ck0001683471-20211231
PROSPECTUS
Listed
on NYSE Arca, Inc.
April
30, 2022
The
U.S. Securities and Exchange Commission (the “SEC”) has not approved or
disapproved of these securities or passed upon the accuracy or adequacy of this
Prospectus. Any representation to the contrary is a criminal
offense.
TABLE
OF CONTENTS
Investment Objective
Fees and Expenses of the
Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Shareholder
Fees
(fees paid directly from your investment) |
None |
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Annual
Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
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| Management
Fee |
0.85% |
| Distribution
and/or Service (Rule 12b-1) Fees |
0.00% |
| Other
Expenses |
0.00% |
| Total
Annual Fund Operating Expenses |
0.85% |
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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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Year: |
$87 |
3
Years: |
$271 |
5
Years: |
$471 |
10
Years: |
$1,049 |
Portfolio Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in the Total Annual Fund Operating Expenses
or in the Example, affect the Fund’s performance. For the fiscal period January
11, 2021 (commencement of operations) through December 31, 2021, the Fund’s
portfolio turnover rate was 0% of the average value of its
portfolio.
Principal Investment Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that seeks to achieve
its investment objective by investing primarily in the equity securities of
domestic and foreign companies that are expected to benefit, either directly or
indirectly, from rising prices (inflation). The Fund’s investments in equity
securities are generally expected to include common stock, ownership units of
publicly traded master limited partnerships (“MLPs”), and units of royalty
trusts. The Fund’s investment in equity interests of MLPs may include both
general partnership interests and limited partnership interests of
MLPs.
Horizon
Kinetics Asset Management LLC (the “Adviser”) is the Fund’s investment adviser.
The Adviser seeks to identify companies that it believes are positioned to
benefit from inflationary pressures, such as companies whose revenues are
expected to increase with rising consumer, producer, raw material or assets
prices without a corresponding increase in expenses. Such companies may include,
for example, exploration and production companies, mining companies,
transportation companies, infrastructure and real estate companies, with an
emphasis on “asset light” businesses with royalty, streaming, rental, brokerage,
management, and leasing exposure. “Asset light” refers to companies with
relatively low working capital requirements and modest financial leverage that
maintain exposure to inflation drivers.
This
may include companies with indirect exposure to inflation drivers, such as
financial exchanges that facilitate transactions in commodity, interest rate and
currency instruments, as well as data providers that specialize in data and
analytics in industries that are sensitive to movements in interest rates and
consumer prices.
The
Fund may invest in the securities of companies that earn revenue from precious
metals or other commodities through active (i.e.,
mining or production) or passive (i.e.,
owning royalties or production streams) means. Royalties are the rights of a
company to receive a percentage of the revenues generated from production of a
commodity (e.g.,
from mining precious metals). Production streams are arrangements in which a
company provides an upfront payment in exchange for the right to purchase,
typically at a fixed price determined in advance of production, all or a portion
of certain metals or other commodities produced from a mine.
In
selecting individual securities for the Fund’s portfolio, the Adviser employs a
value-driven, “bottom-up” or fundamental approach. The Adviser’s research and
analysis leverages insights from diverse sources, including internal research,
to develop and refine its
investment
themes for the Fund and identify and take advantage of trends that have
ramifications for individual companies or entire industries. The types of
companies the Adviser believes are relevant to this theme are typically those
that can increase revenues without a corresponding increase in expenses in an
inflationary environment. Often such companies own, or directly or indirectly
benefit from exposure to, underlying variables that are sensitive to
inflationary pressures. The Adviser expects to sell portfolio holdings when it
determines they no longer fit the Adviser’s investment thesis or are no longer
attractively valued.
The
Fund’s portfolio generally will include the securities of approximately 20 to 60
issuers that may range from small- to large-capitalization companies. Although
the majority of the Fund’s portfolio securities are expected to be of issuers
that are either domiciled in, or earn a majority of their revenues from
activities within, the United States, the Fund also may have significant
exposure to issuers that are either domiciled in, or earn a majority of their
revenues from activities within, Australia, Canada, and Europe.
The
Fund may also have significant exposure to securities exchange companies.
The Fund is non-diversified and therefore
may invest a larger percentage of its assets in the securities of a single
issuer or lesser number of issuers than diversified funds.
Principal Investment Risks
The
principal risks of investing in the Fund are summarized below. The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with 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:
•Active
Management Risk.
The Fund is actively-managed and may not meet its investment objective based on
the Adviser’s success or failure to implement investment strategies for the
Fund. The Adviser’s evaluations and assumptions regarding investments, interest
rates, inflation, and other factors may not successfully achieve the Fund’s
investment objective given actual market conditions. The Adviser seeks to select
for the Fund equity securities of companies that it expects to benefit, either
directly or indirectly, from rising prices of real assets that are sensitive to
inflationary pressures. To the extent the Adviser’s expectations for increases
in the prices of real assets do not materialize (for example, because inflation
did not materially increase for a period of time), the Fund may underperform
other funds. Similarly, if the Adviser’s judgments about the extent to which a
company will benefit from increases in the prices of real assets prove to be
incorrect, the value of such companies, and consequently the Fund, may
decline.
•Currency
Exchange Rate Risk. The
Fund may invest in investments denominated in non-U.S. currencies or in
securities that provide exposure to such currencies. Changes in currency
exchange rates and the relative value of non-U.S. currencies will affect the
value of the Fund’s investment and the value of your Shares. Currency exchange
rates can be very volatile and can change quickly and unpredictably. As a
result, the value of an investment in the Fund may change quickly and without
warning and you may lose money.
