ck0001540305-20211231
LHA
Market State™
Alpha Seeker ETF
(MSVX)
LHA
Market State™
Tactical Beta ETF
(MSTB)
Listed
on Cboe BZX Exchange, Inc.
PROSPECTUS
April 30,
2022
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved
of these securities or passed upon the accuracy or adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
LHA
Market State™
Alpha
Seeker ETF
LHA
Market State™
Tactical Beta ETF
TABLE
OF CONTENTS
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LHA
Market State™
Alpha
Seeker ETF - Fund Summary |
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LHA
Market State™
Tactical Beta ETF - Fund Summary |
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LHA
MARKET STATE™
ALPHA SEEKER ETF
- FUND
SUMMARY
Investment Objective
The LHA Market State Alpha
Seeker ETF (the “Alpha Seeker ETF” or the “Fund”) seeks to provide positive
returns across multiple market cycles that are generally not correlated to the
U.S. equity or fixed income markets.
Fees and Expenses of the Fund
The
following table describes the fees and expenses 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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Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment) |
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Management
Fees |
1.10% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.07% |
Acquired
Fund Fees and Expenses1 |
0.25% |
Total
Annual Fund Operating Expenses |
1.42% |
1
Acquired Fund Fees
and Expenses (“AFFE”) are the indirect costs of investing in other investment
companies. Total Annual Fund Operating Expenses do not correlate to the expense
ratios in the Fund’s Financial Highlights because the Financial Highlights
include only the direct operating expenses incurred by the Fund and exclude
AFFE.
Expense 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 continue to hold or 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 |
3
Years |
5
Years |
10
Years |
$145 |
$449 |
$776 |
$1,702 |
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 annual fund operating expenses or in the
Example, affect the Fund’s performance. For the fiscal year ended
December 31, 2021, the Fund’s portfolio turnover rate was 3,520% of the average value of its
portfolio.
Principal Investment Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) and seeks to achieve
its objective principally by investing long or short in instruments linked
directly or indirectly to the performance and/or volatility of the S&P 500®
Index based on quantitative analyses, described below, that seek to estimate the
direction of the U.S. equity market. Such instruments may include index-based
and other actively-managed ETFs; leveraged, inverse, and inverse-leveraged ETFs;
exchange-traded notes (“ETNs”); options; and futures contracts. The Fund may
also invest the remainder of its portfolio directly or indirectly in cash and
cash equivalents.
The
Fund seeks to achieve its objective by estimating the direction of the U.S.
equity market and then using those estimates to select the Fund’s investments in
long or short S&P 500 Index linked instruments and CBOE Volatility Index®
(the “VIX® Index”) linked instruments. The Fund’s strategy primarily relies on
proprietary statistical analyses of the volatility of the S&P 500 developed,
owned, and maintained by Thompson Capital Management LLC (“Thompson Capital”).
Little Harbor Advisors, LLC, the Fund’s investment adviser (the “Adviser”), has
an exclusive license to employ the Thompson Capital statistical analyses.
Portfolio net exposure is based on a proprietary process to quantify market risk
by comparing volatility expectations across various time frames, as expressed by
30-day and 90-day implied volatility indexes and VIX futures. In general, a
“long volatility” environment is one in which near-term volatility expectations
are above longer-term volatility
expectations. Similarly,
a “short volatility” environment is characterized by lower near-term volatility
expectations relative to longer-term expectations.
Each
day, Thompson Capital’s quantitative analyses seek to estimate the direction and
magnitude of U.S. equity market volatility based on the movement of the VIX®
Index, which utilizes real-time prices of options on the S&P 500 to reflect
investors’ consensus view of future (30-day) expected stock market volatility,
and VIX Index futures and options prices. Such estimates are used by the Fund’s
investment adviser to determine the extent to which the Fund’s exposure to the
S&P 500 Index and/or the VIX Index will be long or short, or in cash.
Based on the direction and strength of signals from Thompson Capital’s
quantitative analyses, the investment adviser determines on a discretionary
basis in which instrument(s) to invest.
The
Fund may invest in derivative instruments, such as options or futures contracts,
to gain long or short exposure to the S&P 500 or VIX Index.
Specifically, the Fund may invest in ETFs, ETNs, or derivative instruments
linked to the returns of the S&P 500 or in VIX Index options or futures
contracts (long or short). A
futures contract is a standardized agreement to buy or sell a specific quantity
of an underlying instrument (e.g.,
the S&P 500 or VIX Index) at a specific price at a specific future time.
Investments
in derivative instruments, such as futures contracts, have the economic effect
of creating financial leverage in the Fund’s portfolio because such investments
may give rise to losses that exceed the amount the Fund has invested in those
instruments. Financial leverage will magnify, sometimes significantly, the
Fund’s exposure to any increase or decrease in prices associated with a
particular reference asset resulting in increased volatility in the value of the
Fund’s portfolio. The Fund’s strategy may result in returns for a single day or
longer periods of time that are significantly higher or lower than the returns
of the broader U.S. equity market.
The
Fund may also purchase put or call options (or option spreads) on the VIX Index,
the S&P 500, or in ETNs or ETFs that seek exposure to short-term VIX Index
futures contracts. An ETN is an exchange-traded debt obligation of an investment
bank, and the returns of an ETN are linked to the performance of a market index
or derivatives linked to such index, such as VIX Index futures contracts.
Because the Fund only purchases options and option spreads and does not sell
(write) uncovered (naked) options, losses from the Fund’s investments in options
or option spreads are limited to the amount of the net premiums paid. The Fund’s
investments in such options or option spreads will generally involve premiums of
less than 2% of the Fund’s net assets during a given month.
Purchasing
a call option gives the buyer the right to purchase shares of the reference
asset at a specified price (“strike price”) until a specified date (“expiration
date”) (American-style options) or at the expiration date (European-style
options). The buyer of the call option pays an amount (premium) for buying the
option. In the event the reference asset appreciates above the strike price, the
buyer can exercise the option and receive the reference asset (for
American-style options) or receive the difference between the value of the
reference asset and the strike price (for European-style options) (which gain is
offset by the premium initially paid), and in the event the reference asset
declines in value, the call option may end up worthless and the Fund’s loss is
limited to the amount of premium it paid. The Fund’s investments in call options
and put options (described below) on the S&P 500 or the VIX Index are
generally expected to be European-style options.
