ck0001683471-20211231
Roundhill Cannabis ETF (WEED)
Principal
U.S. Listing Exchange: Cboe BZX Exchange, Inc.
April 14,
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
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ROUNDHILL
CANNABIS ETF |
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OTHER
SERVICE PROVIDERS |
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NET
INVESTMENT INCOME TAX |
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TAXATION
OF REIT INVESTMENTS |
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DISTRIBUTION
PLAN |
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Investment Objective
The Roundhill Cannabis ETF
(the “Fund”) seeks capital growth.
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 |
Annual
Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
Management
Fee |
0.75% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses1
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0.00% |
Total
Annual Fund Operating Expenses |
0.75% |
Less
Fee Waiver2 |
(0.16)% |
Total
Annual Fund Operating Expenses After Fee Waiver |
0.59% |
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1
Estimated for the current fiscal
year.
2
The Fund’s investment adviser has agreement to waive 0.16% of its management
fees for the Fund until at least April 30,
2023. This agreement may be terminated only by, or with the
consent of, the Fund’s Board of Trustees.
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: |
$60 |
3
Years: |
$224 |
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. Because the Fund is newly
organized, portfolio turnover information is not yet
available.
Principal Investment
Strategy
The
Fund is an actively managed exchange-traded fund (“ETF”) that seeks to achieve
its investment objective by investing primarily in exchange-listed equity
securities and total return swaps intended to provide exposure to the cannabis
and hemp ecosystem. The cannabis and hemp ecosystem encompasses businesses
involved in the production, distribution and marketing of cannabis and hemp and
products derived therefrom. Under normal circumstances, at least 80% of the
Fund’s net assets (plus any borrowings for investment purposes) will be invested
in equity securities, including common stock and depositary receipts, of
companies and real estate investment trusts (“REITs”) that derive at least 50%
of their net revenue from, or invest a majority of their assets in, the cannabis
and hemp ecosystem (“Cannabis Companies”) and in derivatives that have economic
characteristics similar to such securities.
The
cannabis and hemp ecosystem spans a wide variety of sectors and industries
including the agriculture, biotechnology, pharmaceuticals, real estate, retail,
and finance sectors and industries. Cannabis Companies may be categorized within
any of these sectors and industries and engage in the cannabis and hemp
ecosystem in several ways, including the following:
•Production
and/or distribution of cannabis-related and/or hemp-related products, including
those for medical (including research and development) and therapeutic uses;
•Business
to business providers for the cannabis and hemp ecosystem, including technology,
agricultural technology, real estate, financing, and commercial services
companies; and/or
•Business
to consumer providers for the cannabis industry, including technology and media,
consumption devices/mechanisms, and retailing companies.
Generally,
the terms “marijuana” and “cannabis” are used interchangeably and refer to
products derived from the cannabis plant, including cannabinoids. Cannabinoids
are the chemical compounds secreted by cannabis plants. Cannabinoids can also be
synthetically produced chemical compounds and used in lawful research and
development of prescription drugs or other products utilizing cannabinoids as an
active ingredient. Hemp refers to the industrial/commercial use of the cannabis
stalk and seed for textiles, foods, papers, body care products, detergents,
plastics and building materials. The Fund will not invest directly in or hold
ownership in any companies that engage in cannabis-related business unless such
business is permitted by national and local laws of the relevant jurisdiction,
including U.S. federal and state laws.
Roundhill
Financial Inc. (the “Adviser”), the investment adviser to the Fund, uses
qualitative factors, such as publicly available company filings, publicly
available research, and press releases, to identify a universe of Cannabis
Companies by determining a company’s thematic relevance to the cannabis and hemp
ecosystem. Based on its analysis, each Cannabis Company selected for the Fund
will be assigned a weight that generally will be on a modified market
capitalization basis, to seek to create a portfolio that reflects companies that
contribute to the cannabis and hemp ecosystem through a variety of
cannabis-related products and services.
The
Fund may invest in securities issued by small, medium and large capitalization
companies operating in emerging, frontier, and developed market countries. The
Fund may purchase equity securities that trade on U.S. or non-U.S. securities
exchanges and American Depositary Receipts (“ADRs”) or Global Depositary
Receipts (“GDRs”). The Fund may invest in both equity and mortgage REITs.
Further, the Fund may utilize derivative instruments that are available or
traded on the over-the-counter (“OTC”) market or listed and traded on an
exchange to obtain expose to Cannabis Companies. The Fund anticipates investing
primarily in total return swaps to obtain such exposure. A total return swap is
a contract in which one party agrees to make periodic payments to another party
based on the change in market value of the assets underlying the contract, which
may include a specified security, basket of securities, or securities indices
during the specified period, in return for periodic payments based on a fixed or
variable interest rate or the total return from other underlying assets.
The
Fund expects to concentrate at least 25% of its investments in the
Pharmaceuticals, Biotechnology & Life Sciences Industry Group as defined by
the Global Industry Classification (GICS®) or other similar categorization scheme.
This level of exposure may change over time and in response to changes in the
cannabis and hemp ecosystem. The Fund is classified as a “non-diversified”
investment company under the Investment Company Act of 1940, as amended (the
“1940 Act”).
Principal Investment Risks
The
principal risks of investing in the Fund are summarized
below. 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:
•United
States Regulatory Risks of the Cannabis Industry. The
possession and use of marijuana, even for medical purposes, is illegal under
federal and certain states’ laws, which may negatively impact the value of the
Fund’s investments. Use of marijuana is regulated by both the federal government
and state governments, and state and federal laws regarding marijuana often
conflict. Even in those states in which the use of marijuana has been legalized,
its possession and use remains a violation of federal law. Federal law
criminalizing the use of marijuana pre-empts state laws that legalize its use
for medicinal and recreational purposes. Actions by federal regulatory agencies,
such as increased enforcement of current federal marijuana laws and the
prosecution of nonviolent federal drug crimes by the U.S. Department of Justice
(“DOJ”), could produce a chilling effect on the industry’s growth and discourage
banks from expanding their services to Cannabis Companies where such services
are currently limited. Any of these outcomes would negatively affect the
profitability and value of the Fund’s investments and even its ability to pursue
its stated investment objective. The conflict between the regulation of
marijuana under federal and state law creates volatility and risk for all
Cannabis Companies.
Because
marijuana is a Schedule I controlled substance under the Controlled Substances
Act (“CSA”), meaning that it has a high potential for abuse, has no currently
“accepted medical use” in the United States, lacks accepted safety for use under
medical supervision, and may not be prescribed, marketed or sold in the United
States, no drug product containing cannabis or cannabis extracts has been
approved for use by the Food and Drug Administration (“FDA”) or obtained
registrations for commercial production from the U.S. Drug Enforcement Agency
(“DEA”), and there is no guarantee that such products will ever be legally
produced or sold in the U.S. Cannabis Companies in the U.S. that engage in
research, manufacturing, distributing, importing or exporting, or dispensing
controlled substances must be registered (licensed) to perform these activities
and have the security, control, recordkeeping, reporting and inventory
mechanisms required by the DEA to prevent drug loss and diversion. Failure to
obtain the necessary registrations or comply with necessary regulatory
requirements may significantly impair the ability of certain companies in which
the Fund invests to pursue medical marijuana research or to otherwise cultivate,
possess or distribute marijuana. In addition, because cannabis is a Schedule I
controlled substance, Section 280E of the Internal Revenue Code of 1986
(“Internal Revenue Code”) applies by its terms to the purchase and sale of
medical-use cannabis products and provides that no deduction or credit is
allowed for expenses incurred during a taxable year “in carrying on any trade or
business if such trade or
business
(or the activities which comprise such trade or business) consists of
trafficking in controlled substances (within the meaning of Schedules I and II
of the CSA) which is prohibited by federal law or the law of any state in which
such trade or business is conducted.” The disallowance of such tax deductions
will likely affect the value of Cannabis Companies.
