ck0001683471-20220430
PROSPECTUS
Core
Alternative ETF
(CCOR)
Listed
on NYSE Arca, Inc.
August 31,
2022
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.
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, 2022, the Fund’s portfolio turnover rate
was 7% 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 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, 2022, the
Fund had significant exposure to companies in the financial services, health
care, 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 investment
objective. The following risks could affect the value of your investment in
the Fund:
•Cybersecurity
Risk.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause the Fund, the Adviser, and/or other
service providers (including custodians and financial intermediaries) to suffer
data breaches or data corruption. Additionally, cybersecurity failures or
breaches of the electronic systems of the Fund, the Adviser, or the Fund’s other
service providers, market makers, Authorized Participants (“APs”), the Fund’s
primary listing exchange, or the issuers of securities in which the Fund invests
have the ability to disrupt and negatively affect the Fund’s business
operations, including the ability to purchase and sell Fund Shares, potentially
resulting in financial losses to the Fund and its shareholders.
•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 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 Risk.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV Risk. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant.
◦Trading
Risk. Although
Shares are listed for trading on the 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 Risk. The
Fund’s investments in large capitalization companies 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
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
these factors, including the impact of the COVID-19 pandemic and related public
health issues, growth concerns in the U.S. and overseas, uncertainties regarding
interest rates, trade tensions and the threat of tariffs imposed by the U.S. and
other countries. In addition, local, regional or global events such as war,
including Russia’s invasion of Ukraine, acts of terrorism, spread of infectious
diseases or other public health issues, recessions, rising inflation, or other
events could have a significant negative impact on the Fund and its investments.
These developments as well as other events could result in further market
volatility and negatively affect financial asset prices, the liquidity of
certain securities and the normal operations of securities exchanges and other
markets. It is unknown how long circumstances related to the COVID-19 pandemic
will persist, whether they will reoccur in the future, whether efforts to
support the economy and financial markets will be successful, and what
additional implications may follow from the pandemic. The impact of these events
and other epidemics or pandemics in the future could adversely affect Fund
performance.
•Models
and Data Risk.
When Models and Data prove to be incorrect or incomplete, any decisions made in
reliance thereon expose the Fund to potential risks. Some of the models used to
construct the Fund are predictive in nature. The use of predictive models has
inherent risks. For example, such models may incorrectly forecast future
behavior, leading to potential losses. In addition, in unforeseen or certain
low-probability scenarios (often involving a market disruption of some kind),
such models may produce unexpected results, which can result in losses for the
Fund. Furthermore, because predictive models are usually constructed based on
historical data supplied by third parties, the success of relying on such models
may depend heavily on the accuracy and reliability of the supplied historical
data.
•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.
◦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.
◦Health
Care Sector Risk. Companies
in the health care sector are subject to extensive government regulation and
their profitability can be significantly affected by restrictions on government
reimbursement for medical expenses, rising costs of
medical
products and services, pricing pressure (including price discounting), limited
product lines, an increased emphasis on the delivery of healthcare through
outpatient services, loss or impairment of intellectual property rights and
litigation regarding product or service liability.
◦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.
•Tax
Risk.
The use of derivatives strategies, such as writing (selling) and purchasing
options, involves complex rules that will determine for income tax purposes the
amount, character and timing of recognition of the gains and losses the Fund
realizes in connection therewith. The Fund expects to generate premiums from its
sale of options. These premiums typically will result in short-term capital
gains for federal income tax purposes. In addition, equity securities that are
hedged with put options may not be eligible for long-term capital gains tax
treatment.
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, 2022 was
-0.38%. 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, 2021)
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| Core
Alternative ETF |
1-Year |
Since
Inception* |
| Return Before
Taxes |
9.90% |
6.07% |
| Return After Taxes on
Distributions |
9.62% |
5.75% |
| Return After Taxes on Distributions and
Sale of Shares |
6.04% |
4.69% |
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S&P
500 Index
(reflects no deduction for
fees, expenses, or taxes) |
28.71% |
18.20% |
*
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 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.
The
Fund’s distributions are generally taxable as ordinary income, qualified
dividend income, or capital gains (or a combination), unless your investment is
in an 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 by the Fund’s Board of Trustees (the “Board”) 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 in the Fund. Just as in the Fund’s summary section, the principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with those of other funds. Each risk summarized below is
considered a “principal risk” of investing in the Fund, regardless of the order
in which it appears.
•Cybersecurity
Risk.