Purchasing
a put option gives the buyer the right to sell shares of a reference asset at a
strike price until the expiration date (American-style options) or at the
expiration date (European-style options). The buyer of the put option pays an
amount (premium) for buying the option. In the event the reference asset
declines in value below the strike price and the Fund exercises its put option,
the Fund will be entitled to deliver the reference asset (for American-style
options) or receive the difference between the strike price and the value of the
reference asset (for European-style options) (which gain is offset by the
premium originally paid by the Fund), and in the event the reference asset
closes above the strike price as of the expiration date, the put option may end
up worthless and the Fund’s loss is limited to the amount of premium it paid.
A
call spread entails the purchase of a call option and the sale of a call option
on the same reference asset with the same expiration date but a higher strike
price. A put spread entails the purchase of a put option and the sale of a put
option on the same reference asset with the same expiration date but a lower
strike price. The premium received from the sale of the call or put options is
generally expected to offset the cost to the Fund of the purchased options in
exchange for limiting the maximum return from such options.
The
Fund may also invest in leveraged, inverse, and inverse-leveraged ETFs.
Leveraged ETFs seek to provide investment results that match a multiple of the
performance of an underlying index (e.g.,
three times the performance) for a single day. Inverse ETFs seek to provide
investment results that match a negative (i.e.,
the opposite) of the performance of an underlying index for a single day.
Inverse-leveraged ETFs seek to provide investment results that match a negative
multiple of the performance of an underlying index for a single day. Leveraged,
inverse, and inverse-leveraged ETFs typically rely on derivative instruments to
seek to obtain their investment objectives.
The Fund is considered to be
non-diversified, which means that it may invest more of its assets in the
securities of a single issuer or a smaller number of issuers than if it were a
diversified fund. The Fund’s strategy may result in the active and frequent
trading of the Fund’s investments, which may result in significant portfolio
turnover.
Principal Risks of Investing in the Fund
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with other funds. Each risk summarized below is considered a
“principal risk” of investing in the Fund, regardless of the order in which it
appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s Prospectus titled “Additional Information About the
Fund.”
•Active
Management Risk.
The Fund is actively managed and may not meet its investment objective if the
quantitative analyses fail to identify the direction or strength of market
movements or based on the Adviser’s success or failure to implement investment
strategies for the Fund. The Fund may invest in complex instruments (each
described below), including options and futures contracts and volatility-linked
ETNs. Such instruments may create enhanced risks for the Fund, and the Adviser’s
ability to control the Fund’s level of risk will depend on the Adviser’s skill
in managing such instruments.
•Cash
and Cash Equivalents Risk.
Holding cash or cash equivalents rather than securities or other instruments in
which the Fund primarily invests, even strategically, may cause the Fund to risk
losing opportunities to participate in market appreciation, and may cause the
Fund to experience potentially lower returns than the Fund’s benchmark or other
funds that remain fully invested. In rising markets, holding cash or cash
equivalents will negatively affect the Fund’s performance relative to its
benchmark.
•Data
Risk. The
Fund’s investments are heavily dependent on proprietary statistical analyses
that include the use of information and data supplied by third parties (“Data”).
When Data proves to be incorrect or incomplete, any decisions made in reliance
thereon may lead to the inclusion or exclusion of investments that would have
been excluded or included had the Data been correct and complete.
•Derivatives
Risks.
The Fund’s derivative investments have risks, including the imperfect
correlation between the value of such instruments and the underlying assets or
index; the loss of principal, including the potential loss of amounts greater
than the initial amount invested in the derivative instrument; and illiquidity
of the derivative investments. The derivatives used by the Fund may give rise to
a form of leverage. Leverage magnifies the potential for gain and may result in
greater losses, which in some cases may cause the Fund to liquidate other
portfolio investments at inopportune times (e.g., at a loss to comply with
limits on leverage and asset segregation requirements imposed by the Investment
Company Act of 1940 (the “1940 Act”) or when the Adviser otherwise would have
preferred to hold the investment) or to meet redemption requests. Certain of the
Fund’s transactions in derivatives could also affect the amount, timing, and
character of distributions to shareholders, which may result in the Fund
realizing more short-term capital gain and ordinary income subject to tax at
ordinary income tax rates than it would if it did not engage in such
transactions, which may adversely impact the Fund’s after-tax returns. To the
extent the Fund invests in such derivative instruments, the value of the Fund’s
portfolio is likely to experience greater volatility over short-term periods.
•Equity
Market Risk.
The Fund has exposure to common stocks through its investments in S&P
500-linked instruments. Common stocks are generally exposed to greater risk than
other types of securities, such as preferred stock and debt obligations, because
common stockholders generally have inferior rights to receive payment from
specific issuers. Equity securities 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
industries, sectors, or companies in which the Fund directly or indirectly
invests. In
addition, local, regional or global events such as war, including Russia’s
invasion of Ukraine, acts of terrorism, spread of infectious diseases or other
public health issues, recessions, rising inflation, or other events could have a
significant negative impact on the Fund and its investments. For example, the
global pandemic caused by COVID-19, a novel coronavirus, and the aggressive
responses taken by many governments, including closing borders, restricting
international and domestic travel, and the imposition of prolonged quarantines
or similar restrictions, has had negative impacts, and in many cases severe
impacts, on markets worldwide. The COVID-19 pandemic has caused prolonged
disruptions to the normal business operations of companies around the world and
the impact of such disruptions is hard to predict. Such events may affect
certain geographic regions, countries, sectors and industries more significantly
than others. Such events could adversely affect the prices and liquidity of the
Fund’s portfolio securities or other instruments and could result in disruptions
in the trading markets.
•ETF
Risks. The
Fund is an ETF, and, as a result of an ETF’s 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
Redemption Risk. The
Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. 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.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant.
◦Trading. Although
Shares are listed for trading on 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, and this could lead to differences
between the market price of the Shares and the underlying value of those
Shares.