•Non-U.S.
Regulatory Risks of the Cannabis Industry.
Laws and regulations related to the possession, use (medical or recreational),
sale, transport and cultivation of marijuana vary throughout the world, and the
Fund will only invest in non-U.S. Cannabis Companies if such companies are
operating legally in the relevant jurisdiction. Even if a company's operations
are permitted under current law, they may not be permitted in the future, in
which case such company may not be in a position to carry on its operations in
its current locations. Additionally, controlled substance legislation differs
between countries and legislation in certain countries may restrict or limit the
ability of certain companies in which the Fund invests to sell their products.
•Operational
Risks of the Cannabis Industry. Companies
involved in the cannabis industry face intense competition, may have limited
access to the services of banks, may have substantial burdens on company
resources due to litigation, complaints or enforcement actions, and are heavily
dependent on receiving necessary permits and authorizations to engage in medical
cannabis research or to otherwise cultivate, possess or distribute cannabis.
Since the cultivation, possession, and distribution of cannabis can be illegal
under United States federal law under certain circumstances, federally regulated
banking institutions may be unwilling to make financial services available to
growers and sellers of cannabis.
•United
States Regulatory Risks of Hemp. “Hemp,”
as defined in the Agriculture Improvement Act of 2018 (the “Farm Bill”), refers
to cannabis plants with a tetrahydrocannabinol (“THC”) concentration of not more
than 0.3% on a dry weight basis, as well as derivatives thereof, whereas
“marijuana” refers to all other cannabis plants and derivatives thereof. The
Farm Bill effectively removes hemp from the list of controlled substances and
allows states to regulate its production, commerce and research with approval
from the United States Department of Agriculture (“USDA”). Certain portfolio
holdings may sell dietary supplements and/or foods containing CBD within the
United States. While the Farm Bill removes hemp and hemp-derived products from
the controlled substances list under the CSA, it does not legalize CBD in every
circumstance. CBD, depending on the source from which it was derived, can still
be classified as a Schedule I substance under the CSA’s definition of
“marihuana.” The exception for CBD from the definition of “marihuana” only
applies if the CBD is derived from “hemp.” U.S. federal law also requires that:
(i) the hemp is produced by a licensed producer; and (ii) in a manner consistent
with the applicable federal and state regulations. CBD and other cannabinoids
produced from marijuana as defined by the CSA remain an illegal Schedule I
substance under federal law. In addition, many state laws include all CBD within
definitions of marijuana and some states have policies or laws that otherwise
prohibit or restrict CBD sales.
The
Farm Bill delegates to the FDA responsibility for regulating products containing
hemp or derivatives thereof (including CBD) under the Federal Food, Drug, and
Cosmetic Act (the “FD&C”). Under the FD&C, if a substance (such as CBD)
is an active ingredient in a drug product that has been approved by the FDA,
then the substance cannot be sold in dietary supplements or foods without FDA
approval, unless the substance was marketed as a dietary supplement or as a
conventional food before the drug was approved or before the new drug
investigations were authorized. The FDA has publicly taken the position that CBD
cannot be sold in dietary supplements or foods because CBD is an active
ingredient in an FDA-approved drug. Future federal and/or state laws or
regulations could drastically curtail permissible uses of hemp, which could have
an adverse effect of the value of the Fund’s investments in companies with
business interests in hemp and hemp-based products.
The
remaining principal risks are presented in alphabetical order. Each risk
summarized below is considered a “principal risk” of investing in the Fund,
regardless of the order in which it appears.
•Counterparty
Risk. The
Fund may use swap agreements to gain exposure to a particular group of
securities, index, asset class or other reference asset without actually
purchasing those securities or investments, to hedge a position, or for other
investment purposes. Through these investments and related arrangements
(e.g.,
prime brokerage or securities lending arrangements or derivatives transactions),
the Fund is exposed to credit risks that the counterparty may be unwilling or
unable to make timely payments or otherwise to meet its contractual obligations.
If the counterparty becomes bankrupt or defaults on (or otherwise becomes unable
or unwilling to perform) its payment or other obligations to the Fund, the Fund
may not receive the full amount that it is entitled to receive or may experience
delays in recovering the collateral or other assets held by, or on behalf of,
the counterparty. If this occurs, the value of your shares in the Fund will
decrease.
•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, the
Sub-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, the Sub-Adviser or the Fund’s other service providers,
market makers, Authorized Participants 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. In an extreme case, a shareholder’s ability to
transact in Fund shares may be affected.
•Derivatives
Risk. The
Fund intends to invest in total return swaps, which are a type of derivative.
Derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies or other investments, including
risks relating to leverage, imperfect correlations with underlying investments
or the Fund’s other portfolio holdings, high price volatility, lack of
availability, counterparty credit, liquidity, valuation and legal restrictions.
Their use is a highly specialized activity that involves investment techniques
and risks different from those associated with ordinary portfolio securities
transactions. The Fund’s use of derivatives to obtain short exposure, if any,
may result in greater volatility of the Fund's NAV per share. If the Adviser and
Sub-Adviser are incorrect about their expectations of market conditions, the use
of derivatives could also result in a loss, which in some cases may be
unlimited. In addition, the Fund’s use of derivatives may cause the Fund to
realize higher amounts of short-term capital gains (generally taxed at ordinary
income tax rates) than if the Fund had not used such instruments. Some of the
derivatives in which the Fund invests may be traded (and privately negotiated)
in the OTC market. OTC derivatives are subject to heightened counterparty
credit, liquidity and valuation risks. Certain risks also are specific to the
derivatives in which the Fund invests.
◦Swap
Agreements Risk.
Swap agreements are contracts among the Fund and a counterparty to exchange the
return of the pre-determined underlying investment (such as the rate of return
of the underlying index). Swap agreements may be negotiated bilaterally and
traded OTC between two parties or, for certain standardized swaps, must be
exchange-traded through a futures commission merchant and/or cleared through a
clearinghouse that serves as a central counterparty. Risks associated with the
use of swap agreements are different from those associated with ordinary
portfolio securities transactions, due in part to the fact they could be
considered illiquid and many swaps trade on the OTC market. Swaps are
particularly subject to counterparty credit, correlation, valuation, liquidity
and leveraging risks. While exchange trading and central clearing are intended
to reduce counterparty credit risk and increase liquidity, they do not make swap
transactions risk-free. Additionally, applicable regulators have adopted rules
imposing certain margin requirements, including minimums, on OTC swaps, which
may result in the Fund and its counterparties posting higher margin amounts for
OTC swaps, which could increase the cost of swap transactions to the Fund and
impose added operational complexity.
•Depositary
Receipt Risk.
Depositary receipts, including ADRs and GDRs, involve risks similar to those
associated with investments in foreign securities, such as changes in political
or economic conditions of other countries and changes in the exchange rates of
foreign currencies. Depositary receipts listed on U.S. exchanges are issued by
banks or trust companies, and entitle the holder to all dividends and capital
gains that are paid out on the underlying foreign shares (“Underlying Shares”).
When the Fund invests in depositary receipts as a substitute for an investment
directly in the Underlying Shares, the Fund is exposed to the risk that the
depositary receipts may not provide a return that corresponds precisely with
that of the Underlying Shares. Because the Underlying Shares trade on foreign
exchanges that may be closed when the Fund’s primary listing exchange is open,
the Fund may experience premiums and discounts greater than those of funds
without exposure to such Underlying Shares.