With the increased use of technologies such as the Internet and the dependence
on computer systems to perform business and operational functions, funds (such
as the Fund) and their service providers may be prone to operational and
information security risks resulting from cyber-attacks and/or technological
malfunctions. In general, cyber-attacks are deliberate, but unintentional events
may have similar effects. Cyber-attacks include, among others, stealing or
corrupting data maintained online or digitally, preventing legitimate users from
accessing information or services on a website, releasing confidential
information without authorization, and causing operational disruption.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause the Fund, the Adviser, and/or other
service providers (including custodians and financial intermediaries) to suffer
data breaches or data corruption. Additionally, cybersecurity failures or
breaches of the electronic systems of the Fund, the Adviser, or the Fund’s other
service providers, market makers, APs, the Fund’s primary listing exchange, or
the issuers of securities in which the Fund invests have the ability to disrupt
and negatively affect the Fund’s business operations, including the ability to
purchase and sell Fund Shares, potentially resulting in financial losses to the
Fund and its shareholders. For instance, cyber-attacks or technical malfunctions
may interfere with the processing of shareholder or other transactions, affect
the Fund’s ability to calculate its NAV, cause the release of private
shareholder information or confidential Fund information, impede trading, cause
reputational damage, and subject the Fund to regulatory fines, penalties or
financial losses, reimbursement or other compensation costs, and additional
compliance costs. Cyber-attacks or technical malfunctions may render records of
Fund assets and transactions, shareholder ownership of Fund Shares, and other
data integral to the functioning of the Fund inaccessible or inaccurate or
incomplete. The Fund may also incur substantial costs for cybersecurity risk
management in order to prevent cyber incidents in the future. The Fund and its
shareholders could be negatively impacted as a result.
•Derivatives
Risk.
The Fund may invest in derivatives, including in particular options contracts,
to pursue its investment objective. The use of derivatives may expose the Fund
to risks in addition to and greater than those associated with investing
directly in the instruments underlying those derivatives, including risks
relating to leverage, correlation (imperfect correlations with underlying
instruments or the Fund’s other portfolio holdings), high price volatility, lack
of availability, counterparty credit, liquidity, valuation and legal
restrictions. The use of derivatives also may expose the Fund to the performance
of securities that the Fund does not own. To the extent the Fund engages in
derivatives in an attempt to hedge certain exposures or risks, there can be no
assurance that the Fund’s hedging investments or transactions will be effective.
In addition, hedging investments or transactions involve costs and may reduce
gains or result in losses, which may adversely affect the Fund. The skills
necessary to successfully execute derivatives strategies may be different from
those for more traditional portfolio management techniques, and if the Adviser
is incorrect about its expectations of market conditions, the use of derivatives
also could result in a loss, which in some cases may be unlimited. Use of
derivatives also may cause the Fund to be subject to additional regulations,
which may generate additional Fund expenses. These practices also entail
transactional expenses and may cause the Fund to realize higher amounts of
short-term capital gains than if the Fund had not engaged in such transactions.
Certain of the derivatives in which the Fund invests may trade (and privately
negotiated) in the OTC market. OTC derivatives are complex and often valued
subjectively, which exposes the Fund to heightened liquidity, mispricing and
valuation risks. Improper valuations can result in increased cash payment
requirements to counterparties or a loss of value to the Fund. In addition, OTC
derivative instruments are often highly customized and tailored to meet the
needs of the Fund and its trading counterparties. If a derivative transaction is
particularly large or if the relevant market is illiquid, it may not be possible
to initiate a transaction or liquidate a position at an advantageous time or
price. As a result and similar to other privately negotiated contracts, the Fund
is subject to counterparty credit risk with respect to such derivative
contracts. Certain derivatives are subject to mandatory exchange trading and/or
clearing, which exposes the Fund to the credit risk of the clearing broker or
clearinghouse. While exchange trading and central clearing are intended to
reduce counterparty credit risk and to increase liquidity, they do not make
derivatives transactions risk-free. Certain risks also are specific to the
derivatives in which the Fund invests.
◦Options
Risk. The
buyer of an option acquires the right, but not the obligation, to buy (a call
option) or sell (a put option) a certain quantity of a security (the underlying
security) or instrument, including a futures contract or swap, at a certain
price up to a specified point in time. The seller or writer of an option is
obligated to sell (a call option) or buy (a put option) the underlying
instrument. 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.
