| Return After Taxes on
Distributions |
3.15% |
4.70% |
| Return After Taxes on Distributions and
Sale of Shares |
2.35% |
3.86% |
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S&P
500 Index
(reflects no deduction for
fees, expenses, or taxes) |
18.40% |
15.45% |
*
The Predecessor Fund
commenced operations on May 23,
2017.
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns depend on an
investor’s tax situation and may differ from those shown. After-tax returns shown are
not relevant to investors who hold their shares through tax-deferred
arrangements such as an individual retirement account (“IRA”) or other
tax-advantaged accounts.
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Adviser |
Core
Alternative Capital, LLC (the “Adviser”) |
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Portfolio
Managers |
David
Pursell, Managing Partner of the Adviser, has been a portfolio manager of
the Fund since its inception in December 2019 and was previously a
co-portfolio manager of the Predecessor Fund from its inception in May
2017. |
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Danny
Mack, Chief Operating Officer with the Adviser, has been a portfolio
manager of the Fund since its inception in December 2019. |
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Peter
Simasek, Portfolio Manager with the Adviser, has been a portfolio manager
of the Fund since August 2021. |
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities (the “Deposit Securities”) and/or a designated amount of U.S.
cash.
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. The difference in the bid and
ask prices is referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at
www.corealtfunds.com.
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an IRA
or other tax-advantaged account. Distributions on investments made through
tax-deferred arrangements may be taxed later upon withdrawal of assets from
those accounts.
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.
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.
•Derivatives
Risk. Derivatives
are financial instruments that have a value which depends upon, or is derived
from, a reference asset, such as one or more underlying securities, pools of
securities, indexes, rates or currencies. Derivatives may result in investment
exposures that are greater than their cost would suggest; in other words, a
small investment in a derivative may have a large impact on Fund performance.
The successful use of derivatives generally depends on the ability to predict
market movements. The use of these instruments requires special skills and
knowledge of investment techniques that are different than those normally
required for purchasing and selling securities. If the Adviser uses a derivative
instrument at the wrong time or judges market conditions incorrectly, or if the
derivative instrument does not perform as expected, these strategies may
significantly reduce the Fund’s return. The Fund could also experience losses if
it is unable to close out a position because the market for an instrument or
position is or becomes illiquid.
Derivatives,
including swaps, options, futures and forward currency contracts, are subject to
a number of risks, some of which are described elsewhere in this Prospectus. The
use of derivatives may entail risks greater than, or possibly different from,
such risks to which the Fund is exposed. Certain of the different risks to which
the Fund might be exposed due to the use of derivatives include the
following:
◦Correlation
Risk is
the risk that derivative instruments may be mispriced or improperly valued and
that changes in the value of the derivatives may not correlate perfectly with
the underlying asset or security.
◦Hedging
Risk is
the risk that derivative instruments used to hedge against an opposite position
may offset losses, but they also may offset gains.
◦Segregation
Risk is
the risk associated with any requirement which may be imposed to segregate
assets or enter into offsetting positions in connection with investments in
derivatives. Such segregation will not limit exposure to loss, and the Fund may
be exposed to investment risk with respect to the segregated assets to the
extent that, but for the applicable segregation requirement, the segregated
assets would be sold.
•Dividend
Paying Security Risk. Securities
that pay high dividends as a group can fall out of favor with the market,
causing these companies to underperform companies that do not pay high
dividends. Also, changes in the dividend policies of and capital resources
available to companies owned by the Fund that have historically paid a dividend
may adversely impact the Fund’s yield if these companies reduce or discontinue
their dividends. Lower priced securities in the Fund may be more susceptible to
these risks. Past dividend payments are not a guarantee of future dividend
payments.
•Equity
Investing Risk. An
investment in the Fund involves risks similar to those of investing in any fund
holding equity securities, such as market fluctuations, changes in interest
rates and perceived trends in stock prices. The values of equity securities
could decline generally or could underperform other investments. Different types
of equity securities tend to go through cycles of outperformance and
underperformance in comparison to the general securities markets. In addition,
securities may decline in value due to factors affecting a specific issuer,
market or securities markets generally. Recent unprecedented turbulence in
financial markets, reduced liquidity in credit and fixed income markets, or
rising interest rates may negatively affect many issuers worldwide, which may
have an adverse effect on the Fund.
•ETF
Risks.
The Fund is an ETF and, as a result of its structure, is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk.
The Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the business or
significantly reduce their business activities and no other entities step
forward to perform their functions.
◦Costs
of Buying or Selling Shares.
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.
•Hedging
Risk. Options
used by the Fund to reduce volatility may not perform as intended. There can be
no assurance that the Fund’s option strategy will be effective. It may expose
the Fund to losses, e.g.,
option premiums, to which it would not have otherwise been exposed if it only
invested in stocks. Further, the option strategy may not fully protect the Fund
against declines in the value of its portfolio securities.
•Large
Capitalization Companies Risk. Investments
in large capitalization companies may go in and out of favor based on market and
economic conditions and may underperform other market segments. Some large
capitalization companies may be unable to respond quickly to new competitive
challenges, such as changes in technology and consumer tastes, and may not be
able to attain the high growth rate of successful smaller companies, especially
during extended periods of economic expansion. As such, returns on investments
in stocks of large capitalization companies could trail the returns on
investments in stocks of small and mid-capitalization companies.
•Management
Risk. The
Fund is actively managed and uses proprietary investment strategies and
processes. There can be no guarantee that the Adviser’s judgments about the
attractiveness, value and potential appreciation of particular investments and
strategies for the Fund will be correct or produce the desired results and no
guarantee that the Fund will achieve its investment objective or outperform
other investment strategies over the short- or long-term market cycles. If the
Adviser fails to accurately evaluate market risk or appropriately react to
current and developing market conditions, the Fund’s share price may be
adversely affected. Securities selected by the Adviser may not perform as
expected. This could result in the Fund’s underperformance compared to other
funds with similar investment objectives.
•Market
Events Risk. 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. Financial markets have experienced extreme
volatility and severe losses, and trading in many instruments has been
disrupted. Liquidity for many instruments has been greatly reduced for periods
of
time. Some interest rates are very low and in some cases yields are negative.
Some sectors of the economy and individual issuers have experienced particularly
large losses. These circumstances may continue for an extended period of time,
and may continue to affect adversely the value and liquidity of the Fund’s
investments. As a result, the risk environment remains elevated.
•Models
and Data Risk. When
Models and Data prove to be incorrect or incomplete, any decisions made in
reliance thereon expose the Fund to potential risks. For example, by relying on
Models and Data, the Adviser may be induced to buy certain investments at prices
that are too high, to sell certain other investments at prices that are too low,
or to miss favorable opportunities altogether. Similarly, any hedging based on
faulty Models and Data may prove to be unsuccessful.
Some
of the models used by the Adviser for the Fund are predictive in nature. The use
of predictive models has inherent risks. For example, such models may
incorrectly forecast future behavior, leading to potential losses on a cash flow
and/or a mark-to-market basis. In addition, in unforeseen or certain
low-probability scenarios (often involving a market disruption of some kind),
such models may produce unexpected results, which can result in losses for the
Fund. Furthermore, because predictive models are usually constructed based on
historical data supplied by third parties, the success of relying on such models
may depend heavily on the accuracy and reliability of the supplied historical
data.
All
models rely on correct market data inputs. If incorrect market data is entered
into even a well-founded model, the resulting information will be incorrect.
However, even if market data is input correctly, “model prices” will often
differ substantially from market prices, especially for instruments with complex
characteristics, such as derivative instruments.
•Options
Risk. Options
are subject to correlation risk because there may be an imperfect correlation
between the prices of options and movements in the price of the underlying
securities. Options may expire unexercised, causing the Fund to lose the premium
paid for them. The success of the Fund’s investment in options depends upon many
factors, such as the price of the options, which is a function of various
factors that may change rapidly over time. If a counterparty defaults, the
Fund’s only recourse will be to pursue contractual remedies against the
counterparty, and the Fund may be unsuccessful in its pursuit. The Fund thus
assumes the risk that it may be delayed in or prevented from obtaining payments
owed to it pursuant to an over-the-counter options transaction.
Exchange-traded
index options give the holder of the option the right to buy (or to sell) a
position in an index of securities to the writer of the option, at a certain
price. Writing index call options reduces the Fund’s ability to profit from
increases in the value of the Fund’s equity portfolio, and purchasing put
options may result in the Fund’s loss of premiums paid in the event that the put
options expire unexercised. To the extent that the Fund reduces its put option
holdings relative to the number of call options sold by the Fund, the Fund’s
ability to mitigate losses in the event of a market decline will be
reduced.