•Cybersecurity
Risk.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause the Fund, the Adviser and/or other
service providers (including custodians and financial intermediaries) to suffer
data breaches or data corruption. Additionally, cybersecurity failures or
breaches of the electronic systems of the Fund, the Adviser or the Fund’s other
service providers, market makers, Authorized Participants (“APs”) or the issuers
of securities in which the Fund invests have the ability to cause disruptions
and negatively impact the Fund’s business operations, potentially resulting in
financial losses to the Fund and its shareholders.
•Equity
Market Risk.
The equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, sectors or companies in which the Fund invests.
Common stocks are generally exposed to greater risk than other types of
securities, such as preferred stocks and debt obligations, because common
stockholders generally have inferior rights to receive payment from issuers.
•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.
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. Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, the Fund is likely to experience
premiums and discounts greater than those of domestic ETFs.
◦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.
•Foreign
Securities Risk.
Investments in non-U.S. securities involve certain risks that may not be present
with investments in U.S. securities. For example, investments in non-U.S.
securities may be subject to risk of loss due to foreign currency fluctuations
or to political or economic instability. Investments in non-U.S. securities also
may be subject to withholding or other taxes and may be subject to additional
trading, settlement, custodial, and operational risks. These and other factors
can make investments in the Fund more volatile and potentially less liquid than
other types of investments.
•Geographic
Investment Risk.
To the extent the Fund invests a significant portion of its assets in the
securities of companies of a single country or region, it is more likely to be
impacted by events or conditions affecting that country or region.
◦Australia-Specific
Risk.
Because investments in the metals and mining industry may be geographically
concentrated in Australian companies or companies that have a significant
presence in Australia, investment results could be dependent on the financial
condition of the Australian economy. Investments in Australian issuers may
subject the Fund to regulatory, political, currency, security, and economic risk
specific to Australia. The Australian economy is heavily dependent on exports
from the agricultural and mining sectors. This makes the Australian economy
susceptible to fluctuations in the commodity markets. Australia is also
dependent on trading with key trading partners.
◦Canada-Specific
Risk.
The Canadian economy is reliant on the sale of natural resources and
commodities, which can pose risks such as the fluctuation of prices and the
variability of demand for exportation of such products. Changes in spending on
Canadian products by the economies of other countries or changes in any of these
economies may cause a significant impact on the Canadian economy.
◦Europe-Specific
Risk.
The economies and markets of European countries are often closely connected and
interdependent, and events in one country in Europe can have an adverse impact
on other European countries. The Fund makes investments in securities of issuers
that are domiciled in, or have significant operations in, member countries of
the European Union (the “EU”) that are subject to economic and monetary controls
that can adversely affect the Fund’s investments. The European financial markets
have experienced volatility and adverse trends in recent years and these events
have adversely affected the exchange rate of the euro and may continue to
significantly affect other European countries. Decreasing imports or exports,
changes in governmental or EU regulations on trade, changes in the exchange rate
of the euro, the default or threat of default by an EU member country on its
sovereign debt, and/or an economic recession in an EU member country may have a
significant adverse effect on the economies of EU member countries and their
trading partners, including some or all of the European countries in which the
Fund invests.
The
UK formally exited from the EU on January 31, 2020 (known as “Brexit”) and,
effective December 31, 2020, the UK ended a transition period during which it
continued to abide by the EU’s rules and the UK’s trade relationships with the
EU were generally unchanged. Following this transition period, the impact on the
UK and European economies and the broader global economy could be significant,
resulting in negative impacts, such as increased volatility and illiquidity, and
potentially lower economic growth of markets in the UK, Europe and globally,
which may adversely affect the value of the Fund’s investments.
•Limited
Operating History Risk. The
Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing.
The securities of large-capitalization companies may be relatively mature
compared to smaller companies and therefore subject to slower growth during
times of economic expansion. Large-capitalization companies may also be unable
to respond quickly to new competitive challenges, such as changes in technology
and consumer tastes.
◦Mid-Capitalization
Investing.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of
mid-
capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large- or mid-capitalization stocks or the
stock market as a whole. There is typically less publicly available information
concerning small-capitalization companies than for larger, more established
companies.
•Market
Risk.
The trading prices of securities and other instruments fluctuate in response to
a variety of factors. These factors include events impacting the entire market
or specific market segments, such as political, market and economic
developments, as well as events that impact specific issuers. The Fund’s NAV and
market price, like security and commodity prices generally, may fluctuate
significantly in response to these and other factors. As a result, an investor
could lose money over short or long periods of time. U.S. and international
markets have experienced significant periods of volatility in recent years due
to a number of these factors, including the impact of the coronavirus (COVID-19)
pandemic and related public health issues, growth concerns in the U.S. and
overseas, uncertainties regarding interest rates, trade tensions and the threat
of tariffs imposed by the U.S. and other countries. These developments as well
as other events could result in further market volatility and negatively affect
financial asset prices, the liquidity of certain securities and the normal
operations of securities exchanges and other markets. It is unknown how long
circumstances related to the pandemic will persist, whether they will reoccur in
the future, whether efforts to support the economy and financial markets will be
successful, and what additional implications may follow from the pandemic. The
impact of these events and other epidemics or pandemics in the future could
adversely affect Fund performance.
•MLP
Risk.