Options
are often used to manage or hedge risk because they enable an investor to buy or
sell an asset in the future at an agreed-upon price. Options also are used for
other reasons, such as to manage exposure to changes in interest rates and bond
prices; as an efficient means of adjusting overall exposure to certain markets;
in an effort to enhance income; to protect the value of portfolio securities or
other instruments; and to adjust portfolio duration.
Options
are subject to correlation risk. The writing and purchasing of options are
highly specialized activities as the successful use of options depends on the
Adviser’s ability to predict correctly future price fluctuations and the degree
of correlation between the markets for options and the underlying instruments.
Exchanges can limit the number of positions that can be held or controlled by
the Fund or the Adviser, thus limiting the ability to implement the Fund’s
strategies. Options also are particularly subject to leverage risk and can be
subject to liquidity risk. Because option premiums paid or received by the Fund
are small in relation to the market value of the investments underlying the
options, the Fund is exposed to the risk that buying and selling put and call
options can be more speculative than investing directly in
securities.
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. 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.
The
Fund also may purchase or sell call and put options on a “covered” basis. A call
option is “covered” if the Fund owns the security underlying the call or has an
absolute right to acquire the security without additional cash consideration
(or, if additional cash consideration is required, cash or cash equivalents in
such amount are segregated by the Fund’s custodian). As a seller of covered call
options, the Fund faces the risk that it will forgo the opportunity to profit
from increases in the market value of the security covering the call option
during an option’s life.
The
Fund is subject to the risk that a change in U.S. law and related regulations
will affect the way the Fund operates, increase the particular costs of the
Fund’s operation and/or change the competitive landscape. The SEC recently
adopted and implemented a new rule governing a fund’s use of derivatives. The
new rule, among other things, generally requires a fund to adopt a derivatives
risk management program, appoint a derivatives risk manager to oversee the
program and comply with an outer limit on fund leverage risk based on value at
risk, or “VaR.” The new rule significantly changes the regulatory framework
applicable to the Fund’s use of derivatives, including by replacing the existing
asset segregation regulatory framework in its entirety. The Fund will be
required to comply with the new rule beginning on August 19, 2022. Once fully
implemented, the new rule may require changes in how the Fund will use
derivatives, may adversely affect the Fund’s performance and may increase costs
related to the Fund’s use of derivatives.
•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, 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 Risk.
Investors buying or selling Shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers, as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of Shares. In addition, secondary market investors also will incur the cost of
the difference between the price at which an investor is willing to buy Shares
(the “bid” price) and the price at which an investor is willing to sell Shares
(the “ask” price). This difference in bid and ask prices is often referred to as
the “spread” or “bid/ask spread.” The bid/ask spread varies over time for Shares
based on trading volume and market liquidity, and is generally lower if Shares
have more trading volume and market liquidity and higher if Shares have little
trading volume and market liquidity. Further, a relatively small investor base
in the Fund, asset swings in the Fund and/or increased market volatility may
cause increased bid/ask spreads. Due to the costs of buying or selling Shares,
including bid/ask spreads, frequent trading of Shares may significantly reduce
investment results and an investment in Shares may not be advisable for
investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV Risk.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. Although it is expected that the market price of Shares will
approximate the Fund’s NAV, there may be times when the market price of Shares
is more than the NAV intra-day (premium) or less than the NAV intra-day
(discount) due to supply and demand of Shares or during periods of market
volatility. This risk is heightened in times of market volatility or periods of
steep market declines and periods when there is limited trading activity for
Shares in the secondary market, in which case such premiums or discounts may be
significant. The market price of Shares during the trading day, like the price
of any exchange-traded security, includes a “bid/ask” spread charged by the
exchange specialist, market makers or other participants that trade Shares. In
times of severe market disruption, the bid/ask spread can increase
significantly. At those times, Shares are most likely to be traded at a discount
to NAV, and the discount is likely to be greatest when the price of Shares is
falling fastest, which may be the time that you most want to sell your Shares.
The Adviser believes that, under normal market conditions, large market price
discounts or premiums to NAV will not be sustained because of arbitrage
opportunities.
◦Trading
Risk.
Although Shares are listed for trading on the Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange “circuit breaker”
rules, which temporarily halt trading on the Exchange when a decline in the
S&P 500 Index during a single day reaches certain thresholds (e.g.,
7%, 13%, and 20%). Additional rules applicable to the Exchange may halt trading
in Shares when extraordinary volatility causes sudden, significant swings in the
market price of Shares. There can be no assurance that Shares will trade with
any volume, or at all, on any stock exchange. In stressed market conditions, the
liquidity of Shares may begin to mirror the liquidity of the Fund’s underlying
portfolio holdings, which can be significantly less liquid than
Shares.