When
the Fund sells an option, it gains the amount of the premium it receives, but
also incurs a liability representing the value of the option it has sold until
the option is either exercised and finishes “in the money,” meaning it has value
and can be sold, or the option expires worthless, or the expiration of the
option is “rolled,” or extended forward. The value of the options in which the
Fund invests is based partly on the volatility used by market participants to
price such options (i.e.,
implied volatility). Accordingly, increases in the implied volatility of such
options will cause the value of such options to increase (even if the prices of
the options’ underlying stocks do not change), which will result in a
corresponding increase in the liabilities of the Fund under such options and
thus decrease the Fund’s NAV.
•Sector
Risk. The
Fund’s investing approach may result in an emphasis on certain sectors or
sub-sectors of the market at any given time. To the extent the Fund invests more
heavily in one sector or sub-sector of the market, it thereby presents a more
concentrated risk and its performance will be especially sensitive to
developments that significantly affect those sectors or sub-sectors. In
addition, the value of Shares may change at different rates compared to the
value of shares of a fund with investments in a more diversified mix of sectors
and industries. An individual sector or sub-sector of the market may have
above-average performance during particular periods, but may also move up and
down more than the broader market. The several industries that constitute a
sector may all react in the same way to economic, political or regulatory
events. The Fund’s performance could also be affected if the sectors or
sub-sectors do not perform as expected. Alternatively, the lack of exposure to
one or more sectors or sub-sectors may adversely affect performance.
◦Consumer
Discretionary Sector Risk.
Consumer
discretionary companies are companies that provide non-essential goods and
services, such as retailers, media companies and consumer services. These
companies manufacture products and provide discretionary services directly to
the consumer, and the success of these companies is tied closely to the
performance of the overall domestic and international economy, interest rates,
competition and consumer confidence. Success depends heavily on disposable
household income and consumer spending. Changes in demographics and consumer
tastes can also affect the demand for, and success of, consumer discretionary
products in the marketplace.
◦Consumer
Staples Sector Risk. Companies
in the consumer staples sector, including those in the food and beverage
industries, may be affected by general economic conditions, commodity production
and pricing, consumer confidence and spending, consumer preferences, interest
rates, product cycles, marketing campaigns, competition, and government
regulations.
◦Financial
Services Sector Risk. The
financial services sector includes companies involved in such activities as
banking, commercial and consumer finance, investment banking, brokerage, asset
management, custody and insurance. Companies in
the
financial services sector may be subject to extensive government regulation that
affects the scope of their activities, the prices they can charge and the amount
of capital they must maintain. The profitability of companies in the financial
services sector may be adversely affected by increases in interest rates. The
profitability of companies in the financial services sector may be adversely
affected by loan losses, which usually increase in economic downturns. In
addition, the financial services sector in certain countries is undergoing
numerous changes, including continuing consolidations, development of new
products and structures and changes to its regulatory framework, which may have
an impact on the issuers included in the Underlying Index. Furthermore,
increased government involvement in the financial services sector, including
measures such as taking ownership positions in financial institutions, could
result in a dilution of the Fund’s investments in financial institutions.
◦Industrial
Sector Risk. The
industrial sector includes companies engaged in the manufacture and distribution
of capital goods, such as those used in defense, construction and engineering,
companies that manufacture and distribute electrical equipment and industrial
machinery and those that provide commercial and transportation services and
supplies. Companies in the industrial sector may be adversely affected by
changes in government regulation, world events and economic conditions. In
addition, companies in the industrial sector may be adversely affected by
environmental damages, product liability claims and exchange rates. The success
of these companies is affected by supply and demand both for their specific
product or service and for industrial sector products in general. The products
of manufacturing companies may face product obsolescence due to rapid
technological developments and frequent new product introduction. In addition,
the industrial sector may also be adversely affected by changes or trends in
commodity prices, which may be unpredictable.
◦Information
Technology Sector Risk. Technology
companies are characterized by periodic new product introductions, innovations
and evolving industry standards, and, as a result, face intense competition,
both domestically and internationally, which may have an adverse effect on
profit margins. Companies in the technology sector are often smaller and less
experienced companies and may be subject to greater risks than larger companies;
these risks may be heightened for technology companies in foreign markets.