•Emerging
and Developing Markets Risk.
The Fund’s direct or indirect investments in securities of issuers in emerging
and developing market countries are subject to all of the risks of foreign
investing generally, and have additional heightened risks due to a lack of
established legal, political, business, and social frameworks to support
securities markets, including: delays in settling portfolio securities
transactions; currency and capital controls; greater sensitivity to interest
rate changes; pervasiveness of corruption and crime; currency exchange rate
volatility; and inflation, deflation, or currency devaluation.
•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 Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Cash
Transaction Risk.
The Fund expects to effect certain of its creations and redemptions for cash,
rather than in-kind securities. The Fund may be required to sell or unwind
portfolio investments to obtain the cash needed to distribute
redemption
proceeds. This may cause the Fund to recognize a capital gain that it might not
have recognized if it had made a redemption in kind. As a result, the Fund may
pay out higher annual capital gain distributions than if the in-kind redemption
process was used. The use of cash creations and redemptions may also cause the
Fund’s shares to trade in the market at wider bid-ask spreads or greater
premiums or discounts to the Fund’s NAV. Further, effecting purchases and
redemptions primarily in cash may cause the Fund to incur certain costs, such as
portfolio transaction costs. These costs can decrease the Fund’s NAV if not
offset by an authorized participant transaction fee.
◦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 or discounts greater than those of domestic ETFs.
◦Trading. Although
Shares are listed for trading on the Cboe BZX Exchange, 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.
•Frontier
Markets Risk. Certain
foreign markets are only in the earliest stages of development and may be
considered “frontier markets.” Frontier financial markets generally are less
liquid and more volatile than other markets, including markets in developing and
emerging economies. Securities may have limited marketability and be subject to
erratic price movements. Frontier markets may be impacted by political
instability, war, terrorist activities and religious, ethnic and/or
socioeconomic unrest. These and other factors make investing in frontier market
countries significantly riskier than investing in developed market or emerging
market countries.
•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,
litigation, obsolescence of technology and an increased emphasis on the delivery
of health care through outpatient services.
◦Pharmaceuticals,
Biotechnology & Life Sciences Industry Group Risk.
The Fund will concentrate at least 25% of its investments in the
Pharmaceuticals, Biotechnology and Life Sciences Industry Group within the
Health Care Sector. Companies in the Pharmaceuticals, Biotechnology & Life
Sciences Industry Group can be significantly affected by, among other things,
government approval of products and services, government regulation and
reimbursement rates, product liability claims, patent expirations and
protection, and intense competition.
•Management
Risk. The
Fund is actively-managed and may not meet its investment objective based on the
Adviser’s and Sub-Adviser’s success or failure to implement investment
strategies for the Fund. The Sub-Adviser’s evaluations and assumptions regarding
issuers, securities, and other factors may not successfully achieve the Fund’s
investment objective given actual market conditions.
•Market
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. 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.
•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.
•New
Fund Risk. The
Fund is a recently organized investment company with no operating history. As a
result, prospective investors have no track record or history on which to base
their investment decision.
•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,
the Fund may be more exposed to the risks associated with and developments
affecting an individual issuer or a lesser number of issuers than a fund that
invests more widely. This may increase the Fund’s volatility and cause the
performance of a relatively small number of issuers to have a greater impact on
the Fund’s performance.
•Real
Estate Companies Risk.
The Fund invests in real estate companies, including REITs and real estate
holdings companies, which will expose investors to the risks of owning real
estate directly, as well as to the risks that relate specifically to the way in
which such companies are organized and operated. Real estate is highly sensitive
to general and local economic conditions and developments. The U.S. real estate
market may experience and has, in the past, experienced a decline in value, with
certain regions experiencing significant losses in property values. Many real
estate companies, including REITs, utilize leverage (and some may be highly
leveraged), which increases investment risk and the risk normally associated
with debt financing, and could potentially increase the Fund’s volatility and
losses. Exposure to such real estate may adversely affect Fund performance.
•REITs
Risk. REITs are subject to the risks associated
with investing in the securities of real property companies. In particular,
REITs may be affected by changes in the values of the underlying properties that
they own or operate. Residential/diversified REITs and commercial equity REITs
may be affected by changes in the value of the underlying property owned by the
trusts, while mortgage REITs may be affected by the quality of any credit
extended. Further, REITs are dependent upon specialized management skills, and
their investments may be concentrated in relatively few properties, or in a
small geographic area or a single property type. REITs are also subject to heavy
cash flow dependency and, as a result, are particularly reliant on the proper
functioning of capital markets. A variety of economic and other factors may
adversely affect a lessee's ability to meet its obligations to a REIT. In the
event of a default by a lessee, the REIT may experience delays in enforcing its
rights as a lessor and may incur substantial costs associated in protecting its
investments. In addition, a REIT could fail to qualify for favorable regulatory
treatment.
Performance
The Fund is new and therefore does not have a
performance history for a full calendar year. 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.roundhillinvestments.com.
Portfolio
Management
|
|
|
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Adviser |
Roundhill
Financial Inc. |
Sub-Adviser |
Exchange
Traded Concepts, LLC (the “Sub-Adviser”) |
Portfolio
Managers |
Will
Hershey, Timothy Maloney, Mario Stefanidis, and Drew Walsh, each a
portfolio manager for the Adviser, and Andrew Serowik, Todd Alberico, and
Gabriel Tan, each a portfolio manager for the Sub-Adviser, have been
portfolio managers of the Fund since its inception in April 2022
|
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.roundhillinvestments.com.
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 Strategy
In
accordance with Rule 35d-1 under the 1940 Act, the Fund has adopted a
non-fundamental investment policy to invest, under normal circumstances, at
least 80% of its net assets (plus borrowings for investment purposes) in equity
securities, including common stock and depositary receipts, of companies and
REITs that receive at least 50% of their revenue or profits from, or invest a
majority of their assets in, the cannabis and hemp ecosystem, and in derivatives
that have economic characteristics similar to such securities. Such policy may
be changed without shareholder approval upon 60 days’ written notice to
shareholders.
For
temporary defensive purposes, the Fund may invest in short-term instruments such
as commercial paper and/or repurchase agreements collateralized by U.S.
government securities. 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 decision.
•United
States Regulatory Risks of the Marijuana Industry. The
possession and use of marijuana, even for medical purposes, is illegal under
federal and certain states’ laws, which may negatively impact the value of the
Fund’s investments. Use of marijuana is regulated by both the federal government
and state governments, and state and federal laws regarding marijuana often
conflict. Marijuana is a Schedule I controlled substance under the CSA and is
illegal under federal law. Currently, over half of the states plus the District
of Columbia have laws and/or regulations that recognize, in one form or another,
legitimate medical uses for cannabis and consumer use of cannabis in connection
with medical treatment or for non-medical purposes. Even in those states in
which the use of marijuana for medical or non-medical purposes has been
legalized, its sale and use remains a violation of federal law. Federal law
criminalizing the use of marijuana pre-empts state laws that legalizes its use
for medicinal and recreational purposes. The priority for enforcement of federal
marijuana laws may vary by presidential administrations. It is not yet known
whether the current administration will push back against states where marijuana
use and possession is legal and step up the enforcement of federal marijuana
laws and the prosecution of nonviolent federal drug crimes. Such actions could
produce a chilling effect on the industry’s growth and discourage banks from
expanding their services to Cannabis Companies. This conflict between the
regulation of marijuana under federal and state law creates volatility and risk
for all Cannabis Companies. In particular, the stepped up enforcement of
marijuana laws by the federal government would adversely affect the value of the
Fund’s U.S. investments. Certain companies engaged in the cannabis business may
never be able to legally produce and sell products in the United States or other
national or local jurisdictions.