•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 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
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
economic, political and global macro factors, including public health issues,
growth concerns in the U.S. and overseas, uncertainties regarding interest
rates, trade tensions and the threat of tariffs imposed by the U.S. and other
countries. In addition,
local,
regional or global events such as war, including Russia’s invasion of Ukraine,
acts of terrorism, spread of infectious diseases or other public health issues,
recessions, rising inflation, or other events could have a significant negative
impact on the Fund and its investments. These developments as well as other
events could result in further market volatility and negatively affect financial
asset prices, the liquidity of certain securities and the normal operations of
securities exchanges and other markets, which could have an adverse effect on
the Fund.
The
COVID-19 pandemic has significantly impacted economies and markets around the
world, including the United States. The pandemic has resulted in a wide range of
social and economic disruptions, including closed borders, voluntary or
compelled quarantines of large populations, stressed healthcare systems, reduced
or prohibited domestic or international travel, supply chain disruptions, and
so-called “stay-at-home” orders throughout much of the United States and many
other countries. Financial markets have experienced extreme volatility and
severe losses, and trading in many instruments has been disrupted. Some sectors
of the economy and individual issuers have experienced particularly large
losses. Such disruptions may continue for an extended period of time or reoccur
in the future to a similar or greater extent. Liquidity for many instruments has
been greatly reduced for periods of time. In response to these disruptions, the
U.S. government and the Federal Reserve have taken extraordinary actions to
support the domestic economy and financial markets. It is unknown how long
circumstances related to the COVID-19 pandemic will persist, whether they will
reoccur in the future, whether efforts to support the economy and financial
markets will be successful, and what additional implications may follow from the
pandemic. The impact of these events and other epidemics or pandemics in the
future could adversely affect Fund performance.
•Models
and Data Risk.
When Models and Data prove to be incorrect or incomplete, any decisions made in
reliance thereon expose the Fund to potential risks. For example, by relying on
Models and Data, the Adviser may be induced to buy certain investments at prices
that are too high, to sell certain other investments at prices that are too low,
or to miss favorable opportunities altogether. Similarly, any hedging based on
faulty Models and Data may prove to be unsuccessful.
Some
of the models used by the Adviser for the Fund are predictive in nature. The use
of predictive models has inherent risks. For example, such models may
incorrectly forecast future behavior, leading to potential losses on a cash flow
and/or a mark-to-market basis. In addition, in unforeseen or certain
low-probability scenarios (often involving a market disruption of some kind),
such models may produce unexpected results, which can result in losses for the
Fund. Furthermore, because predictive models are usually constructed based on
historical data supplied by third parties, the success of relying on such models
may depend heavily on the accuracy and reliability of the supplied historical
data.
All
models rely on correct market data inputs. If incorrect market data is entered
into even a well-founded model, the resulting information will be incorrect.
However, even if market data is input correctly, “model prices” will often
differ substantially from market prices, especially for instruments with complex
characteristics, such as derivative instruments.
•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.
◦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.
◦Health
Care Sector Risk.
Companies in the health care sector are subject to extensive government
regulation and their profitability can be significantly affected by restrictions
on government reimbursement for medical expenses, rising costs of medical
products and services, pricing pressure (including price discounting), limited
product lines and an increased emphasis on the delivery of healthcare through
outpatient services. Companies in the health care sector are heavily dependent
on obtaining and defending patents, which may be time consuming and costly, and
the expiration of patents may also adversely affect the profitability of these
companies. Health care companies are also subject to extensive litigation based
on
product
liability and similar claims. In addition, their products can become obsolete
due to industry innovation, changes in technologies or other market
developments. Many new products in the health care sector require significant
research and development and may be subject to regulatory approvals, all of
which may be time consuming and costly with no guarantee that any product will
come to market.