•ETN
Risk. ETNs
may be riskier than ordinary debt securities and may have no principal
protection. The Fund’s investment in an ETN may be influenced by many
unpredictable factors, including highly volatile commodities prices, changes in
interest rates, and monetary and other governmental policies, action, and
inaction. Investing in ETNs is not equivalent to investing directly in index
components or the relevant index itself. Because ETNs are debt securities, they
possess credit risk; if the issuer has financial difficulties or goes bankrupt,
the investor may not receive the return it was promised.
•Fixed
Income Securities Risk.
The value of the Fund’s investments in fixed income securities will fluctuate
with changes in interest rates. Typically, a rise in interest rates causes a
decline in the value of fixed income securities owned indirectly by the Fund. On
the other hand, if rates fall, the value of the fixed income securities
generally increases. The Fund may be subject to a greater risk of rising
interest rates due to the current period of historically low rates and the
effect of potential government fiscal policy initiatives and resulting market
reaction to those initiatives. In general, the market price of fixed income
securities with longer maturities will increase or decrease more in response to
changes in interest rates than shorter-term securities.
•Futures
Contracts Risks. A
decision as to whether, when, and how to use futures involves the exercise of
skill and judgment and even a well-conceived futures transaction may be
unsuccessful because of market behavior or unexpected events. In addition to the
risks associated with all derivatives, the prices of futures can be highly
volatile, using futures can lower total return, and the potential loss from
futures can exceed the Fund’s initial investment in such contracts and could be
unlimited.
•Government
Obligations Risk.
The Fund may invest in securities issued by the U.S. government or its agencies
or instrumentalities. There can be no guarantee that the United States will be
able to meet its payment obligations with respect to such securities.
Additionally, market prices and yields of securities supported by the full faith
and credit of the U.S. government or other countries may decline or be negative
for short or long periods of time.
•High
Portfolio Turnover Risk. Because
the Fund may “turn over” some or all of its positions as frequently as daily,
the Fund may incur high levels of transaction costs from commissions or mark-ups
in the bid/offer spread. Higher portfolio
turnover
may result in the Fund paying higher levels of transaction costs and generating
greater tax liabilities for shareholders. Portfolio turnover risk may cause the
Fund’s performance to be less than you expect.
•Investment
Company Risk. The
risks of investing in other investment companies typically reflect the risks of
the types of instruments in which the investment companies invest. By investing
in another investment company, the Fund becomes a shareholder of that investment
company and bears its proportionate share of the fees and expenses of the other
investment company. The Fund may be subject to statutory limits with respect to
the amount it can invest in other ETFs, which may adversely affect the
Fund’s
ability to achieve its investment objective. Investments in ETFs are subject to
the “ETF Risks” described above.
•Leveraged,
Inverse, and Inverse-Leveraged ETFs Risk.
Leveraged, inverse, and inverse-leveraged ETFs (collectively, “Leveraged ETFs”)
expose the Fund to all of the risks that traditional ETFs present (see “ETF
Risks” above). All Leveraged ETFs rely to some degree, often extensively, on
derivatives to achieve their objectives and, thus, the Fund is indirectly
exposed to derivatives risk through its investments in Leveraged ETFs. Further,
investments in Leveraged ETFs are subject to the risk that the performance of
such ETF will not correlate with the underlying index as intended. Leveraged
ETFs often “reset” daily, meaning that they are designed to achieve their stated
objectives on a daily basis. Due to the effect of compounding, their performance
over longer periods of time can differ significantly from the performance (or
inverse of the performance) of their underlying index or benchmark during the
same period of time. This effect can be magnified in volatile markets.
Consequently, these investment vehicles may be extremely volatile and can
potentially expose a Fund to complete loss of its investment.
•Leverage
Risk. The
Fund obtains investment exposure in excess of its net assets by utilizing
leverage and may lose more money in market conditions that are adverse to its
investment objective than a fund that does not utilize leverage.
•Non-Diversification
Risk. The Fund is considered to be non-diversified,
which means that it may invest more of its assets in the securities of a single
issuer or a smaller number of issuers than if it were a diversified fund. As a
result, the Fund may be more exposed to the risks associated with and
developments affecting an individual issuer or a smaller number of issuers than
a fund that invests more widely. This may increase the Fund’s volatility and
cause the performance of a relatively smaller number of issuers to have a
greater impact on the Fund’s performance. However, the Fund intends to satisfy
the asset diversification requirements under Subchapter M of the Internal
Revenue Code of 1986, as amended (“Code”) for qualification as a regulated
investment company (“RIC”).
•Options
Risk. Buying
options is a speculative activity and entails greater than ordinary investment
risks. Options enable the Fund to purchase exposure that is significantly
greater than the premium paid. Consequently, the value of such options can be
volatile, and a small investment in options can have a large impact on the
performance of the Fund. The Fund risks losing all or part of the cash paid
(premium) for purchasing options. Even a small decline in the value of a
reference asset underlying call options or a small increase in the value of a
reference asset underlying put options can result in the entire investment in
such options being lost. Additionally, the value of the option may be lost if
the Adviser fails to exercise such option at or prior to its
expiration.
•Short
Position Risk.
The Fund may engage in short position derivative activities, which are
significantly different from the investment activities commonly associated with
conservative stock or bond funds. Positions in shorted derivatives are
speculative and more-risky than “long” positions (purchases) because the upside
of the underlying index is, in theory, unlimited. Therefore, the potential loss
on an uncovered short derivative, such as a call option, is, in theory,
unlimited; whereas the potential loss on long positions is limited to the
original purchase price. You should be aware that any strategy that includes
short positions could suffer significant losses. Shorting will also result in
higher transaction costs (such as interest and dividends), which reduce the
Fund’s return, and may result in higher taxes. When the Fund is selling a
position short, it must maintain a segregated account of cash or high-grade
securities equal to the margin requirement. As a result, the Fund may maintain
high levels of cash or other liquid assets.
•Tax
Risk.
The Fund must meet certain requirements regarding the source of its income and
the diversification of its assets, among other requirements, to qualify as
a RIC under Subchapter M of the Code. The Fund’s investments in certain VIX
derivatives, including VIX futures contracts, may not generate qualifying
income. To the extent the Fund invests in such instruments, the Fund will seek
to restrict its income from such investments to a maximum of 10% of its gross
income (when combined with its other investments that produce non-qualifying
income) so as to qualify as a RIC, but it may not be able to determine with
certainty whether certain investments will produce qualifying income. Failure to
comply with the requirements to qualify as a RIC would have significant negative
tax consequences to Fund shareholders.