As
noted above, marijuana is a Schedule I controlled substance in the United States
under the CSA. The DEA classifies controlled substances into five schedules:
Schedule I, II, III, IV or V substances. Schedule I substances by definition
have a high potential for abuse, have no currently “accepted medical use” in the
United States, lack accepted safety for use under medical supervision, and may
not be prescribed, marketed or sold in the United States. Pharmaceutical
products approved by the FDA for use in the United States may be listed as
Schedule II, III, IV or V, with Schedule II substances considered to present the
highest potential for abuse or dependence and Schedule V substances the lowest
relative risk among such substances.
Few
drug products containing natural cannabis or naturally-derived cannabis extracts
have been approved by the FDA for use in the United States or obtained DEA
registrations for commercial production. Drug products containing cannabis or
cannabis extracts that receive the required government approvals for use in
commercial production may be subject to significant government regulation
regarding manufacture, importation, exportation, domestic distribution, storage,
sale, and legitimate use. In addition, the scheduling process may take one or
more years, thereby delaying the launch of the drug product in the United
States.
Cannabis
Companies in the U.S. that engage in medical or pharmaceutical research or the
production and distribution of controlled substances such as marijuana must be
registered with the DEA to perform such activities and have the security,
control, recordkeeping, reporting and inventory mechanisms required by the DEA
to prevent drug loss and diversion. Failure to obtain the necessary
registrations or comply with necessary regulatory requirements may significantly
impair the ability of certain companies in which the Fund invests to pursue
medical marijuana research or to otherwise cultivate, possess or distribute
marijuana.
Additionally,
federal tax law prohibits a taxpayer from claiming a deduction or credit for any
amount paid or incurred during the tax year in carrying on any trade or business
if that trade or business (or the activities that comprise that trade or
business) consists of trafficking in controlled substances (e.g., marijuana)
where that trafficking is prohibited by either federal law or the state law
for
the state in which the trade or business is conducted. Consequently, companies
engaged in the cannabis business may pay higher amounts of taxes than
non-cannabis companies, which could result in less income to the Fund and, in
turn, less for the Fund to distribute to shareholders.
•Non-U.S.
Regulatory Risks of the Cannabis Industry.
Laws and regulations related to the possession, use (medical or recreational),
sale, transport and cultivation of marijuana vary throughout the world, and the
Fund will only invest in non-U.S. Cannabis Companies if such companies are
operating legally in the relevant jurisdiction. Even if a company's operations
are permitted under current law, they may not be permitted in the future, in
which case such company may not be in a position to carry on its operations in
its current locations. Additionally, controlled substance legislation differs
between countries and legislation in certain countries may restrict or limit the
ability of certain companies in which the Fund invests to sell their
products.
•Operational
Risks of the Cannabis Industry. Companies
involved in the cannabis industry face intense competition, may have limited
access to the services of banks, and are heavily dependent on receiving
necessary permits and authorizations to engage in medical cannabis research or
to otherwise cultivate, possess or distribute cannabis. Since the cultivation,
possession, and distribution of cannabis can be illegal under United States
federal law under certain circumstances, federally regulated banking
institutions may be unwilling to make financial services available to growers
and sellers of cannabis.
Companies
participating in the cannabis industry may face litigation, formal or informal
complaints, enforcement actions, and inquiries by various federal, state, or
local governmental authorities. Litigation, complaints, and enforcement actions
could consume considerable amounts of financial and other corporate resources,
which could have a negative impact on sales, revenue, profitability, and growth
prospects. Similarly, certain companies may not be able to obtain or maintain
the necessary licenses, permits, authorizations, or accreditations, or may only
be able to do so at great cost, to engage in medical marijuana research or to
otherwise cultivate, possess or distribute marijuana. Failure to comply with or
to obtain the necessary licenses, permits, authorizations, or accreditations
could result in restrictions on a company’s ability to legally engage in medical
marijuana research or to otherwise cultivate, possess or distribute marijuana,
which could have a negative impact on the value of the Fund’s
investments.
•United
States Regulatory Risks of Hemp. The
Farm Bill effectively removes hemp from the list of controlled substances and
allows states to regulate its production, commerce and research with approval
from the USDA. Certain portfolio holdings constituents may sell dietary
supplements and/or foods containing CBD within the United States. While the Farm
Bill removes hemp and hemp-derived products from the controlled substances list
under the CSA, it does not legalize CBD in every circumstance. CBD, depending on
the source from which it was derived, can still be classified as a Schedule I
substance under the CSA’s definition of “marihuana.” The exception for CBD from
the definition of “marihuana” only applies if the CBD is derived from “hemp.”
U.S. federal law also requires that: (i) the hemp is produced by a licensed
producer; and (ii) in a manner consistent with the applicable federal and state
regulations. CBD and other cannabinoids produced from marijuana as defined by
the CSA remain an illegal Schedule I substance under federal law. In addition,
many state laws include all CBD within definitions of marijuana and some states
have policies or laws that otherwise prohibit or restrict CBD sales.
The
Farm Bill delegates to the FDA responsibility for regulating products containing
hemp or derivatives thereof (including CBD) under the FD&C. Under the
FD&C, if a substance (such as CBD) is an active ingredient in a drug product
that has been approved by the FDA, then the substance cannot be sold in dietary
supplements or foods without FDA approval, unless the substance was marketed as
a dietary supplement or as a conventional food before the drug was approved or
before the new drug investigations were authorized. The FDA has publicly taken
the position that CBD cannot be sold in dietary supplements or foods because CBD
is an active ingredient in an FDA-approved drug. However, companies that sell
CBD in dietary supplements and foods have taken the position that CBD was
marketed as a dietary supplement and/or as a conventional food before the drug
was approved or before the new drug investigations were authorized, and because
the FDA has not brought enforcement action against such companies, this question
of fact has not yet been adjudicated. In the absence of a conclusive legal
determination to the contrary, as of the date of this Prospectus, it has not
been determined that the sale of dietary supplements and/or foods containing CBD
within the United States would cause a company’s securities to be ineligible for
inclusion in the Fund’s portfolio. It is possible that such a legal
determination or future federal and/or state laws or regulations could
drastically curtail permissible uses of hemp, which could have an adverse effect
of the value of the Fund’s investments in companies with business interests in
hemp and hemp-based products.
The
remaining principal risks are presented in alphabetical order. Each risk
summarized below is considered a “principal risk” of investing in the Fund,
regardless of the order in which it appears.
•Counterparty
Risk. Counterparty
risk is the risk that a counterparty to Fund transactions (e.g.,
prime brokerage or securities lending arrangement or derivatives transaction)
will be unable or unwilling to perform its contractual obligation to the Fund.
The Fund may use swap agreements for the purpose of seeking to gain exposure to
a particular group of securities, index, asset class or reference asset without
actually purchasing those securities or investments, or seeking to hedge a
position. Such financial instruments may include, among others, total return,
index, interest rate, and credit default swap agreements. The Fund may use
counterparty
agreements to exchange the returns (or differentials in rates of return) earned
or realized in particular predetermined investments or instruments. Through
these investments and related arrangements (e.g.,
prime brokerage or securities lending arrangements or derivatives transactions),
the Fund is exposed to credit risks that the counterparty may be unwilling or
unable to make timely payments or otherwise meet its contractual obligations. If
the counterparty becomes bankrupt or defaults on (or otherwise becomes unable or
unwilling to perform) its payment or other obligations to the Fund, the risk of
which is particularly acute under current conditions, the Fund may not receive
the full amount that it is entitled to receive or may experience delays in
recovering the collateral or other assets held by, or on behalf of, the
counterparty. If this occurs, or if exercising contractual rights involves
delays or costs for the Fund, the value of your shares in the Fund may
decrease.