MLP investment returns are enhanced during periods of declining or low interest
rates and tend to be negatively influenced when interest rates are rising. In
addition, most MLPs are leveraged investments and are subject to interest rate
risk as higher interest rates generally result in increased costs associated
with MLPs’ floating rate debt. As such, a significant upward swing in interest
rates would also drive interest expense higher. Furthermore, most MLPs grow by
acquisitions partly financed by debt, and higher interest rates could make it
more difficult to make acquisitions. MLP investments also entail many of the
general tax risks of investing in a partnership. Limited partners in an MLP
typically have limited control and limited rights to vote on matters affecting
the partnership. Additionally, there is always the risk that an MLP will fail to
qualify for favorable tax treatment.
•Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may
invest a greater percentage of its assets in the securities of a single issuer
or a lesser number of issuers than if it was a diversified fund. As a result, a
decline in the value of an investment in a single issuer or a small number of
issuers could cause the Fund’s overall value to decline to a greater degree than
if the Fund held a more diversified portfolio. This may increase the Fund’s
volatility and cause the performance of a relatively smaller number of issuers
to have a greater impact on the Fund’s performance.
•Real
Assets Risk.
The Fund’s investments in securities linked to real assets involve significant
risks, including financial, operating, and competitive risks. Investments in
securities linked to real assets expose the Fund to adverse macroeconomic
conditions, such as a rise in interest rates or a downturn in the economy in
which the asset is located.
•Royalty
Trusts Risk.
The Fund may invest in publicly traded royalty trusts. Royalty trusts are
special purpose vehicles organized as investment trusts created to make
investments in operating companies or their cash flows. A royalty trust
generally acquires an interest in natural resource companies and distributes the
income it receives to the investors of the royalty trust. A sustained decline in
demand for the royalty trust’s underlying commodity could adversely affect
income and royalty trust revenues and cash flows. Factors that could lead to a
decrease in market demand include a recession or other adverse economic
conditions, an increase in the market price of the underlying commodity, higher
taxes or other regulatory actions that increase costs, or a shift in consumer
demand for such products. A rising interest rate environment could adversely
impact the performance of royalty trusts.
•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.
◦Energy
Sector Risk. The
energy sector is comprised of energy, industrial, infrastructure, and logistics
companies, and will therefore be susceptible to adverse economic, environmental,
business, regulatory, or other occurrences affecting that sector. The energy
sector has historically experienced substantial price volatility. At times, the
performance of these investments may lag the performance of other sectors or the
market as a whole. Companies operating in the energy sector are subject to
specific risks, including, among others, fluctuations in commodity prices;
reduced consumer demand for commodities such as oil, natural gas, or petroleum
products; reduced availability of natural gas or other commodities for
transporting, processing, storing, or delivering; slowdowns in new construction;
extreme weather or other natural disasters; and threats of attack by terrorists
on energy assets. Additionally, energy sector companies are subject to
substantial government regulation and changes in the regulatory environment for
energy companies may adversely impact their profitability. Over time, depletion
of natural gas reserves and other energy reserves may also affect the
profitability of energy companies.
•Securities
Exchange Companies Risk.
The Fund’s investments in securities exchange companies subject it to more risks
as compared to a fund that invests in a wider variety of companies. For
instance, various factors may significantly affect securities
exchange companies, including
economic, political and geopolitical market conditions; legislative and
regulatory changes; broad trends in the industry and financial markets; shifts
in demand or supply in commodities underlying their products; and competition.
•Tax
Risk. In order to qualify for the favorable U.S.
federal income tax treatment accorded to regulated investment companies (“RICs”)
the Fund must derive at least 90% of its gross income in each taxable year from
certain categories of income (“qualifying income”) and must satisfy certain
asset diversification requirements. Certain of the Fund’s investments, including
certain investments in royalty trusts, may generate income that is not
qualifying income. The Fund will seek to restrict its income from such
investments that do not generate qualifying income to a maximum of 10% of its
gross income (when combined with its other investments that produce
non-qualifying income) to comply with the qualifying income requirement for the
Fund to qualify as a RIC under Subchapter M of the Internal Revenue Code of
1986, as amended, (the “Code”).
Performance
Performance information for the Fund is not
included because the Fund did not have a full calendar year of performance prior
to the date of this Prospectus. In the future, performance
information for the Fund will be presented in this section. Updated performance
information is available on the Fund’s website at www.horizonkinetics.com/products/etf/infl
or by calling the Fund toll free at 1-800-617-0004.
Portfolio
Management
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| Adviser |
Horizon
Kinetics Asset Management LLC |
| Portfolio
Managers |
Steven
Bregman, President, Peter B. Doyle, Managing Director, and James Davolos,
Portfolio Manager, have been the portfolio managers of the Fund since its
inception in January 2021. |
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. The difference in the bid and
ask prices is referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at www.horizonkinetics.com/products/etf/infl.
Tax
Information
The
Fund’s distributions are generally taxable as ordinary income, qualified
dividend income, or capital gains (or a combination), unless your investment is
in an individual retirement account (“IRA”) or other tax-advantaged account.
Distributions on investments made through tax-deferred arrangements may be taxed
later upon withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
ADDITIONAL
INFORMATION ABOUT THE FUND
Investment
Objective
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.
Principal
Investment Strategies
The
following information is in addition to, and should be read along with, the
description of the Fund’s principal investment strategies in the section titled
“Fund Summary—Principal Investment Strategies” above.
Temporary
Defensive Strategies
For
temporary defensive purposes during adverse market, economic, political or other
conditions, the Fund may invest in cash or cash equivalents or short-term
instruments such as commercial paper, money market mutual funds, or short-term
U.S. government securities. Taking a temporary defensive position may result in
the Fund not achieving its investment objective.
Principal
Investment Risks
An
investment in the Fund entails risks. The Fund could lose money, or its
performance could trail that of other investment alternatives. The following
provides additional information about the Fund’s principal risks. It is
important that investors closely review and understand these risks before making
an investment 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.