If
positions held by the Fund were treated as “straddles” for federal income tax
purposes, or the Fund’s risk of loss with respect to a position was otherwise
diminished as set forth in Treasury regulations, dividends on stocks that are a
part of
such positions would not
constitute qualified dividend income subject to such favorable income tax
treatment in the hands of non-corporate shareholders or eligible for the
dividends received deduction for corporate shareholders. In addition, generally,
straddles are subject to certain rules that may affect the amount, character and
timing of the Fund’s gains and losses with respect to straddle
positions.
•Volatility
Risk.
The Fund’s derivative investments that are linked to equity market volatility
levels can be highly volatile and may experience large losses. Trading in VIX
Index futures contracts or VIX Index options, particularly contracts that are
close to expiration, can be very volatile and can be expected to be very
volatile in the future. The volatile nature of these instruments may have an
adverse impact on the Fund beyond the impact of any changes in the VIX
Index.
Performance
The following
performance information indicates some of the risks of investing in the
Fund. The bar chart shows the Fund’s performance for the most
recent calendar year ended December 31. The table illustrates how the Fund’s
average annual returns for the 1-year and since inception periods compared with
those of a broad measure of market performance. The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is available on the
Fund’s website at www.lhafunds.com.
Calendar Year Total
Returns
During the period of time shown
in the bar chart, the Fund’s highest quarterly return
was 9.30% for the quarter ended March 31, 2021, and the
lowest quarterly return was
-1.63% for the quarter ended September 30,
2021.
Average
Annual Total Returns
For
the Periods Ended December 31, 2021
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LHA
Market State Alpha Seeker ETF |
1
Year |
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Since
Inception
(5/13/2020) |
Return Before
Taxes |
6.28% |
|
1.48% |
Return After Taxes on
Distributions |
6.11% |
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0.90% |
Return After Taxes on Distributions and
Sale of Fund Shares |
3.71% |
|
0.87% |
S&P
500 Total Return
(reflects no deduction for
fees, expenses, or taxes) |
28.71% |
|
39.97% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns depend on an
investor’s tax situation and may differ from those shown. After-tax returns shown are
not relevant to investors who hold their Shares through tax-deferred
arrangements such as an individual retirement account (“IRA”) or other
tax-advantaged accounts.
Management
Investment
Adviser:
Little Harbor Advisors, LLC (the “Adviser”)
Portfolio
Managers:
Michael Thompson, CFA, and D. Matthew Thompson, CFA, each a portfolio manager
for the Adviser, have been the Fund’s portfolio managers since the inception of
the Fund in May 2020.
Purchase
and Sale of Shares
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through brokers 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).
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.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.lhafunds.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an IRA
or other tax-advantaged account. Distributions on investments made through
tax-deferred arrangements may be taxed later upon withdrawal of assets from
those accounts.
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.
LHA
MARKET STATE™
TACTICAL BETA ETF
- FUND
SUMMARY
Investment Objective
The LHA Market State Tactical
Beta ETF (the “Tactical Beta ETF” or the “Fund”) seeks long-term out-performance
relative to the large-capitalization U.S. equity market.
Fees and Expenses of the
Fund
The
following table describes the fees and expenses 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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Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment) |
|
Management
Fees |
1.10% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.03% |
Acquired
Fund Fees and Expenses1 |
0.08% |
Total
Annual Fund Operating Expenses |
1.21% |
1
Acquired Fund Fees
and Expenses (“AFFE”) are the indirect costs of investing in other investment
companies. Total Annual Fund Operating Expenses do not correlate to the expense
ratios in the Fund’s Financial Highlights because the Financial Highlights
include only the direct operating expenses incurred by the Fund and exclude
AFFE.
Expense 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 continue to hold or 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 |
3
Years |
5
Years |
10
Years |
$123 |
$384 |
$665 |
$1,466 |
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 annual fund operating expenses or in the
Example, affect the Fund’s performance. For the fiscal year ended
December 31, 2021, the Fund’s portfolio turnover rate was 132% of the average value of its
portfolio.
Principal Investment Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) and seeks to achieve
its objective principally by investing in instruments linked directly or
indirectly to the performance and/or volatility of the S&P 500® Index (the
“S&P 500”) based on quantitative analyses, described below, that seek to
estimate the direction of the S&P 500. Such instruments may include
index-based and other ETFs (including leveraged ETFs) with long exposure to the
S&P 500, U.S. Treasury securities, or instruments linked to the Cboe
Volatility Index® (the “VIX Index”); securities issued by the U.S. government or
its agencies or instrumentalities; and options and futures contracts on the
S&P 500 or VIX Index. The Fund may also invest the remainder of its
portfolio directly or indirectly in cash and cash equivalents.
Under
normal market conditions, the Fund’s baseline exposure each day to the S&P
500 is approximately 100%, which the Fund’s portfolio managers then adjust based
on a quantitative method of analysis evaluating the movement of the VIX Index.
The Fund’s exposure to the S&P 500 may be greater or less than 100% at any
given time, although the portfolio managers expect that such exposure will
generally be between approximately 80% and 120% at the time investments are
made. The portfolio managers use such analysis to determine in which
instruments(s) to invest for long exposure to the S&P 500. During periods
where volatility increases, the Fund’s portfolio managers expect the Fund to
seek protection against falling markets
by
lowering long exposure to the S&P 500 and also investing long in VIX
Index-linked instruments as a hedge. During these periods when a hedge is
applied, the VIX-linked instruments are expected to generate results that are
uncorrelated to the S&P 500 and, in combination with lower S&P 500
exposure, seek to preserve capital. From time to time, to generate additional
returns, the Fund may also write (sell) call options (described below) on its
S&P 500 positions; provided, however, that when the Fund writes (sells) a
call option it will always own the corresponding amount of exposure to the
S&P 500 and, therefore, the Fund’s position will be “covered.”