The
Fund bears the risk that counterparties may be adversely affected by legislative
or regulatory changes, adverse market conditions (such as the current
conditions), increased competition, and/or wide scale credit losses resulting
from financial difficulties of the counterparties’ other trading partners or
borrowers.
•Currency
Exchange Rate Risk.
Changes in currency exchange rates and the relative value of non-U.S. currencies
will affect the value of the Fund’s investments and the value of your Shares.
Because the Fund’s NAV is determined on the basis of U.S. dollars, the U.S.
dollar value of your investment in the Fund may go down if the value of the
local currency of the non-U.S. markets in which the Fund invests depreciates
against the U.S. dollar. This is true even if the local currency value of
securities in the Fund’s holdings goes up. Conversely, the dollar value of your
investment in the Fund may go up if the value of the local currency appreciates
against the U.S. dollar. The value of the U.S. dollar measured against other
currencies is influenced by a variety of factors. These factors include:
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. Political
instability, the possibility of government intervention and restrictive or
opaque business and investment policies may also reduce the value of a country’s
currency. Government monetary policies and the buying or selling of currency by
a country’s government may also influence exchange rates. 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 cyberattacks and/or technological
malfunctions. In general, cyberattacks are deliberate, but unintentional events
may have similar effects. Cyberattacks 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, the
Sub-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, the Sub-Adviser or the Fund’s other service providers, market makers,
Authorized Participants 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, cyberattacks 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.
Cyberattacks 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 intends to invest in total return swaps, which are a type of
derivative. The Fund may invest in swap agreements to pursue its investment
objective and to create economic leverage in the Fund; to seek to enhance total
return; to seek to hedge against fluctuations in securities prices, interest
rates, currency rates, etc.; to seek to change the effective duration of the
Fund’s portfolio; to seek to manage certain investment risks; as a substitute
for the purchase or sale of securities or currencies; and/or to obtain or
replicate market exposure. The use of such derivatives may expose the Fund to
risks in addition to and greater than those associated with investing directly
in the instruments underlying those derivatives, including risks relating to
leverage, correlation (imperfect correlations with underlying instruments or the
Fund’s other portfolio holdings), high price volatility, lack of availability,
counterparty credit, liquidity, valuation and legal restrictions. The use of
such derivatives also may expose the Fund to the performance of securities that
the Fund does not own. The skills necessary to successfully execute derivatives
strategies may be different from those for more traditional portfolio management
techniques, and if the Adviser and Sub-Adviser are incorrect about their
expectations of market conditions, the use of derivatives also could result in a
loss, which in some cases may be unlimited. Use of derivatives also may cause
the Fund to be subject to additional regulations, which may generate additional
Fund expenses. These practices also entail transactional expenses and may cause
the Fund to realize higher amounts of short-term capital gains than if the Fund
had not engaged in such transactions. The markets for certain derivatives,
including those
located
in certain foreign countries, are relatively new and still developing, which may
expose the Fund to increased counterparty credit and liquidity risks.
Certain
of the derivatives in which the Fund invests are traded (and privately
negotiated) in the OTC market. OTC derivatives are complex and often valued
subjectively, which exposes the Fund to heightened liquidity, mispricing and
valuation risks. Improper valuations can result in increased cash payment
requirements to counterparties or a loss of value to the Fund. In addition, OTC
derivative instruments are often highly customized and tailored to meet the
needs of the Fund and its trading counterparties. If a derivative transaction is
particularly large or if the relevant market is illiquid, it may not be possible
to initiate a transaction or liquidate a position at an advantageous time or
price. As a result and similar to other privately negotiated contracts, the Fund
is subject to counterparty credit risk with respect to such derivative
contracts. Certain derivatives are subject to mandatory exchange trading and/or
clearing, which exposes the Fund to the credit risk of the clearing broker or
clearinghouse. While exchange trading and central clearing are intended to
reduce counterparty credit risk and to increase liquidity, they do not make
derivatives transactions risk-free. Certain risks also are specific to the
derivatives in which the Fund invests.
◦Swap
Agreements Risk.
Swap agreements are contracts for periods ranging from one day to more than one
year and may be negotiated bilaterally and traded OTC between two parties or,
for certain standardized swaps, must be exchange-traded through a futures
commission merchant or swap execution facility and/or cleared through a
clearinghouse that serves as a central counterparty. In a standard swap
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments. The Fund may enter into swap agreements, including, but not limited
to total return swaps, index swaps, interest rate swaps, municipal market data
rate locks, and credit default swaps. The Fund may utilize swap agreements in an
attempt to gain exposure to certain securities without purchasing those
securities to speculate on the movement of such securities or to hedge a
position. Risks associated with the use of swap agreements are different from
those associated with ordinary portfolio securities transactions, largely due to
the fact they could be considered illiquid and many swaps currently trade on the
OTC market. Swaps are particularly subject to counterparty credit, correlation,
valuation, liquidity and leveraging risks and could result in substantial losses
to the Fund.
As
noted above, certain standardized swaps are subject to mandatory exchange
trading and central clearing. While exchange trading and central clearing are
intended to reduce counterparty credit risk and increase liquidity, they do not
make swap transactions risk-free. Additionally, the Commodity Futures Trading
Commission (the “CFTC”) and other applicable regulators have adopted rules
imposing certain margin requirements, including minimums, on OTC swaps, which
may result in the Fund and its counterparties posting higher margin amounts for
OTC swaps, which could increase the cost of swap transactions to the Fund and
impose added operational complexity. The Dodd-Frank Act and related regulatory
developments require the clearing and exchange-trading of many OTC derivative
instruments that the CFTC and the SEC have defined as “swaps.” Mandatory
exchange-trading and clearing are occurring on a phased-in basis based on the
type of market participant and CFTC approval of contracts for central clearing.
The Advisor will continue to monitor developments in this area, particularly to
the extent regulatory changes affect the Fund’s ability to enter into swap
agreements.
•Depositary
Receipt Risk.
The Fund may hold the securities of non-U.S. companies in the form of depositary
receipts, including ADRs and GDRs. ADRs are negotiable certificates issued by a
U.S. financial institution that represent a specified number of shares in a
foreign stock and trade on a U.S. national securities exchange, such as the New
York Stock Exchange (“NYSE”). Sponsored ADRs are issued with the support of the
issuer of the foreign stock underlying the ADRs and carry all of the rights of
common shares, including voting rights. GDRs are similar to ADRs, but may be
issued in bearer form and are typically offered for sale globally and held by a
foreign branch of an international bank. The underlying issuers of certain
depositary receipts, particularly unsponsored or unregistered depositary
receipts, are under no obligation to distribute shareholder communications to
the holders of such receipts, or to pass through to them any voting rights with
respect to the deposited securities. Issuers of unsponsored depositary receipts
are not contractually obligated to disclose material information in the U.S.
and, therefore, such information may not correlate to the market value of the
unsponsored depositary receipt. The Underlying Shares are usually denominated or
quoted in currencies other than the U.S. dollar. As a result, changes in foreign
currency exchange rates may affect the value of the Fund’s portfolio. In
addition, because the Underlying Shares trade on foreign exchanges at times when
the U.S. markets are not open for trading, the value of the Underlying Shares
may change materially at times when the U.S. markets are not open for trading,
regardless of whether there is an active U.S. market for Shares.
•Emerging
and Developing Markets Risk.