•Active
Management Risk.
The Fund is actively-managed and may not meet its investment objective based on
the Adviser’s success or failure to implement investment strategies for the
Fund. The
Adviser’s evaluations and assumptions regarding investments, interest rates,
inflation, and other factors may not successfully achieve the Fund’s investment
objective given actual market conditions. The Adviser expects to select for the
Fund equity securities of companies that are expected to benefit, either
directly or indirectly, from rising prices of real assets. To the extent the
Adviser’s expectations for increases in the prices of real assets do not
materialize, the Fund may underperform other funds. Similarly, if the Adviser’s
judgments about the extent to which a company will benefit from increases in the
prices of real assets prove to be incorrect, the value of such companies, and
consequently the Fund, may decline.
•Currency
Exchange Rate Risk. The
Fund invests in investments denominated in non-U.S. currencies or in securities
that provide exposure to such currencies. Changes in currency exchange rates and
the relative value of non-U.S. currencies will affect the value of the Fund’s
investment and the value of your Shares. The value of the U.S. dollar measured
against other currencies is influenced by a variety of factors. These factors
include interest rates, national debt levels and trade deficits, changes in
balances of payments and trade, domestic and foreign interest and inflation
rates, global or regional political, economic or financial events, monetary
policies of governments, actual or potential government intervention, and global
energy prices. Currency exchange rates can be very volatile and can change
quickly and unpredictably. As a result, the value of an investment in the Fund
may change quickly and without warning and you may lose money.
•Cybersecurity
Risk. With
the increased use of technologies such as the Internet and the dependence on
computer systems to perform business and operational functions, funds (such as
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 or the issuers of securities in which the
Fund invests have the ability to cause disruptions and negatively impact the
Fund's business operations, 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.
•Equity
Market Risk. The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, sectors or companies in which the Fund invests.
Different types of equity securities tend to go through cycles of outperformance
and underperformance in comparison to the general securities markets. Common
stocks are generally
exposed
to greater risk than other types of securities, such as preferred stocks and
debt obligations, because common stockholders generally have inferior rights to
receive payment from issuers. 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.
◦APs,
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, 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. Because securities
held by the Fund may trade on foreign exchanges that are closed when the Fund’s
primary listing exchange is open, the Fund is likely to experience premiums and
discounts greater than those of domestic ETFs.
◦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.
•Foreign
Securities Risk.
Investments in non-U.S. securities involve certain risks that may not be present
with investments in U.S. securities. For example, investments in non-U.S.
securities may be subject to risk of loss due to foreign currency fluctuations
or to political or economic instability. There may be less information publicly
available about a non-U.S. issuer. Non-U.S. issuers may be subject to different
accounting, auditing, financial reporting, and investor protection standards
than US. issuers. Investments in non-U.S. securities also may be subject to
withholding or other taxes and may be subject to additional trading, settlement,
custodial, and operational risks. With respect to certain countries, there is
the possibility of government intervention and expropriation or nationalization
of assets. Because legal systems differ, there is also the possibility that it
will be difficult to obtain or enforce legal judgments in certain countries.
Since foreign exchanges may be open on days when the Fund does not price its
shares, the value of the securities in the Fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the Fund’s shares.
Conversely, Shares may trade on days when foreign exchanges are close. These and
other factors can make investments in the Fund more volatile and potentially
less liquid than other types of investments.
•Geographic
Investment Risk.
To the extent the Fund invests a significant portion of its assets in the
securities of companies of a single country or region, it is more likely to be
impacted by events or conditions affecting that country or region.
◦Australia-Specific
Risk.
Because investments in the metals and mining industry may be geographically
concentrated in Australian companies or companies that have a significant
presence in Australia, investment results could be dependent on the financial
condition of the Australian economy. Investments in Australian issuers may
subject the Fund to regulatory, political, currency, security, and economic risk
specific to Australia. The Australian economy is heavily dependent on exports
from the agricultural and mining sectors. This makes the Australian economy
susceptible to fluctuations in the commodity markets. Australia is also
dependent on trading with key trading partners.
◦Canada-Specific
Risk.
The Canadian economy is reliant on the sale of natural resources and
commodities, which can pose risks such as the fluctuation of prices and the
variability of demand for exportation of such products. Changes in spending on
Canadian products by the economies of other countries or changes in any of these
economies may cause a significant impact on the Canadian economy.
◦Europe-Specific
Risk.
The economies of Europe are highly dependent on each other, both as key trading
partners and as in many cases as fellow members maintaining the euro. Reduction
in trading activity among European countries may cause an adverse impact on each
nation’s individual economies. European countries that are part of the Economic
and Monetary Union of the EU are required to comply with restrictions on
inflation rates, deficits, interest rates, debt levels, and fiscal and monetary
controls, each of which may significantly affect every country in Europe.
Decreasing imports or exports, changes in governmental or EU regulations on
trade, changes in the exchange rate of the euro, the default or threat of
default by an EU member country on its sovereign debt, and recessions in an EU
member country may have a significant adverse effect on the economies of EU
member countries and their trading partners.
The
European financial markets have recently experienced volatility and adverse
trends due to concerns about rising government debt levels of several European
countries, including Greece, Spain, Ireland, Italy, and Portugal. These events
have adversely affected the exchange rate of the euro and may continue to
significantly affect every country in Europe. For some countries, the ability to
repay sovereign debt is in question, and default is possible, which could affect
their ability to borrow in the future. For example, Greece has been required to
impose harsh austerity measures on its population to receive financial aid from
the International Monetary Fund and EU member countries. These
austerity measures have also led to social uprisings within Greece, as citizens
have protested – at times violently – the actions of their government. The
persistence of these factors may seriously reduce the economic performance of
Greece and pose serious risks for the country’s economy in the future.