The
Fund’s strategy primarily relies on proprietary statistical analyses of the
volatility of the VIX Index developed, owned, and maintained by Thompson Capital
Management LLC (“Thompson Capital”). Little Harbor Advisors, LLC, the Fund’s
investment adviser (the “Adviser”), has an exclusive license to employ the
Thompson Capital statistical analyses. Portfolio net exposure is based on a
proprietary process to quantify market risk by comparing volatility expectations
across various time frames, as expressed by 30-day and 90-day implied volatility
indexes and VIX futures. In general, a “long volatility” environment is one
in which near-term volatility expectations are above longer-term volatility
expectations. Similarly, a “short volatility” environment is characterized
by lower near-term volatility expectations relative to longer-term
expectations.
Each
day, the portfolio managers use a quantitative method of analysis seeking to
estimate the direction and magnitude of U.S. equity market volatility based on
the movement of the VIX Index, which utilizes real-time prices of options on the
S&P 500 to reflect investors’ consensus view of future (30-day)
expected stock market implied volatility. Such estimates are used by the Fund’s
portfolio managers to determine the Fund’s S&P 500 exposure and the extent
to which VIX-linked instruments, if any, will be used to hedge the S&P 500
exposure. Based on the direction and strength of signals from the portfolio
managers’ analysis, they determine on a discretionary basis in which
instrument(s) to invest.
The
Fund may invest in derivative instruments, consisting of options (including
covered call options and long calls and/or puts) or futures contracts, to gain
long exposure to the S&P 500. The Fund may also seek long exposure to the
VIX Index by investing in VIX Index-linked ETFs and/or options. Specifically,
the Fund may invest in ETFs or derivative instruments linked to the returns of
the S&P 500 (including covered call options) or in VIX Index options. A
futures contract is a standardized agreement to buy or sell a specific quantity
of an underlying instrument (e.g., the S&P 500) at a specific price at a
specific future time. Investments in derivative instruments, such as futures
contracts, have the economic effect of creating financial leverage in the Fund’s
portfolio because such investments may give rise to losses that exceed the
amount the Fund has invested in those instruments. Financial leverage will
magnify, sometimes significantly, the Fund’s exposure to any increase or
decrease in prices associated with a particular instrument resulting in
increased volatility in the value of the Fund’s portfolio. The Fund’s strategy
may result in returns for a single day or longer periods of time that are
significantly higher or lower than the returns of the S&P 500.
To
augment its S&P 500 exposure, the Fund may purchase put options or write
(sell) covered call options on the S&P 500 or S&P 500-linked ETFs. For
hedging exposure, the fund may purchase call options or call option spreads with
long exposure to the VIX Index or VIX Index-linked ETFs. When the Fund purchases
options or option spreads, losses from the Fund’s investments in such purchased
options or option spreads are limited to the amount of the net premiums paid.
The Fund’s investments in purchased or written options or option spreads will
generally involve premiums of less than 2% of the Fund’s net assets during a
given month.
Purchasing
a call option gives the buyer the right to purchase shares of the reference
asset at a specified price (“strike price”) until a specified date (“expiration
date”) (American-style options) or at the expiration date (European-style
options). The buyer of the call option pays an amount (premium) for buying the
option. In the event the reference asset appreciates above the strike price, the
buyer can exercise the option and receive the reference asset (for
American-style options) or receive the difference between the value of the
reference asset and the strike price (for European-style options) (which gain is
offset by the premium initially paid), and in the event the reference asset
declines in value, the call option may end up worthless and the Fund’s loss is
limited to the amount of premium it paid. The Fund’s investments in call options
and put options (described below) on the S&P 500 or the VIX Index are
generally expected to be European-style options.
Writing
(selling) a call option gives the seller the obligation to deliver shares of the
reference asset at a strike price until the expiration date (American-style
options) or at the expiration date (European-style options). The seller of the
call option receives an amount (premium) for selling the option. In the event
the reference asset appreciates above the strike price, the option may be
exercised against the Fund, and the Fund may have to deliver the reference asset
(for American-style options) or the difference between the value of the
reference asset and the strike price (for European-style options) (which loss is
offset by the premium initially received), and in the event the reference asset
declines in value, the call option may end up worthless and the Fund retains the
premium it received.
Purchasing
a put option gives the buyer the right to sell shares of a reference asset at a
strike price until the expiration date (American-style options) or at the
expiration date (European-style options). The buyer of the put option pays an
amount
(premium)
for buying the option. In the event the reference asset declines in value below
the strike price and the Fund exercises its put option, the Fund will be
entitled to deliver the reference asset (for American-style options) or receive
the difference between the strike price and the value of the reference asset
(for European-style options) (which gain is offset by the premium originally
paid by the Fund), and in the event the reference asset closes above the strike
price as of the expiration date, the put option may end up worthless and the
Fund’s loss is limited to the amount of premium it paid.
A
call spread entails the purchase of a call option and the sale of a call option
on the same reference asset with the same expiration date but a higher strike
price. A put spread entails the purchase of a put option and the sale of a put
option on the same reference asset with the same expiration date but a lower
strike price. The premium received from the sale of the call or put options is
generally expected to offset the cost to the Fund of the purchased options in
exchange for limiting the maximum return from such options.
The
Fund may also invest up to 25% of its assets in leveraged ETFs. Leveraged ETFs
seek to provide investment results that match a multiple of the performance of
an underlying index (e.g., three times the performance) for a single day.
Leveraged ETFs typically rely on derivative instruments to seek to obtain their
investment objectives.
The Fund is considered to be
non-diversified, which means that it may invest more of its assets in the
securities of a single issuer or a smaller number of issuers than if it were a
diversified fund. The Fund’s strategy may result in the active and frequent
trading of the Fund’s investments, which may result in significant portfolio
turnover.
Principal Risks of Investing in the Fund
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with other funds. Each risk summarized below is considered a
“principal risk” of investing in the Fund, regardless of the order in which it
appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s Prospectus titled “Additional Information About the
Fund.”
•Active
Management Risk.
The Fund is actively managed and may not meet its investment objective if the
quantitative analyses fail to identify the direction or strength of market
movements or based on the Adviser’s success or failure to implement investment
strategies for the Fund. The Fund may invest in complex instruments (each
described below), including options and futures contracts. Such instruments may
create enhanced risks for the Fund, and the Adviser’s ability to control the
Fund’s level of risk will depend on the Adviser’s skill in managing such
instruments.
•Cash
and Cash Equivalents Risk.