Technology companies may have limited product lines, markets, financial
resources or personnel. The products of technology companies may face product
obsolescence due to rapid technological developments and frequent new product
introduction, changes in consumer and business purchasing patterns,
unpredictable changes in growth rates and competition for the services of
qualified personnel. In addition, a rising interest rate environment tends to
negatively affect companies in the technology sector because, in such an
environment, those companies with high market valuations may appear less
attractive to investors, which may cause sharp decreases in the companies’
market prices. Companies in the technology sector are heavily dependent on
patent and intellectual property rights. The loss or impairment of these rights
may adversely affect the profitability of these companies. The technology sector
may also be adversely affected by changes or trends in commodity prices, which
may be influenced or characterized by unpredictable factors. Finally, while all
companies may be susceptible to network security breaches, certain companies in
the technology sector may be particular targets of hacking and potential theft
of proprietary or consumer information or disruptions in service, which could
have a material adverse effect on their businesses.
•Tax
Risk.
The writing of call options by the Fund may significantly reduce or eliminate
its ability to make distributions eligible to be treated as qualified dividend
income. Covered call options may also be subject to the federal tax rules
applicable to straddles under the Internal Revenue of 1986 (the “Internal
Revenue Code”). If positions held by the Fund were treated as “straddles” for
federal income tax purposes, or the Fund’s risk of loss with respect to a
position was otherwise diminished as set forth in Treasury regulations,
dividends on stocks that are a part of such positions would not constitute
qualified dividend income subject to such favorable income tax treatment. In
addition, generally, straddles are subject to certain rules that may affect the
amount, character and timing of the Fund’s gains and losses with respect to
straddle positions by requiring, among other things, that: (1) any loss realized
on disposition of one position of a straddle may not be recognized to the extent
that the Fund has unrealized gains with respect to the other position in such
straddle; (2) the Fund’s holding period in straddle positions be suspended while
the straddle exists (possibly resulting in a gain being treated as short-term
capital gain rather than long-term capital gain); (3) the losses recognized with
respect to certain straddle positions that are part of a mixed straddle and that
are not subject to section 1256 of the Internal Revenue Code be treated as 60%
long-term and 40% short-term capital loss; (4) losses recognized with respect to
certain straddle positions that would otherwise constitute short-term capital
losses be treated as long-term capital losses; and (5) the deduction of interest
and carrying charges attributable to certain straddle positions may be
deferred.
To
respond to adverse market, economic, political, or other conditions, the Fund
may invest up to 100% of its assets in a temporary defensive manner by holding
all or a substantial portion of its assets in cash, cash equivalents, or other
high quality short-term investments. Temporary defensive investments generally
may include short-term U.S. government securities, commercial paper, bank
obligations, repurchase agreements, money market fund shares, and other money
market instruments. The Adviser also may invest in these types of securities or
hold cash while looking for suitable investment opportunities or to maintain
liquidity. In these circumstances, the Fund may be unable to achieve its
investment objective.
Information
about the Fund’s daily portfolio holdings is available at www.corealtfunds.com.
A complete description of the Fund’s policies and procedures with respect to the
disclosure of the Fund’s portfolio holdings is available in the Fund’s Statement
of Additional Information (“SAI”).
Core
Alternative Capital, LLC, located at 3930 East Jones Bridge Road, Suite 380,
Peachtree Corners, Georgia 30092, serves as the investment adviser for the Fund.
The Adviser, subject to the oversight of the Board of Trustees (the “Board”) of
Listed Funds Trust (the “Trust”), provides an investment 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 that provides investment advisory services to
separately managed accounts and sub-advisory services to institutional clients,
in addition to providing investment advisory services to the Fund. As of July
31, 2021, the Adviser had approximately $454 million in assets under
management.
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 |
| Core
Alternative ETF |
1.05% |
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 paid 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
basis for the Board’s approval of the Advisory Agreement is available in the
Fund’s Annual Report to Shareholders dated April 30, 2020.
Portfolio
Managers
David
Pursell, Danny Mack, and Peter Simasek are the Fund’s Portfolio Managers and are
jointly and primarily responsible for day-to-day management of the Fund’s
portfolio.
Mr.
Pursell is a Managing Partner of the Adviser, which he founded in May 2019. He
previously was a Senior Portfolio Manager with Cambria Investment Management,
L.P. (“Cambria”) since March 2017. Mr. Pursell also managed Cambria’s
corresponding separate account business. Prior to joining Cambria, Mr. Pursell
worked for IFAM Capital as a Director and member of the investment committee.