◦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 Code of 1986, as amended (the
“Code”). If positions held by the Fund were treated as “straddles” for federal
income tax purposes, or the Fund’s risk of loss with respect to a position was
otherwise diminished as set forth in Treasury regulations, dividends on stocks
that are a part of such positions would not constitute qualified dividend income
subject to such favorable income tax treatment in the hands of non-corporate
shareholders or eligible for the dividends received deduction for corporate
shareholders. In addition, generally, straddles are subject to certain rules
that may affect the amount, character and timing of the Fund’s recognition of
gains and losses with respect to straddle positions by requiring, among other
things, that: (1) any loss realized on disposition of one position of a
straddle may not be recognized to the extent that the Fund has unrealized gains
with respect to the other position in such straddle; (2) the Fund’s holding
period in straddle positions be suspended while the straddle exists (possibly
resulting in a gain being treated as short-term capital gain rather than
long-term capital gain); (3) the losses recognized with respect to certain
straddle positions that are part of a mixed straddle and that are not subject to
Section 1256 of the Code be treated as 60% long-term and 40% short-term capital
loss; (4) losses recognized with respect to certain straddle positions that
would otherwise constitute short-term capital losses be treated as long-term
capital losses; and (5) the deduction of interest and carrying charges
attributable to certain straddle positions may be deferred.
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, 2022, the Adviser had approximately $556.5 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 fees and expenses (paid by the Trust
under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act.
The
basis for the Board’s approval of the continuation of the Advisory Agreement is
available in the Fund’s Semi-Annual
Report
to Shareholders dated October 31, 2021.
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 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 their discretion.
The
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (the “NYSE”), generally 4:00 p.m. Eastern time, each day the
NYSE is open for business. The NAV is calculated by dividing the Fund’s net
assets by its Shares outstanding.
In
calculating its NAV, the Fund generally values its securities holdings at their
current market value as reflected by readily available market quotations. The
values of non-U.S. dollar denominated securities are converted to U.S. dollars
using foreign currency exchange rates generally determined as of 4:30 p.m.,
London time (London Stock Exchange close). When market quotations for the Fund’s
securities holdings are not readily available, including when they are
determined by the Adviser to be unreliable, the Fund’s Board is responsible for
determining the fair value of such securities and any investment held by the
Fund that is not a security, including certain derivative instruments as
described below.
The
Board has adopted valuation policies and procedures pursuant to which it has
designated the Adviser to determine the fair value of the Fund’s investments,
subject to the Board’s oversight, when market prices are not “readily
available,” which includes market prices that are deemed to be unreliable. Such
circumstances may arise when: (i) a security has been de-listed or 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 has been
materially affected by events occurring after the close of the security’s
primary trading market and before the Fund calculates its NAV. Generally, when
determining the fair value of a Fund investment, the Adviser will take into
account all reasonably available information that may be relevant to a
particular valuation including, but not limited to, fundamental analytical data
regarding the issuer, information relating to the issuer’s business, recent
trades or offers of the security, general and/or specific market conditions and
the specific facts giving rise to the need to fair value the security. Fair
value determinations are made in good faith and in accordance with the fair
value methodologies established by the Adviser. Due to the subjective and
variable nature of determining the fair value of a security or other investment,
there can be no assurance that the Adviser’s determined fair value will match
any market quotation that subsequently becomes available or the price quoted or
published by other sources and thus, the Fund may not be able to obtain the fair
value assigned to an investment upon the sale of such investment.
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 in cash, if any. Distributions in cash may be
reinvested automatically in additional whole Shares only if the broker through
whom you purchased Shares makes such option available. Your broker is
responsible for distributing the income and capital gain distributions to
you.
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax adviser
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws. This summary does not apply
to Shares held in an IRA or other tax-qualified plans, which are generally not
subject to current tax. Transactions relating to Shares held in such accounts
may, however, be taxable at some time in the future. This summary is based on
current tax laws, which may change.
The
Fund 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 Code. If
it meets certain minimum distribution requirements, a RIC is not subject to tax
at the fund level on income and gains from investments that are timely
distributed to shareholders. However, the Fund’s failure to qualify as a RIC or
to meet minimum distribution requirements would result (if certain relief
provisions were not available) in fund-level taxation and, consequently, a
reduction in income available for distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA, you need to be aware of the possible tax consequences
when the Fund makes distributions, when you sell your Shares listed on the
Exchange, and when you purchase or redeem Creation Units (APs only).
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. For such dividends to be
taxed as qualified dividend income to a non-corporate shareholder, the Fund must
satisfy certain holding period requirements with respect to the underlying stock
and the non-corporate shareholder must satisfy holding period requirements with
respect to his or her ownership of the Fund’s Shares. Holding periods may be
suspended for these purposes for stock that is hedged.
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.
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 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 the shareholder is not subject to such withholding.