Holding cash or cash equivalents rather than securities or other instruments in
which the Fund primarily invests, even strategically, may cause the Fund to risk
losing opportunities to participate in market appreciation, and may cause the
Fund to experience potentially lower returns than the Fund’s benchmark or other
funds that remain fully invested. In rising markets, holding cash or cash
equivalents will negatively affect the Fund’s performance relative to its
benchmark.
•Data
Risk. The
Fund’s investments are heavily dependent on proprietary statistical analyses
that include the use of information and data supplied by third parties (“Data”).
When Data proves to be incorrect or incomplete, any decisions made in reliance
thereon may lead to the inclusion or exclusion of investments that would have
been excluded or included had the Data been correct and complete.
•Derivatives
Risks. The
Fund’s derivative investments have risks, including the imperfect correlation
between the value of such instruments and the underlying assets or index; the
loss of principal, including the potential loss of amounts greater than the
initial amount invested in the derivative instrument; and illiquidity of the
derivative investments. The derivatives used by the Fund may give rise to a form
of leverage. Leverage magnifies the potential for gain and may result in greater
losses, which in some cases may cause the Fund to liquidate other portfolio
investments at inopportune times (e.g.,
at a loss to comply with limits on leverage and asset segregation requirements
imposed by the Investment Company Act of 1940 (the “1940 Act”) or when the
Adviser otherwise would have preferred to hold the investment) or to meet
redemption requests. Certain of the Fund’s transactions in derivatives could
also affect the amount, timing, and character of distributions to shareholders,
which may result in the Fund realizing more short-term capital gain and ordinary
income subject to tax at ordinary income tax rates than it would if it did not
engage in such transactions, which may adversely impact the Fund’s after-tax
returns.
To
the extent the Fund invests in such derivative instruments, the value of the
Fund’s portfolio is likely to experience greater volatility over short-term
periods.
•Equity
Market Risk.
The Fund has exposure to common stocks through its investments in S&P
500-linked instruments. Common stocks are generally exposed to greater risk than
other types of securities, such as preferred stock and debt
obligations,
because common stockholders generally have inferior rights to receive payment
from specific issuers. Equity securities 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
industries, sectors, or companies in which the Fund directly or indirectly
invests. In addition, local, regional or global events such as war, including
Russia’s invasion of Ukraine, acts of terrorism, spread of infectious diseases
or other public health issues, recessions, rising inflation, or other events
could have a significant negative impact on the Fund and its investments. For
example, the global pandemic caused by COVID-19, a novel coronavirus, and the
aggressive responses taken by many governments, including closing borders,
restricting international and domestic travel, and the imposition of prolonged
quarantines or similar restrictions, has had negative impacts, and in many cases
severe impacts, on markets worldwide. The COVID-19 pandemic has caused prolonged
disruptions to the normal business operations of companies around the world and
the impact of such disruptions is hard to predict. Such events may affect
certain geographic regions, countries, sectors and industries more significantly
than others. Such events could adversely affect the prices and liquidity of the
Fund’s portfolio securities or other instruments and could result in disruptions
in the trading markets.
•ETF
Risks. The
Fund is an ETF, and, as a result of an ETF’s 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
Redemption Risk. The
Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. 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.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant.
◦Trading. Although
Shares are listed for trading on 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, and this could lead to differences
between the market price of the Shares and the underlying value of those Shares.
•Fixed
Income Securities Risk. The
value of the Fund’s investments in fixed income securities will fluctuate with
changes in interest rates. Typically, a rise in interest rates causes a decline
in the value of fixed income securities owned indirectly by the Fund. On the
other hand, if rates fall, the value of the fixed income securities generally
increases. The Fund may be subject to a greater risk of rising interest rates
due to the current period of historically low rates and the effect of potential
government fiscal policy initiatives and resulting market reaction to those
initiatives. In general, the market price of fixed income securities with longer
maturities will increase or decrease more in response to changes in interest
rates than shorter-term securities.
•Futures
Contracts Risks. A
decision as to whether, when, and how to use futures involves the exercise of
skill and judgment and even a well-conceived futures transaction may be
unsuccessful because of market behavior or unexpected events. In addition to the
risks associated with all derivatives, the prices of futures can be highly
volatile, using futures can lower total return, and the potential loss from
futures can exceed the Fund’s initial investment in such contracts and could be
unlimited.
•Government
Obligations Risk. The
Fund may invest in securities issued by the U.S. government or its agencies or
instrumentalities. There can be no guarantee that the United States will be able
to meet its payment obligations with respect to such securities. Additionally,
market prices and yields of securities supported by the full faith and credit of
the U.S. government or other countries may decline or be negative for short or
long periods of time.
•High
Portfolio Turnover Risk. Because
the Fund may “turn over” some or all of its positions as frequently as daily,
the Fund may incur high levels of transaction costs from commissions or mark-ups
in the bid/offer spread. Higher portfolio turnover may result in the Fund paying
higher levels of transaction costs and generating greater tax liabilities for
shareholders. Portfolio turnover risk may cause the Fund’s performance to be
less than you expect.
•Investment
Company Risk. The
risks of investing in other investment companies typically reflect the risks of
the types of instruments in which the investment companies invest. By investing
in another investment company, the Fund becomes a shareholder of that investment
company and bears its proportionate share of the fees and expenses of the other
investment company. The Fund may be subject to statutory limits with respect to
the amount it can invest in other ETFs, which may adversely affect the Fund’s
ability to achieve its investment objective. Investments in ETFs are subject to
the “ETF Risks” described above.
•Leveraged
ETFs Risk.
Leveraged ETFs expose the Fund to all of the risks that traditional ETFs present
(see “ETF Risks” above). All Leveraged ETFs rely to some degree, often
extensively, on derivatives to achieve their objectives and, thus, the Fund is
indirectly exposed to derivatives risk through its investments in Leveraged
ETFs. Further, investments in Leveraged ETFs are subject to the risk that the
performance of such ETF will not correlate with the underlying index as
intended. Leveraged ETFs often “reset” daily, meaning that they are designed to
achieve their stated objectives on a daily basis. Due to the effect of
compounding, their performance over longer periods of time can differ
significantly from the performance of their underlying index or benchmark during
the same period of time. This effect can be magnified in volatile markets.