Emerging and developing markets are subject to greater market volatility, lower
trading volume, political and economic instability, uncertainty regarding the
existence of trading markets and more governmental limitations on foreign
investment than more developed markets. In addition, securities in emerging and
developing markets may be subject to greater price fluctuations than securities
in more developed markets. Differences in regulatory, accounting, auditing, and
financial reporting and recordkeeping standards could impede the Adviser’s
ability to evaluate local companies and impact the Fund’s performance. There
also may be limitations on the rights and remedies available to investors in
emerging and developing market companies compared to those associated with U.S.
companies. In addition, brokerage and other transaction costs on foreign
securities exchanges are often higher than in the U.S. and there is generally
less government supervision and regulation of exchanges, brokers and issuers in
foreign countries.
•Equity
Market Risk. Common
stocks are susceptible to general stock market fluctuations and to volatile
increases and decreases in value as market confidence in and perceptions of
their issuers change. These investor perceptions are based on various and
unpredictable factors including: expectations regarding government, economic,
monetary and fiscal policies; inflation and interest rates; economic expansion
or contraction; and global or regional political, economic and banking crises.
If you held common stock, or common stock equivalents, of any given issuer, you
would generally be exposed to greater risk than if you held preferred stocks and
debt obligations of the issuer because common stockholders, or holders of
equivalent interests, generally have inferior rights to receive payments from
issuers in comparison with the rights of preferred stockholders, bondholders,
and other creditors of such issuers.
•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.
◦Cash
Transaction Risk.
The Fund expects to effect certain of its creations and redemptions for cash,
rather than in-kind securities. The Fund may be required to sell or unwind
portfolio investments to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to recognize a capital gain that it might not
have recognized if it had made a redemption in kind. As a result, the Fund may
pay out higher annual capital gain distributions than if the in-kind redemption
process was used. The use of cash creations and redemptions may also cause the
Fund’s shares to trade in the market at wider bid-ask spreads or greater
premiums or discounts to the Fund’s NAV. Further, effecting purchases and
redemptions primarily in cash may cause the Fund to incur certain costs, such as
portfolio transaction costs. These costs can decrease the Fund’s NAV if not
offset by an authorized participant transaction fee.
◦Costs
of Buying or Selling Shares. Investors
buying or selling Shares in the secondary market will pay brokerage commissions
or other charges imposed by brokers, as determined by that broker. Brokerage
commissions are often a fixed amount and may be a significant proportional cost
for investors seeking to buy or sell relatively small amounts of Shares. In
addition, secondary market investors will also incur the cost of the difference
between the price at which an investor is willing to buy Shares (the “bid”
price) and the price at which an investor is willing to sell Shares (the “ask”
price). This difference in bid and ask prices is often referred to as the
“spread” or “bid/ask spread.” The bid/ask spread varies over time for Shares
based on trading volume and market liquidity, and is generally lower if Shares
have more trading volume and market liquidity and higher if Shares have little
trading volume and market liquidity. Further, a relatively small investor base
in the Fund, asset swings in the Fund and/or increased market volatility may
cause increased bid/ask spreads. Due to the costs of buying or selling Shares,
including bid/ask spreads, frequent trading of Shares may significantly reduce
investment results and an investment in Shares may not be advisable for
investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. Although it is expected that the market price of Shares will
approximate the Fund’s NAV, there may be times when the market price of Shares
is more than the NAV intra-day (premium) or less than the NAV intra-day
(discount) due to supply and demand of Shares or during periods of market
volatility. This risk is heightened in times of market volatility or periods of
steep market declines and periods when there is limited trading activity for
Shares in the secondary market, in which case such premiums or discounts may be
significant. The market price of Shares during the trading day, like the price
of any exchange-traded security, includes a “bid/ask” spread charged by the
exchange specialist, market makers or other participants that trade Shares. In
times of severe market disruption, the bid/ask spread can increase
significantly. At those times, Shares are most likely to be traded at a discount
to NAV, and the discount is likely to be greatest when the price of Shares is
falling fastest, which may be the time that you most want to sell your Shares.
The Adviser believes that, under normal market conditions, large market price
discounts or premiums to NAV will not be sustained because of arbitrage
opportunities. 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 or 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 than a U.S. issuer. Non-U.S. issuers may be
subject to different accounting, auditing, financial reporting and investor
protection standards than U.S. issuers. Investments in non-U.S. securities 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. Each of these factors can make investments in the Fund more volatile and
potentially less liquid than other types of investments.
•Frontier
Markets Risk.
Certain foreign markets are only in the earliest stages of development and may
be considered “frontier markets.” Frontier financial markets generally are less
liquid and more volatile than other markets, including markets in developing and
emerging economies. Frontier markets have a high concentration of market
capitalization and trading volume in a small number of issuers representing a
limited number of industries. Securities may have limited marketability and be
subject to erratic price movements. Frontier market governments typically
exercise substantial influence over many aspects of the private sector. In
certain cases, the government owns or controls many companies, including the
largest company in the country. Accordingly, governmental actions in the future
could have a significant effect on economic conditions in frontier market
countries. This could affect private sector companies and the Fund, as well as
the value of securities in the Fund’s portfolio. Further, substantial
limitations may exist in certain frontier market countries with respect to the
Fund’s ability to protect its legal interests and ability to repatriate its
investment, investment income or capital gains. The Fund could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation of capital, as well as by the application to the Fund of any
restrictions on investment. Procedures concerning transaction settlement and
dividend collection may be less reliable than in developed markets and larger
emerging markets. Frontier markets have been, and may continue to be, impacted
by political instability, war, terrorist activities and religious, ethnic and/or
socioeconomic unrest. These and other factors make investing in frontier market
countries significantly riskier than investing in developed market or emerging
market countries.
•Health
Care Sector Risk.
Health care companies 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. Health care companies 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 the 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 field 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.
◦Pharmaceuticals,
Biotechnology & Life Sciences Industry Group Risk. The
Fund will concentrate at least 25% of its investments in the Pharmaceuticals,
Biotechnology and Life Sciences Industry Group within the Health Care Sector.
Companies in the Pharmaceuticals, Biotechnology & Life Sciences Industry
Group can be significantly affected by, among other things, government approval
of products and services, government regulation and reimbursement rates, product
liability claims, patent expirations and protection, and intense
competition.
•Management
Risk. The
Fund is actively-managed and may not meet its investment objective based on the
Adviser’s and Sub-Adviser’s success or failure to implement investment
strategies for the Fund.
•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.
•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. Some medium capitalization companies have limited product lines,
markets, financial resources, and management personnel and tend to concentrate
on fewer geographical markets relative to large-capitalization companies.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
larger-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than larger capitalization stocks or the stock
market as a whole. Some small capitalization companies have limited product
lines, markets, and financial and managerial resources and tend to concentrate
on fewer geographical markets relative to larger capitalization companies. There
is typically less publicly available information concerning
smaller-capitalization companies than for larger, more established companies.
Small-capitalization companies also may be particularly sensitive to changes in
interest rates, government regulation, borrowing costs and earnings.
•New
Fund Risk. The
Fund is a recently organized investment company with no operating history. As a
result, prospective investors have no track record or history on which to base
their investment decision. Moreover, investors will not be able to evaluate the
Fund against one or more comparable funds on the basis of relative performance
until the Fund has established a track record.
•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 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
lesser number of issuers than a fund that invests more widely. This may increase
the Fund’s volatility and cause the performance of a relatively small number of
issuers to have a greater impact on the Fund’s performance.
•Real
Estate Companies Risk.