Provided
that a shareholder holds Shares as capital assets, any capital gain or loss
realized upon a sale of Shares generally is treated as a long-term capital gain
or loss if Shares have been held for more than one year and as a short-term
capital gain or loss if Shares have been held for one year or less. However, any
capital loss on a sale of Shares held for six months or less is treated as
long-term capital loss to the extent of Capital Gain Dividends paid with respect
to such Shares. Any loss realized on a sale will be disallowed to the extent
Shares of the Fund are acquired, including through reinvestment of dividends,
within a 61-day period beginning 30 days before and ending 30 days after the
disposition of Shares. The ability to deduct capital losses may be
limited.
The
cost basis of Shares of the Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Code. The difference between the
selling price and the cost basis of Shares generally determines the amount of
the capital gain or loss realized on the sale or exchange of Shares. Contact the
broker through whom you purchased your Shares to obtain information with respect
to the available cost basis reporting methods and elections for your account.
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 the wash sales rule applies 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.
Foreign
Taxes
Dividends
and interest received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax treaties
between certain countries and the United States may reduce or eliminate such
taxes.
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
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.
FINANCIAL
HIGHLIGHTS
For
a Share Outstanding Throughout Each Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
April 30, 2022 |
|
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 |
$ |
29.44 |
|
|
$ |
28.77 |
|
|
$ |
26.98 |
|
|
$ |
24.70 |
|
|
$ |
25.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income
(Loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
Net
investment income(2) |
0.31 |
|
|
0.41 |
|
|
0.39 |
|
|
0.34 |
|
|
0.32 |
|
|
| Net
realized and unrealized gain (loss) on investments |
1.07 |
|
|
0.65 |
|
|
1.74 |
|
|
2.27 |
|
|
(0.31) |
|
|
| Total
from investment operations |
1.38 |
|
|
1.06 |
|
|
2.13 |
|
|
2.61 |
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less
distributions paid: |
|
|
|
|
|
|
|
|
|
|
| From
net investment income |
(0.35) |
|
|
(0.39) |
|
|
(0.34) |
|
|
(0.33) |
|
|
(0.30) |
|
|
| From
return of capital |
(0.00 |
) |
(8) |
— |
|
|
— |
|
|
— |
|
|
(0.01) |
|
|
| Total
distributions paid |
(0.35) |
|
|
(0.39) |
|
|
(0.34) |
|
|
(0.33) |
|
|
(0.31) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
Asset Value, End of Period |
$ |
30.47 |
|
|
$ |
29.44 |
|
|
$ |
28.77 |
|
|
$ |
26.98 |
|
|
$ |
24.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
return, at NAV(3) |
4.63 |
% |
|
3.83 |
% |
(9) |
7.98 |
% |
(9) |
10.69 |
% |
(9) |
0.01 |
% |
(4)(9) |
|
Total
return, at Market(3) |
5.31 |
% |
|
4.54 |
% |
|
7.64 |
% |
|
10.75 |
% |
|
-0.14 |
% |
(4) |
|
|
|
|
|
|
|
|
|
|
|
| Supplemental
Data and Ratios: |
|
|
|
|
|
|
|
|
|
|
| Net
assets, end of period (000’s) |
$ |
303,177 |
|
|
$ |
169,276 |
|
|
$ |
135,219 |
|
|
$ |
89,034 |
|
|
$ |
87,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of expenses to average net assets(5) |
1.07 |
% |
|
1.07 |
% |
|
1.09 |
% |
|
1.23 |
% |
|
1.21 |
% |
(6) |
| Ratio
of net investment income to average net assets |
1.02 |
% |
|
1.44 |
% |
|
1.42 |
% |
|
1.34 |
% |
|
1.35 |
% |
(6) |
|
Portfolio
turnover rate(7) |
7 |
% |
|
8 |
% |
|
10 |
% |
|
21 |
% |
|
8 |
% |
(4) |
(1) The
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%, 0.00%, 0.12% and 0.10% and interest expense of
0.02%, 0.02%, 0.04%, 0.06% and 0.06% for the periods ended April 30, 2022, 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) Amount
is less than $0.005.
(9)
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 |
| Custodian |
U.S.
Bank National Association
1555
North Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212 |
Distributor |
Quasar
Distributors, LLC
111
East Kilbourn Avenue, Suite 2200
Milwaukee,
Wisconsin 53202 |
| Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
1350
Euclid Avenue, Suite 800
Cleveland,
Ohio 44115 |
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)