Consequently, these investment vehicles may be extremely volatile and can
potentially expose a Fund to complete loss of its investment.
•Leverage
Risk. In
certain market conditions, the Fund may invest in instruments that create
exposure to the S&P 500 of 100% to 120% of the Fund’s net assets at the time
of investment. The Fund obtains such exposure by utilizing leverage and may lose
more money in market conditions that are adverse to its investment objective
than a fund that does not utilize leverage.
•Non-Diversification
Risk. The Fund is considered to be non-diversified,
which means that it may invest more of its assets in the securities of a single
issuer or a smaller number of issuers than if it were a diversified fund. As a
result, the Fund may be more exposed to the risks associated with and
developments affecting an individual issuer or a smaller number of issuers than
a fund that invests more widely. This may increase the Fund’s volatility and
cause the performance of a relatively smaller number of issuers to have a
greater impact on the Fund’s performance. However, the Fund intends to satisfy
the asset diversification requirements under Subchapter M of the Internal
Revenue Code of 1986, as amended (“Code”) for qualification as a regulated
investment company (“RIC”).
•Options
Risk.
Buying and selling (writing) options are speculative activities and entail
greater than ordinary investment risks. Options enable the Fund to purchase
exposure that is significantly greater than the premium paid. Consequently, the
value of such options can be volatile, and a small investment in options can
have a large impact on the performance of the Fund. The Fund risks losing all or
part of the cash paid (premiums) for purchasing options. Even a small decline in
the value of a reference asset underlying call options or a small increase in
the value of a reference asset underlying put options can result in the entire
investment in such options being lost. When selling an option, the Fund will
receive a premium; however, this premium may not be enough to offset a loss
incurred by the Fund if the price of the underlying asset is below the strike
price for a put option, or above the strike price for a call option, by an
amount equal to or greater than the premium. Additionally, the value of the
option may be lost if the Adviser fails to exercise such option at or prior to
its expiration. The potential loss from written call options can exceed the
Fund’s initial investment in such options and could be
unlimited.
•Tax
Risk.
The Fund must meet certain requirements regarding the source of its income and
the diversification of its assets, among other requirements, to qualify as
a RIC under Subchapter M of the Code. The Fund’s investments in certain VIX
derivatives, including VIX futures contracts, may not generate qualifying
income. The Fund intends to take the position that VIX options and VIX futures
produce qualifying income. The Fund, however, has not secured a private letter
ruling from the Internal Revenue Service (“IRS”) regarding such position and
there are no assurances the IRS or the courts will agree with the Fund that such
VIX derivatives produce qualifying income. Failure to comply with the
requirements to qualify as a RIC would have significant negative tax
consequences to Fund shareholders.
If positions held by the Fund
were treated as “straddles” for federal income tax purposes, or the Fund’s risk
of loss with respect to a position was otherwise diminished as set forth in
Treasury regulations, dividends on stocks that are a part of such positions
would not constitute qualified dividend income subject to such favorable income
tax treatment in the hands of non-corporate shareholders or eligible for the
dividends received deduction for corporate shareholders. In addition, generally,
straddles are subject to certain rules that may affect the amount, character and
timing of the Fund’s gains and losses with respect to straddle
positions.
•Volatility
Risk.
The Fund’s derivative investments that are linked to equity market volatility
levels can be highly volatile and may experience large losses. Trading in VIX
Index futures contracts or VIX Index options, particularly contracts that are
close to expiration, can be very volatile and can be expected to be very
volatile in the future. The volatile nature of these instruments may have an
adverse impact on the Fund beyond the impact of any changes in the VIX
Index.
Performance
The following
performance information indicates some of the risks of investing in the
Fund. The bar chart shows the Fund’s performance for the most
recent calendar year ended December 31. The table illustrates how the Fund’s
average annual returns for the 1-year and since inception periods compared with
those of a broad measure of market performance. The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is available on the
Fund’s website at www.lhafunds.com.
Calendar Year Total
Returns
During the period of time shown
in the bar chart, the Fund’s highest quarterly return
was 8.76% for the quarter ended December 31, 2021, and
the lowest quarterly return was
-1.06% for the quarter ended September 30,
2021.
Average
Annual Total Returns
For
the Periods Ended December 31, 2021
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|
LHA
Market State Tactical Beta ETF |
1
Year |
|
Since
Inception
(09/29/2020) |
Return Before
Taxes |
22.25% |
|
26.30% |
Return After Taxes on
Distributions |
21.62% |
|
25.10% |
Return After Taxes on Distributions and
Sale of Fund Shares |
13.62% |
|
19.86% |
S&P
500 Total Return
(reflects no deduction for
fees, expenses, or taxes) |
28.71% |
|
34.86% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns depend on an
investor’s tax situation and may differ from those shown. After-tax returns shown are
not relevant to investors who hold their Shares through tax-deferred
arrangements such as an individual retirement account (“IRA”) or other
tax-advantaged accounts.
Management
Investment
Adviser:
Little Harbor Advisors, LLC (the “Adviser”)
Portfolio
Managers:
Michael Thompson, CFA, and D. Matthew Thompson, CFA, each a portfolio manager
for the Adviser, have been the Fund’s portfolio managers since the inception of
the Fund in September 2020.
Purchase
and Sale of Shares
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through brokers 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).
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.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.lhafunds.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an IRA
or other tax-advantaged account. Distributions on investments made through
tax-deferred arrangements may be taxed later upon withdrawal of assets from
those accounts.
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 FUNDS
Investment
Objective
Each
Fund’s investment objective has been adopted as a non-fundamental investment
policy and may be changed without shareholder approval upon written notice to
shareholders.
Principal
Investment Strategies
The
Tactical Beta ETF will write call options only if they are “covered”. In the
case of a call option written on a security, the option is “covered” if the
Tactical Beta ETF owns the security underlying the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or, if additional cash consideration is required, liquid assets in such amount
are segregated) upon conversion or exchange of other securities held by it. For
a call option written on an index, the option is covered if the Tactical Beta
ETF maintains with its custodian a portfolio of securities substantially
replicating the index or liquid assets equal to the contract value. A call
option also is covered if the Tactical Beta ETF holds a call on the same
reference asset as the call written where the exercise price of the call held is
(i) equal to or less than the exercise price of the call written, or (ii)
greater than the exercise price of the call written, provided the Tactical Beta
ETF segregates liquid assets in the amount of the difference.