Furthermore, there is the possibility of contagion that could occur if one
country defaults on its debt, and that a default in one country could trigger
declines and possible additional defaults in other countries in the region.
Responses
to the financial problems by European governments, central banks and others,
including austerity measures and reforms, may not work, may result in social
unrest and may limit future growth and economic recovery or have other
unintended consequences. Further defaults or restructurings by governments and
other entities of their debt could have additional adverse effects on economies,
financial markets, and asset valuations around the world. In addition, one or
more countries may abandon the euro, the common currency of the EU, and/or
withdraw from the EU alongside the UK, as discussed below. The impact of these
actions, especially if they occur in a disorderly fashion, is not clear but
could be significant and far-reaching.
The
UK formally exited from the EU on January 31, 2020 (known as “Brexit”) and,
effective December 31, 2020, the UK ended a transition period during which it
continued to abide by the EU’s rules and the UK’s trade relationships with the
EU were generally unchanged. Following this transition period, the impact on the
UK and European economies and the broader global economy could be significant,
resulting in negative impacts, such as increased volatility and illiquidity, and
potentially lower economic growth of markets in the UK, Europe and globally,
which may adversely affect the value of the Fund’s investments.
•Limited
Operating History Risk. The
Fund is a recently organized management investment company with a
limited
operating history. As a result, prospective investors have a
limited
track record or history on which to base their investment decision.
•Market
Capitalization Risk
◦Large-Capitalization
Investing.
The securities of large-capitalization companies may be relatively mature
compared to smaller companies and therefore subject to slower growth during
times of economic expansion. Large-capitalization companies may also be unable
to respond quickly to new competitive challenges, such as changes in technology
and consumer tastes.
◦Mid-Capitalization
Investing.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large- or mid-capitalization stocks or the
stock market as a whole. There is typically less publicly available information
concerning smaller-capitalization companies than for larger, more established
companies.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time.
U.S.
and international markets have experienced significant periods of volatility in
recent years due to a number of 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.
COVID-19
has resulted in a pandemic and major disruption to economies and markets around
the world, including the United States. The pandemic has resulted in a wide
range of social and economic disruptions, including closed borders, voluntary or
compelled quarantines of large populations, stressed healthcare systems, reduced
or prohibited domestic or international travel, supply chain disruptions, and
so-called “stay-at-home” orders throughout much of the United States and many
other countries. Financial markets have experienced extreme volatility and
severe losses, and trading in many instruments has been disrupted. Some sectors
of the economy and individual issuers have experienced particularly large
losses. Such disruptions may continue for an extended period of time or reoccur
in the future to a similar or greater extent. Liquidity for many instruments has
been greatly reduced for periods of time. In response to these disruptions, the
U.S. government and the Federal Reserve have taken extraordinary actions to
support the domestic economy and financial markets, resulting in very low
interest rates and in some cases negative yields. It is unknown how long
circumstances related to the pandemic will persist, whether they will reoccur in
the future, whether efforts to support the economy and financial markets will be
successful, and what additional implications may follow from the pandemic. The
impact of these events and other epidemics or pandemics in the future could
adversely affect Fund performance.
•MLP
Risk.
MLP investment returns are enhanced during periods of declining or low interest
rates and tend to be negatively influenced when interest rates are rising. In
addition, most MLPs are leveraged investments and are subject to interest rate
risk as higher interest rates generally result in increased costs associated
with MLPs’ floating rate debt. As such, a significant upward swing in interest
rates would also drive interest expense higher. Furthermore, most MLPs grow by
acquisitions partly financed by debt, and higher interest rates could make it
more difficult to make acquisitions. Certain MLP securities may trade in lower
volumes due to their smaller capitalizations. Accordingly, those MLPs may be
subject to more abrupt or erratic price movements and may lack sufficient market
liquidity to enable the Fund to effect sales at an advantageous time or without
a substantial drop in price. MLP investments also entail many of the general tax
risks of investing in a partnership. Limited partners in an MLP typically have
limited control and limited rights to vote on matters affecting the partnership.
Additionally, there is always the risk that an MLP will fail to qualify for
favorable tax treatment. MLPs may incur environmental costs and liabilities due
to the nature of their businesses and the substances they handle. Changes in
existing laws, regulations or enforcement policies governing the sectors in
which MLPs operate could significantly increase the compliance costs of
MLPs.
•Non-Diversification
Risk. The
Fund is considered to be non-diversified, which means that it may invest more of
its assets in the securities of a single issuer or a lesser number of issuers
than if it were a diversified fund. As a result, the Fund may be more exposed to
the risks associated with and developments affecting an individual issuer or a
smaller number of issuers than a fund that invests more widely. This may
increase the Fund’s volatility and cause the performance of a relatively smaller
number of issuers to have a greater impact on the Fund’s performance.
•Real
Assets Risk.
The Fund’s investments in securities linked to real assets involve significant
risks, including financial, operating, and competitive risks. Investments in
securities linked to real assets expose the Fund to adverse macroeconomic
conditions, such as changes and volatility in commodity prices, a rise in
interest rates or a downturn in the economy in which the asset is located,
elevating the risk of loss. Changes in inflation rates or in the market’s
inflation expectations may adversely affect the market value of
inflation-sensitive equities.
•Royalty
Trusts Risk.