While at IFAM his responsibilities included asset management and the firm’s
overall asset allocation strategy. Previous to this, Mr. Pursell worked at
Stadion Money Management where he was a Senior Portfolio Manager of two of the
firm’s mutual fund strategies. Prior to joining Stadion, Mr. Pursell was part of
Morgan Stanley’s Investment Bank, within their Private Wealth Division. His
background also includes roles at Merrill Lynch’s Private Banking and Investment
Group. Mr. Pursell received a B.B.A in Finance and an M.B.A. from Emory
University’s Goizueta Business School.
Mr.
Mack is a Portfolio Manager and Chief Operating Officer with the Adviser. He
previously was a Vice President at Cambria, focusing on portfolio management,
investment analysis, and trading activities. Mr. Mack has held senior investment
roles with several institutional and retail firms and has managed $10 billion
over his career focusing on alternative strategies, including hedge funds,
tactical trading, and volatility management. Mr. Mack graduated from the Terry
College of Business at the University of Georgia, where he studied Economics and
Finance, and where he has served on the school’s Young Alumni
Board.
Mr.
Simasek is a Portfolio Manager with the Adviser. His responsibilities are
focused on the macroeconomic and equity market strategies for the firm.
Previously, Mr. Simasek served in an asset management role with PIMCO where he
worked with multi-billion dollar corporate clients to design custom investment
solutions and asset allocation strategies, and held prior roles in capital
markets with Bank of America Merrill Lynch. He received his undergraduate
education at the University of Virginia's McIntire School of Commerce
concentrating in finance/accounting. Mr. Simasek completed his doctoral studies
in finance at Georgia Tech with a research agenda spanning various areas of
fixed income and equity markets. He is a Chartered Financial Analyst
charterholder.
The
Fund’s SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts managed by the Portfolio Managers, and
the Portfolio Managers’ ownership of Shares.
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. 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 has elected and intends to qualify each year for treatment as a regulated
investment company (a “RIC”) within the meaning of Subchapter M of the Internal
Revenue Code. If it meets certain minimum distribution requirements, a RIC is
not subject to tax at the fund level on income and gains from investments that
are timely distributed to shareholders. However, the Fund’s failure to qualify
as a RIC or to meet minimum distribution requirements would result (if certain
relief provisions were not available) in fund-level taxation and, consequently,
a reduction in income available for distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA 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.
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.
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.
The
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage of the taxable distributions and sale or redemption proceeds paid to
any shareholder who fails to properly furnish a correct taxpayer identification
number, who has underreported dividend or interest income, or who fails to
certify that he, she or it is not subject to such withholding.
Any
capital gain or loss realized upon a sale of Shares generally is treated as a
long-term capital gain or loss if Shares have been held for more than one year
and as a short-term capital gain or loss if Shares have been held for one year
or less. However, any capital loss on a sale of Shares held for six months or
less is treated as long-term capital loss to the extent of Capital Gain
Dividends paid with respect to such Shares. Any loss realized on a sale will be
disallowed to the extent Shares of the Fund are acquired, including through
reinvestment of dividends, within a 61-day period beginning 30 days before and
ending 30 days after the disposition of Shares. The ability to deduct capital
losses may be limited.
The
cost basis of Shares of the Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Internal Revenue Code. The difference
between the selling price and the cost basis of Shares generally determines the
amount of the capital gain or loss realized on the sale or exchange of Shares.
Contact the broker through whom you purchased your Shares to obtain information
with respect to the available cost basis reporting methods and elections for
your account.
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered, plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The
Internal Revenue Service may assert, however, that a loss that is realized upon
an exchange of securities for Creation Units may not be currently deducted under
the rules governing “wash sales” (for an AP who does not mark-to-market its
holdings) or on the basis that there has been no significant change in economic
position. APs exchanging securities should consult their own tax adviser with
respect to whether wash sale rules apply and when a loss might be
deductible.
The
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. The Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in kind. As a result, the Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
Net
Investment Income Tax
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8% tax
on all or a portion of their “net investment income,” which includes interest,
dividends, and certain capital gains (generally including capital gains
distributions and capital gains realized on the sale of Shares). This 3.8% tax
also applies to all or a portion of the undistributed net investment income of
certain shareholders that are estates and trusts.
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.
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.corealtfunds.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.