The Fund invests in real estate companies, including REITs and real estate
holdings companies, which will expose investors to the risks of owning real
estate directly, as well as to the risks that relate specifically to the way in
which such companies are organized and operated. Real estate is highly sensitive
to general and local economic conditions and developments. The U.S. real estate
market may, in the future, experience and has, in the past, experienced a
decline in value, with certain regions experiencing significant losses in
property values. Many real estate companies, including REITs, utilize leverage
(and some may be highly leveraged), which increases investment risk and the risk
normally associated with debt financing, and could potentially increase the
Fund’s volatility and losses. Exposure to such real estate may adversely affect
Fund performance.
•REITs
Risk.
Investments in REITs involve unique risks. REITs may have limited financial
resources, may trade less frequently and in limited volume, and may be more
volatile than other securities. In addition, to the extent the Fund holds
interests in REITs, it is expected that investors in the Fund will bear two
layers of asset-based management fees and expenses (directly at the Fund level
and indirectly at the REIT level). The risks of investing in REITs include
certain risks associated with the direct ownership of real estate and the real
estate industry in general. These include risks related to general, regional and
local economic conditions; fluctuations in interest rates and property tax
rates; shifts in zoning laws, environmental regulations and other governmental
action such as the exercise of eminent domain; increased operating expenses;
lack of availability of mortgage funds or other limits to
accessing
the credit or capital markets; losses due to natural disasters; overbuilding;
losses due to casualty or condemnation; changes in property values and rental
rates; and other factors.
In
addition to these risks, residential/diversified REITs and commercial equity
REITs may be affected by changes in the value of the underlying property owned
by the trusts, while mortgage REITs may be affected by the quality of any credit
extended. Further, REITs are dependent upon management skills and generally may
not be diversified. REITs are also subject to heavy cash flow dependency,
defaults by borrowers or lessees and self-liquidation. In addition, U.S. REITs
are subject to special U.S. federal tax requirements. A U.S. REIT that fails to
comply with such tax requirements may be subject to U.S. federal income
taxation, which may affect the value of the REIT and the characterization of the
REIT’s distributions. The U.S. federal tax requirement that a REIT distributes
substantially all of its net income to its shareholders may result in the REIT
having insufficient capital for future expenditures. A REIT that successfully
maintains its qualification may still become subject to U.S. federal, state and
local taxes, including excise, penalty, franchise, payroll, mortgage recording,
and transfer taxes, both directly and indirectly through its subsidiaries. In
the event of a default by a borrower or lessee, the REIT may experience delays
in enforcing its rights as a mortgagee or lessor and may incur substantial costs
associated with protecting investments.
PORTFOLIO
HOLDINGS INFORMATION
Information
about the Fund’s daily portfolio holdings is available at
www.roundhillinvestments.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”).
MANAGEMENT
Adviser
Roundhill
Financial Inc., a Delaware corporation located at 154 West 14th Street, 2nd
Floor, New York, New York 10011, serves as the investment adviser for the Fund.
The Adviser oversees the day-to-day operations of the Fund, subject to the
general supervision and oversight of the Board of Trustees (the “Board”) of
Listed Funds Trust (the “Trust”). The Adviser also arranges for sub-advisory,
transfer agency, custody, fund administration, distribution and all other
services necessary for the Fund to operate. The Adviser is an SEC-registered
investment adviser. As of March 31, 2022, the Adviser had approximately $1.1
billion in assets under management.
The
Adviser continuously reviews, supervises, and administers the Fund’s investment
program. In particular, the Adviser provides investment and operational
oversight of the Sub-Adviser. The Board supervises the Adviser and establishes
policies that the Adviser must follow in its day-to-day management
activities. 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 of 0.75% of the Fund’s average daily net assets.
However, the Adviser has contractually agreed to waive 0.16% of its unified
management fee for the Fund until at least April 30, 2023. The fee waiver
agreement may only be terminated by, or with the consent of, the Fund’s Board of
Trustees.
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
Adviser, in turn, compensates the Sub-Adviser from the management fee it
receives.
The
basis for the Board’s approval of the Advisory Agreement will be included in the
Fund’s first Semi-Annual Report to Shareholders following commencement of
operations.
Sub-Adviser
Exchange
Traded Concepts, LLC, an Oklahoma limited liability company located at 10900
Hefner Pointe Drive, Suite 400, Oklahoma City, Oklahoma 73120, is responsible
for the day-to-day management of the Fund. An SEC-registered investment adviser
formed in 2018, the Sub-Adviser is majority owned by Cottonwood ETF Holdings
LLC. As of March 31, 2022, the Sub-Adviser had approximately $7.54 billion under
management.
The
Sub-Adviser is responsible for trading portfolio securities for the Fund,
including selecting broker-dealers to execute purchase and sale transactions or
in connection with any rebalancing or reconstitution of the Fund, subject to the
supervision of the Adviser and the Board. For its services, the Sub-Adviser is
entitled to a fee by the Adviser, which fee is calculated daily and paid
monthly, at an annual rate based on the accumulative average daily net assets of
each fund advised (or sponsored) by the Adviser and sub-advised by the
Sub-Adviser, and subject to a minimum annual fee as follows:
|
|
|
|
|
|
Minimum
Annual Fee |
Asset-Based
Fee |
|
|
$15,000 |
4
bps (0.04%) on the first $200 million 3.5 bps (0.035%) on the next $800
million 3 bps (0.030%) on the next $1 billion 2.5 bps (0.025%) on
the balance over $2 billion |
The
basis for the Board’s approval of the Sub-Advisory Agreement will be included in
the Fund’s first Semi-Annual Report to Shareholders following commencement of
operations.
Portfolio
Managers
The
individuals identified below are jointly and primarily responsible for the
day-to-day management of the Fund’s portfolio.
Mr.
Hershey co-founded the Adviser in late 2018. He began his career at Yorkville
ETF Advisors, continuing with Yorkville Capital Management after the sale of
Yorkville’s ETF business. During his career, he held various roles, including
Head Trader for a Yorkville’s long/short energy hedge fund. He graduated from
Vanderbilt University in 2011 with a degree in Economics. Mr. Hershey is a CFA
Charterholder.
Mr.
Maloney co-founded the Adviser in late 2018. He began his career at Morgan
Stanley as a Foreign-Exchange and Emerging Markets salesperson. He later joined
Wells Capital, where he traded investment grade bonds for a $35 billion
fixed-income portfolio. He graduated from Vanderbilt University in 2011 with a
degree in Economics, and in 2012 with a Masters of Science in Finance (MSF). Mr.
Maloney is a CFA Charterholder.
Mr.
Stefanidis joined the Adviser in 2020. Prior to joining the Adviser, he was a
strategist in the BlackRock Fixed Income ETF portfolio management team since
2017, where he participated in the research and development of new funds and
provided trade and execution guidance to institutional clients. He graduated
from Fordham University in 2017, summa cum laude, with a Bachelor of Science
degree in Finance.
Mr.
Walsh joined the Adviser in 2021. He began his career at REX Shares in 2018,
continuing with Osprey Funds after the spin out of REX Share’s digital asset
subsidiary until joining the Adviser. He graduated from the University of
Vermont in 2017, with a Bachelor of Arts degree in English.
Mr.
Serowik joined the Sub-Adviser from Goldman Sachs. He began his career at Spear,
Leeds & Kellogg (“SLK”), continuing with Goldman after its acquisition of
SLK. During his career of more than 18 years at the combined companies, he held
various roles, including managing the global Quant ETF Strats team and One Delta
ETF Strats. He designed and developed systems for portfolio risk calculation,
algorithmic ETF trading, and execution monitoring, with experience across all
asset classes. He graduated from the University of Michigan with a Bachelor of
Business Administration degree in Finance.