The Fund may invest in publicly traded royalty trusts. Royalty trusts are
special purpose vehicles organized as investment trusts created to make
investments in operating companies or their cash flows. A royalty trust
generally acquires an interest in natural resource companies and distributes the
income it receives to the investors of the royalty trust. A sustained decline in
demand for the royalty trust’s underlying commodity could adversely affect
income and royalty trust revenues and cash flows. Factors that could lead to a
decrease in market demand include a recession or other adverse economic
conditions, an increase in the market price of the underlying commodity, higher
taxes or other regulatory actions that increase costs, or a shift in consumer
demand for such products. A rising interest rate environment could adversely
impact the performance of royalty trusts.
Rising
interest rates could limit the capital appreciation of royalty trusts because of
the increased availability of alternative investments at more competitive
yields. Further, because natural resources are depleting assets, the
income-producing ability of a royalty trust will eventually be exhausted and the
royalty trust will need to raise or retain funds to make new acquisitions to
maintain its value. The Fund’s investment in royalty trusts may result in the
layering of expenses such that shareholders will indirectly bear a proportionate
share of the royalty trusts’ operating expenses in addition to paying Fund
expenses.
•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.
◦Energy
Sector Risk.
The energy sector is comprised of energy, energy industrial, energy
infrastructure, and energy logistics companies, and will therefore be
susceptible to adverse economic, environmental, business, regulatory, or other
occurrences affecting that sector. The energy sector has historically
experienced substantial price volatility. At times, the performance of these
investments may lag the performance of other sectors or the market as a whole.
Companies operating in the energy sector are subject to specific risks,
including, among others, fluctuations in commodity prices; reduced consumer
demand for commodities such as oil, natural gas, or petroleum products; reduced
availability of natural gas or other commodities for transporting, processing,
storing, or delivering; slowdowns in new construction; extreme weather or other
natural disasters; and threats of attack by terrorists on energy assets.
Additionally, energy sector companies are subject to substantial government
regulation and changes in the regulatory environment for energy companies may
adversely impact their profitability. Certain energy sector companies may incur
environmental costs and liabilities due to the nature of their businesses and
the substances they handle. Changes in existing laws, regulations, or
enforcement policies governing the energy sector could significantly increase
the compliance costs of such companies. Such companies could, from time to time,
be held responsible for implementing remediation measures, the cost of which may
not be recoverable from insurance. Over time, depletion of natural gas reserves
and other energy reserves may also affect the profitability of energy companies.
The above factors may change quickly and without warning and may negatively
impact the value of the Fund and your investment.
•Securities
Exchange Companies Risk.
The Fund’s investments in securities exchange companies subject it to more risks
as compared to a fund that invests in a wider variety of companies. For
instance, various factors may significantly affect securities exchange
companies, including economic, political and geopolitical market conditions;
legislative and regulatory changes, including any direct or indirect
restrictions on or increased costs associated with trading in the markets; broad
trends in the industry and financial markets; changes in price levels, trading
volumes and volatility in the derivatives, cash and OTC markets and in their
underlying markets; shifts in demand or supply in commodities underlying their
products; and competition.
•Tax
Risk.
In order to qualify for the favorable U.S. federal income tax treatment accorded
to RICs, the Fund must derive at least 90% of its gross income in each taxable
year from certain categories of income (“qualifying income”) and must satisfy
certain asset diversification requirements. Certain of the Fund’s investments,
including certain investments in royalty trusts, may generate income that is not
qualifying income. The Fund will seek to restrict its income from such
investments that do not generate qualifying income to a maximum of 10% of its
gross income (when combined with its other investments that produce
non-qualifying income) to comply with the qualifying income requirement for the
Fund to qualify as a RIC under the Code. However, the Fund may generate more
non-qualifying income than anticipated, may not be able to generate qualifying
income in a particular taxable year at levels sufficient to meet the qualifying
income requirement, or may not be able to accurately predict the non-qualifying
income from these investments. Accordingly, the extent to which the Fund invests
in real assets, including commodities, and royalty trusts may be limited by the
qualifying income requirement, which the Fund must continue to satisfy to
maintain its status as a RIC. Failure to comply with the qualifying income
requirement would have significant negative tax consequences to Fund
shareholders. Under certain circumstances, the Fund may be able to cure a
failure to meet the qualifying income requirement, but in order to do so the
Fund may incur significant Fund-level taxes, which would effectively reduce (and
could eliminate) the Fund’s returns.
PORTFOLIO
HOLDINGS INFORMATION
Information
about the Fund’s daily portfolio holdings is available at
www.horizonkinetics.com/products/etf/infl. 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”).
MANAGEMENT
Investment
Adviser
Horizon
Kinetics Asset Management LLC, located at 470 Park Avenue South, 3rd Floor
South, New York, New York 10016, 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 management program for
the Fund and manages the day-to-day investment of the Fund’s assets. The Adviser
also arranges for transfer agency, custody, fund administration, distribution
and all other services necessary for the Fund to operate. The Adviser is an
SEC-registered investment adviser that offers a broad range of portfolio
management, portfolio advisory and other business activities. As of December 31,
2021, the Adviser had approximately $6.9 billion 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.
Pursuant
to an investment advisory agreement between the Trust, on behalf of the Fund,
and the Adviser (the “Advisory Agreement”), the Adviser has agreed to pay all
expenses of the Fund except the fee payable to the Adviser under the Advisory
Agreement, interest charges on any borrowings, dividends and other expenses on
securities sold short, taxes, brokerage commissions and other expenses incurred
in placing orders for the purchase and sale of securities and other investment
instruments, acquired fund fees and expenses, accrued deferred tax liability,
extraordinary expenses, and distribution (12b-1) fees and expenses (if any).