On
December 18, 2019, the Fund acquired all of the assets and liabilities of the
Predecessor Fund in exchange for shares of beneficial interest of the Fund (the
“Reorganization”). As a result of the Reorganization, the Fund adopted the
financial and performance history of the Predecessor Fund.
The
financial highlights table is intended to help you understand the Fund’s
financial performance since the Fund commenced operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned or
lost, on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Cohen & Company,
Ltd., the Fund’s independent registered public accounting firm, whose report,
along with the Fund’s financial statements, is included in the Fund’s
annual
report,
which is available upon request.
FINANCIAL
HIGHLIGHTS
For
a Share Outstanding Throughout Each Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
April 30, 2021 |
|
Year
Ended
April
30, 2020 |
|
Year
Ended
April 30, 2019 |
|
Period
Ended
April
30, 2018(1) |
|
| Net
Asset Value, Beginning of Period |
$ |
28.77 |
|
|
$ |
26.98 |
|
|
$ |
24.70 |
|
|
$ |
25.00 |
|
|
|
|
|
|
|
|
|
|
|
| Income
(Loss) from investment operations: |
|
|
|
|
|
|
|
|
|
Net
investment income(2) |
0.41 |
|
|
0.39 |
|
|
0.34 |
|
|
0.32 |
|
|
| Net
realized and unrealized gain (loss) on investments |
0.65 |
|
|
1.74 |
|
|
2.27 |
|
|
(0.31) |
|
|
| Total
from investment operations |
1.06 |
|
|
2.13 |
|
|
2.61 |
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
| Less
distributions paid: |
|
|
|
|
|
|
|
|
| From
net investment income |
(0.39) |
|
|
(0.34) |
|
|
(0.33) |
|
|
(0.30) |
|
|
| From
return of capital |
— |
|
|
— |
|
|
— |
|
|
(0.01) |
|
|
| Total
distributions paid |
(0.39) |
|
|
(0.34) |
|
|
(0.33) |
|
|
(0.31) |
|
|
|
|
|
|
|
|
|
|
|
| Net
Asset Value, End of Period |
$ |
29.44 |
|
|
$ |
28.77 |
|
|
$ |
26.98 |
|
|
$ |
24.70 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
return, at NAV(3)(8) |
3.83 |
% |
|
7.98 |
% |
|
10.69 |
% |
|
0.01 |
% |
(4) |
|
Total
return, at Market(3)(8) |
4.54 |
% |
|
7.64 |
% |
|
10.75 |
% |
|
-0.14 |
% |
(4) |
|
|
|
|
|
|
|
|
|
| Supplemental
Data and Ratios: |
|
|
|
|
|
|
|
|
| Net
assets, end of period (000’s) |
$ |
169,276 |
|
|
$ |
135,219 |
|
|
$ |
89,034 |
|
|
$ |
87,681 |
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of expenses to average net assets(5) |
1.07 |
% |
|
1.09 |
% |
|
1.23 |
% |
|
1.21 |
% |
(6) |
| Ratio
of net investment income to average net assets |
1.44 |
% |
|
1.42 |
% |
|
1.34 |
% |
|
1.35 |
% |
(6) |
|
Portfolio
turnover rate(7) |
8 |
% |
|
10 |
% |
|
21 |
% |
|
8 |
% |
(4) |
(1) The
Predecessor Fund commenced investment operations on May 23, 2017.
(2) Per
share net investment income was calculated using average shares
outstanding.
(3) Total
return in the table represents the rate that the investor would have earned or
lost on an investment in the Fund, assuming reinvestment of
dividends.
(4) Not
annualized for periods less than one year.
(5) Includes
broker expense of 0.00%, 0.00%, 0.12% and 0.10% and interest expense of 0.02%,
0.04%, 0.06% and 0.06% for the periods ended April 30, 2021, April 30,
2020, April 30, 2019 and April 30, 2018, respectively.
(6) Annualized
for periods less than one year.
(7) Excludes
in-kind transactions associated with creations and redemptions of the
Fund.
(8) The
returns reflect the actual performance for each period and do not include the
impact of trades executed on the last business day of the period that were
recorded on the first business day on the next period.
Core
Alternative ETF
|
|
|
|
|
|
|
|
|
|
|
|
| Adviser |
Core
Alternative Capital, LLC
3930
East Jones Bridge Road, Suite 380
Peachtree
Corners, Georgia 30092 |
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
North 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.corealtfunds.com ;
or
(SEC
Investment Company Act File No. 811-23226)