Mr.
Alberico joined the Sub-Adviser in November 2020, having spent the past 14 years
in ETF trading at Goldman Sachs, Cantor Fitzgerald, and, most recently, Virtu
Financial. He spent most of that time focused on the Trading and Portfolio Risk
Management of ETFs exposed to international and domestic equity. He has worked
on several different strategies including lead market-making and electronic
trading, to customer facing institutional business developing models for block
trading as well as transitional trades. Mr. Alberico graduated from St.
John’s University in NY with a Bachelor of Science degree in
Finance.
Mr.
Tan joined the Sub-Adviser in May 2019 as an Associate Portfolio Manager and was
promoted to Portfolio Manager in December 2020. He began his career at UBS and
BBR Partners where he worked as a financial planning analyst and a portfolio
strategist for over four years. During his time there, he developed
comprehensive wealth management solutions focused on portfolio optimization,
trust and estate planning, and tax planning. Mr. Tan graduated from the
University of North Carolina at Chapel Hill with a Bachelor of Science in
Business Administration with a concentration in Investments, a Bachelor of Arts
in Economics, and a Minor in Chinese.
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.
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, Sub-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.
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
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 or Sub-Adviser will be able to obtain the fair value assigned
to the security upon the sale of such security.
Investments
by Registered Investment Companies
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.
DIVIDENDS,
DISTRIBUTIONS, AND TAXES
Dividends
and Distributions
The
Fund expects to pay out dividends, if any, and distribute any net realized
capital gains to its shareholders at least annually. The Fund will declare and
pay capital gain distributions, if any, in cash. Distributions in cash may be
reinvested automatically in additional whole Shares only if the broker through
whom you purchased Shares makes such option available. Your broker is
responsible for distributing the income and capital gain distributions to you.
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.
The
Fund intends to elect and to qualify each year for treatment as a regulated
investment company (a “RIC”). If it meets certain minimum distribution
requirements, a RIC is not subject to tax at the fund level on income and gains
from investments that are timely distributed to shareholders. However, the
Fund’s failure to qualify as a RIC or to meet minimum distribution requirements
would result (if certain relief provisions were not available) in fund-level
taxation and, consequently, a reduction in income available for distribution to
shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA plan, you need to be aware of the possible tax
consequences when the Fund makes distributions, when you sell your Shares listed
on the Exchange, and when you purchase or redeem Creation Units (APs only).
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), provided that
certain capital gain dividends attributable to dividends the Fund receives from
REITs (i.e.,
“unrecaptured section 1250 gain”) may be taxable to non-corporate shareholders
at a rate of 25%. 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. Dividends received by the
Fund from a REIT may be treated as qualified dividend income generally only to
the extent so reported by such REIT. Corporate shareholders may be entitled to a
dividends received deduction for the portion of dividends they receive from the
Fund that are attributable to dividends received by the Fund from U.S.
corporations, subject to certain limitations.
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from the Fund.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by the Fund before
your investment (and thus were included in the Shares’ NAV when you purchased
your Shares).
You
may wish to avoid investing in the Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your
investment.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
the Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
your Shares from non-U.S. shareholders generally are not subject to U.S.
taxation, unless you are a nonresident alien individual who is physically
present in the U.S. for 183 days or more per year. The Fund may, under certain
circumstances, report all or a portion of a dividend as an “interest-related
dividend” or a “short- term capital gain dividend,” which would generally be
exempt from this 30% U.S. withholding tax, provided certain other requirements
are met. Different tax consequences may result if you are a foreign shareholder
engaged in a trade or business within the United States or if a tax treaty
applies.
Non-U.S.
persons are generally subject to U.S. tax on a disposition of a “United States
real property interest” (a “USRPI”). Gain on such a disposition is generally
referred to as “FIRPTA gain.” The Internal Revenue Code provides a look-through
rule for distributions of so-called FIRPTA gain by the Fund if certain
requirements are met. If the look-through rule applies, certain distributions
attributable to income received by the Fund, from a REIT, may be treated as gain
from the disposition of a USRPI, causing distributions to non-U.S. investors
holding more than 5% of the Shares to be subject to U.S. withholding tax at
rates of up to 21%, and requiring such non-U.S. investors to file nonresident
U.S. income tax returns. Also, gain may be subject to a 30% branch profits tax
in the hands of a foreign stockholder that is treated as a corporation for
federal income tax purposes. Under certain circumstances, Fund Shares may
qualify as USRPIs, which could result in 15% withholding on certain
distributions and gross redemption proceeds paid to certain non-U.S.
shareholders.
Under
legislation generally known as “FATCA” (the Foreign Account Tax Compliance Act),
the Fund is required to withhold 30% of certain ordinary dividends it pays to
shareholders that are foreign entities and that fail to meet prescribed
information reporting or certification requirements.
The
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage of the taxable distributions and sale or redemption proceeds paid to
any shareholder who fails to properly furnish a correct taxpayer identification
number, who has underreported dividend or interest income, or who fails to
certify that he, she or it is not subject to such withholding.
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 Internal Revenue Code. The difference
between the selling price and the cost basis of Shares generally determines the
amount of the capital gain or loss realized on the sale or exchange of Shares.
Contact the broker through whom you purchased your Shares to obtain information
with respect to the available cost basis reporting methods and elections for
your account.
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.
Taxation
of REIT Investments
The
Fund invests in REITs. “Qualified REIT dividends” (i.e., ordinary REIT dividends
other than capital gain dividends and portions of REIT dividends designated as
qualified dividend income eligible for capital gain tax rates) are eligible for
a 20% deduction by non-corporate taxpayers. 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). Distributions by the Fund to its shareholders that are
attributable to qualified REIT dividends received by the Fund and which the Fund
properly reports as “section 199A dividends,” are treated as “qualified REIT
dividends” in the hands of non-corporate shareholders. A section 199A dividend
is treated as a qualified REIT dividend only if the shareholder receiving such
dividend holds the dividend-paying RIC shares for at least 46 days of the 91-day
period beginning 45 days before the shares become ex-dividend, and is not under
an obligation to make related payments with respect to a position in
substantially similar or related property. The Fund is permitted to report such
part of its dividends as section 199A dividends as are eligible, but is not
required to do so.
REITs
in which the Fund invests often do not provide complete and final tax
information to the Fund until after the time that the Fund issues a tax
reporting statement.
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 your tax reporting
statement. When such reclassification is necessary, the Fund (or a financial
intermediary, such as a broker, through which a shareholder owns Shares) will
send you a corrected, final Form 1099-DIV to reflect the reclassified
information. If you receive a corrected Form 1099-DIV, use the information on
this corrected form, and not the information on the previously issued tax
reporting statement, in completing your tax returns.
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.roundhillinvestments.com.
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, the Sub-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
Financial
information is not available because the Fund had not commenced operations prior
to the date of this Prospectus.
Roundhill
Cannabis ETF
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Adviser |
Roundhill
Financial Inc.
154
West 14th Street, 2nd Floor
New
York, New York 10011 |
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 |
Sub-Adviser |
Exchange
Traded Concepts, LLC
10900
Hefner Pointe Drive, Suite 400
Oklahoma
City, Oklahoma 73120 |
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 |
Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
1350
Euclid Avenue, Suite 800
Cleveland,
Ohio 44115 |
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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 will be available in the Fund’s annual
and semi-annual reports to shareholders. In the annual report, when available,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund’s performance after the first fiscal year
the Fund is in operation.
You
can obtain free copies of these documents, when available, 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.roundhillinvestments.com;
or
(SEC
Investment Company Act File No. 811-23226)