The
basis for the Board’s approval of the Advisory Agreement is available in the
Fund’s Semi-Annual
Report
to Shareholders for the period ended June 30, 2021.
Portfolio
Managers
The
individuals identified below are jointly and primarily responsible for the day
to day management of the Fund’s portfolio are:
Steven
Bregman is the President of the Adviser and has been a Portfolio Manager for the
Fund since its inception in January 2021. In 1994, he co-founded Horizon Asset
Management LLC (“Horizon”) and currently serves as President and Director of
Research for Horizon Kinetics LLC. In April 2019, Kinetics reorganized into
Horizon and was renamed Horizon Kinetics Asset Management, LLC.
Peter
B. Doyle is a Managing Director of the Adviser, the President of Kinetic Mutual
Funds, Inc., and has been a Portfolio Manager for the Fund since its inception
in January 2021. In 1994, he co-founded Horizon and in 1996, he co-founded
Kinetics Asset Management LLC (“Kinetics”). From 1996 through 2011, Mr. Doyle
was a dual employee of both Horizon and Kinetics. In April 2019, Kinetics
reorganized into Horizon and was renamed Horizon Kinetics Asset Management,
LLC.
James
Davolos has been a Portfolio Manager for the Fund since its inception in January
2021. He joined Kinetics as an analyst in 2005, and became a Portfolio Manager
of Kinetics in 2006, focusing on, among other things, emerging markets. In April
2019, Kinetics reorganized into Horizon and was renamed Horizon Kinetics Asset
Management, LLC.
The
Fund’s SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts managed by the Portfolio Manager, and the
Portfolio Manager’s ownership of Shares.
Other
Service Providers
Foreside
Fund Services, LLC (the “Distributor”) is the principal underwriter and
distributor of the Fund’s shares. The Distributor’s principal address is Three
Canal Plaza, Suite 100, Portland, Maine 04101. The Distributor will not
distribute shares in less than whole Creation Units, and it does not maintain a
secondary market in the shares. The Distributor is a broker-dealer registered
under the Securities Exchange Act of 1934 and a member of the Financial Industry
Regulatory Authority, Inc. (“FINRA”). The Distributor has no role in determining
the policies of the Fund or the securities that are purchased or sold by the
Fund and is not affiliated with the Adviser or any of its affiliates.
U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services,
located at 615 East Michigan Street, Milwaukee, Wisconsin 53202, serves as the
administrator and transfer agent 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.
HOW
TO BUY AND SELL SHARES
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.
Book
Entry
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.
Frequent
Purchases and Redemptions of Shares
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.
Determination
of Net Asset Value
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 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).
Fair
Value Pricing
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.
DIVIDENDS,
DISTRIBUTIONS, AND TAXES
Dividends
and Distributions
The
Fund intends to pay out dividends quarterly, 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.
Taxes
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax 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 intends to elect and to qualify each year for treatment as a RIC. If it
meets certain minimum distribution requirements, a RIC is not subject to tax at
the fund level on income and gains from investments that are timely distributed
to shareholders. However, the Fund’s failure to qualify as a RIC or to meet
minimum distribution requirements would result (if certain relief provisions
were not available) in fund-level taxation and, consequently, a reduction in
income available for distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA plan, you need to be aware of the possible tax
consequences when the Fund makes distributions, when you sell your Shares listed
on the Exchange, and when you purchase or redeem Creation Units (APs
only).
Taxes
on Distributions
The
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long the Fund owned the 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. Certain of the Fund’s
investment strategies may limit its ability to distribute dividends eligible to
be treated as qualified dividend income. Corporate shareholders may be entitled
to a dividends received deduction for the portion of dividends they receive from
the Fund that are attributable to dividends received by the Fund from U.S.
corporations, subject to certain limitations. Certain of the Fund’s investment
strategies may limit its ability to distribute dividends eligible for the
dividends received deduction for corporate shareholders.
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 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.
Taxes
When Shares Are Sold on the Exchange
Any
capital gain or loss realized upon a sale of Shares generally is treated as a
long-term capital gain or loss if Shares have been held for more than one year
and as a short-term capital gain or loss if Shares have been held for one year
or less. However, any capital loss on a sale of Shares held for six months or
less is treated as long-term capital loss to the extent of Capital Gain
Dividends paid with respect to such Shares. Any loss realized on a sale will be
disallowed to the extent Shares of the Fund are acquired, including through
reinvestment of dividends, within a 61-day period beginning 30 days before and
ending 30 days after the disposition of Shares. The ability to deduct capital
losses may be limited.
The
cost basis of Shares of the Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Code. The difference between the
selling price and the cost basis of Shares generally determines the amount of
the capital gain or loss realized on the sale or exchange of Shares. Contact the
broker through whom you purchased your Shares to obtain information with respect
to the available cost basis reporting methods and elections for your account.
Taxes
on Purchases and Redemptions of Creation Units
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered, plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The
Internal Revenue Service may assert, however, that a loss that is realized upon
an exchange of securities for Creation Units may not be currently deducted under
the rules governing “wash sales” (for an AP who does not mark-to-market 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.
Any
gain or loss realized upon redemption of Creation Units is treated as capital
gain or loss or ordinary gain or loss depending on the circumstances. Any
capital gain or loss realized upon redemption of Creation Units is generally
treated as long-term capital gain or loss if Shares have been held for more than
one year and as a short-term capital gain or loss if Shares have been held for
one year or less.
The
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. The Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in kind. As a result, the Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
Net
Investment Income Tax
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8% tax
on all or a portion of their “net investment income,” which includes interest,
dividends, and certain capital gains (generally including capital gains
distributions and capital gains realized on the sale of Shares). This 3.8% tax
also applies to all or a portion of the undistributed net investment income of
certain shareholders that are estates and trusts.
Foreign
Investments by the Fund
Interest
and other income received by the Fund with respect to foreign securities may
give rise to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. If as of the close of a taxable year more than 50% of the
value of the Fund’s assets consists of certain foreign stock or securities, the
Fund will be
eligible
to elect to “pass through” to investors the amount of foreign income and similar
taxes (including withholding taxes) paid by the Fund during that taxable year.
This means that investors would be considered to have received as additional
income their respective shares of such foreign taxes, but may be entitled to
either a corresponding tax deduction in calculating taxable income, or, subject
to certain limitations, a credit in calculating federal income tax. If the Fund
does not so elect, it will be entitled to claim a deduction for certain foreign
taxes incurred by the Fund. The Fund (or a financial intermediary, such as a
broker, through which a shareholder owns Shares) will notify you if it makes
such an election and provide you with the information necessary to reflect
foreign taxes paid on your income tax return.
Investments
in Complex Securities
The
Fund intends to invest in certain MLPs and other entities which may be treated
as qualified publicly traded partnerships (“QPTP”), as defined under the Code.
In order to qualify as a RIC, the Fund must, among other requirements described
in the SAI, meet certain requirements with respect to the diversification of its
assets. The Fund’s investment in one or more of such QPTPs is limited under such
diversification requirement to no more than 25% of the value of the Fund’s
assets. The Fund will monitor its investment in such QPTPs in order to ensure it
qualifies as a RIC. Please see the discussion in the SAI regarding the
consequences if the Fund fails to qualify as a RIC under the Code. MLPs and
other partnerships that the Fund may invest in will deliver Schedule K-1 to the
Fund to report its share of income, gains, losses, deductions and credits of the
MLP or other partnership. A Schedule K-1 may be delayed and may not be received
until after the time that the Fund issues its tax reporting statements. As a
result, the Fund may at times find it necessary to reclassify the amount and
character of its distributions to you after it issues you your tax reporting
statement.
“Qualified
publicly traded partnership income” within the meaning of Section 199A(e)(5) of
the Code is eligible for a 20% deduction by non-corporate taxpayers. Qualified
publicly traded partnership income is generally income of a “publicly traded
partnership” that is not treated as a corporation for U.S. federal income tax
purposes that is effectively connected with such entity’s trade or business, but
does not include certain investment income. A “publicly traded partnership” for
purposes of this deduction is not necessarily the same as a “QPTP,” as defined
above. This deduction, if allowed in full, equates to a maximum effective tax
rate of 29.6% (37% top rate applied to income after 20% deduction). The Code
does not contain a provision permitting a RIC, such as the Fund, to pass the
special character of this income through to its shareholders. Currently, direct
investors in entities that generate “qualified publicly traded partnership
income” will enjoy the lower rate, but investors in RICs that invest in such
entities will not. It is uncertain whether future technical corrections or
administrative guidance will address this issue to enable the Fund to pass
through the special character of “qualified publicly traded partnership income”
to shareholders.
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.
DISTRIBUTION
PLAN
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, 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.
PREMIUM/DISCOUNT
INFORMATION
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.horizonkinetics.com/products/etf/infl.
ADDITIONAL
NOTICES
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.
FINANCIAL
HIGHLIGHTS
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 Fund
share. The total returns in the Fund’s 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.
For
a Share Outstanding Throughout the Period
|
|
|
|
|
|
|
Period
Ended
December
31,
2021(1) |
| Net
Asset Value, Beginning of Period |
$25.00 |
|
|
| Income
from investment operations: |
|
|
Net
investment income(2) |
0.30 |
|
| Net
realized and unrealized gain on investments |
6.19 |
|
| Total
from investment operations |
6.49 |
|
|
|
| Less
distributions paid: |
|
| From
net investment income |
(0.27) |
|
| From
net realized gains |
(0.01) |
|
| Total
distributions paid |
(0.28) |
|
|
|
| Net
Asset Value, End of Period |
$31.21 |
|
|
|
Total
return, at NAV(3) |
26.05%(4) |
|
Total
return, at Market(3) |
26.03%(4) |
|
|
| Supplemental
Data and Ratios: |
|
| Net
assets, end of period (000’s) |
$868,512 |
|
|
| Ratio
of expenses to average net assets |
0.85%(5) |
| Ratio
of net investment income to average net assets |
1.02%(5) |
|
Portfolio
turnover rate(6) |
0%(4)(7) |
(1) The
Fund commenced investment operations on January 11, 2021.
(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)
Annualized
for periods less than one year.
(6)
Excludes in-kind transactions associated with creations
and redemptions of the Fund.
(7)
Amount is less than 0.5%.
|
|
|
|
|
|
|
|
|
|
|
|
| Adviser |
Horizon
Kinetics Asset Management LLC
470
Park Avenue South, 3rd Floor South
New
York, New York 10016
|
Transfer
Agent and Administrator |
U.S.
Bancorp Fund Services, LLC
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
| Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
1350
Euclid Avenue, Suite 800
Cleveland,
Ohio 44115
|
Distributor |
Foreside
Fund Services, LLC
Three
Canal Plaza, Suite 100,
Portland,
Maine 04101 |
| 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;
•Free
of charge from the Fund’s Internet web site at
www.horizonkinetics.com/products/etf/infl; or
•For
a fee, by e-mail request to publicinfo@sec.gov.
(SEC
Investment Company Act File No. 811-23226)