Principal
Risks of Investing in the Funds
This
section provides additional information regarding the principal risks described
in each Fund Summary. As in each Fund Summary, the principal risks below are
presented in alphabetical order to facilitate finding particular risks and
comparing them with other funds. Each risk described below is considered a
“principal risk” of investing in the applicable Fund, regardless of the order in
which it appears. Each of the factors below could have a negative impact on the
applicable Fund’s performance and trading prices.
•Active
Management Risk. Each
Fund is actively managed and may not meet its investment objective if the
quantitative analyses fail to identify the direction or strength of market
movements or based on the Adviser’s success or failure to implement investment
strategies for the Fund. A Fund may invest in complex instruments (each
described below), including options and futures contracts. Such instruments may
create enhanced risks for the Fund, and the Adviser’s ability to control the
Fund’s level of risk will depend on the Adviser’s skill in managing such
instruments.
•Cash
and Cash Equivalents Risk.
Holding cash or cash equivalents rather than securities or other instruments in
which a Fund primarily invests, even strategically, may cause the Fund to risk
losing opportunities to participate in market appreciation, and may cause the
Fund to experience potentially lower returns than its benchmark or other funds
that remain fully invested. In rising markets, holding cash or cash equivalents
will negatively affect a Fund’s performance relative to the Fund’s
benchmark.
•Data
Risk. When
statistical analyses and Data prove to be incorrect or incomplete, any decisions
made in reliance thereon expose the Fund to potential risks. For example, by
relying on incorrect or incomplete Data, the Adviser may be induced to buy
certain investments at prices that are too high, to sell certain other
investments at prices that are too low, or to miss favorable opportunities
altogether. Similarly, any hedging based on faulty Data may prove to be
unsuccessful.
Some
of the statistical analyses used by the Adviser for each Fund are predictive in
nature. The use of statistical analyses has inherent risks. For example, such
quantitative analyses may incorrectly forecast future behavior, leading to
potential losses on a cash flow and/or a mark-to-market basis. In addition, in
unforeseen or certain low-probability scenarios (often involving a market
disruption of some kind), such statistical analyses may produce unexpected
results, which can result in losses for the Fund. Furthermore, because
predictive analyses are usually constructed based on historical data supplied by
third parties, the success of relying on such analyses and Data may depend
heavily on the accuracy and reliability of the supplied historical data.
All
analyses rely on correct market data inputs. If incorrect market data is entered
into even a well-founded analysis, the resulting information will be incorrect.
However, even if market data is input correctly, “model prices” will often
differ substantially from market prices, especially for instruments with complex
characteristics, such as derivative instruments.
•Derivatives
Risks.
A Fund’s derivative investments have risks, including the imperfect correlation
between the value of such instruments and the underlying asset or index, which
creates the possibility that the loss on such instruments may be greater than
the gain in the value of the underlying asset or index; the loss of principal;
and illiquidity of the derivative investments. The derivatives used by a Fund
may, in certain circumstances, give rise to a form of financial leverage, which
may magnify the risk of owning such instruments. The ability to successfully use
derivative investments depends on the ability of the Adviser to predict
pertinent market movements, which cannot be assured. In addition, amounts paid
by a Fund as premiums and cash or other assets held in margin accounts with
respect to the Fund’s derivative
investments
would not be available to the Fund for other investment purposes, which may
result in lost opportunities for gain.
•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; local, regional or global events such as acts of
terrorism or war, including Russia’s invasion of Ukraine; and global or regional
political, economic, public health, 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.
Beginning
in the first quarter of 2020, financial markets in the United States and around
the world experienced extreme and, in many cases, unprecedented volatility and
severe losses due to the global pandemic caused by COVID-19, a novel
coronavirus. 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, and supply chain disruptions affecting the United
States and many other countries. Some sectors of the economy and individual
issuers have experienced particularly large losses as a result of these
disruptions, and such disruptions may continue for an extended period of time or
reoccur in the future to a similar or greater extent. In response, 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.
•ETF
Risks. Each
Fund is an ETF, and, as a result of an ETF’s structure, is exposed to the
following risks:
◦APs,
Market Makers, and Liquidity Providers Concentration Risk.
The Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the business or
significantly reduce their business activities and no other entities step
forward to perform their functions.
◦Cash
Redemption Risk. ETFs
generally are able to make in-kind redemptions and avoid being taxed on gain on
the distributed portfolio securities at the Fund level. Because the Fund may
effect redemptions partly or entirely in cash, rather than in-kind, it may be
required to sell portfolio securities to obtain the cash needed to distribute
redemption proceeds. If the Fund recognizes gain on these sales, this generally
will cause the Fund to recognize gain it might not otherwise have recognized, or
to recognize such gain sooner than would otherwise be required if it were to
distribute portfolio securities in-kind. The Fund generally intends to
distribute these gains to shareholders to avoid being taxed on this gain at the
Fund level and otherwise comply with the special tax rules that apply to it.
This strategy may cause shareholders to be subject to tax on gains they would
not otherwise be subject to, or at an earlier date than, if they had made an
investment in a different ETF. Moreover, cash transactions may have to be
carried out over several days if the securities market is relatively illiquid
and may involve considerable brokerage fees and taxes. These brokerage fees and
taxes, which will be higher than if the Fund sold and redeemed its shares
principally in-kind, could be imposed on the Fund and thus decrease the Fund’s
NAV to the extent they are not offset by the creation and redemption transaction
fees paid by purchasers and redeemers of Creation Units.
◦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 the spread is generally lower
if Shares have more trading volume and market liquidity and higher if Shares
have little trading volume and market liquidity. Further, a relatively small
investor base in the Fund, asset swings in the Fund, and/or
increased
market volatility may cause increased bid-ask spreads. Due to the costs of
buying or selling Shares, including bid-ask spreads, frequent trading of Shares
may significantly reduce investment results and an investment in Shares may not
be advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. Although it is expected that the market price of Shares will
approximate the Fund’s NAV, there may be times when the market price of Shares
is more than the NAV intra-day (premium) or less than the NAV intra-day
(discount) due to supply and demand of Shares or during periods of market
volatility. This risk is heightened in times of market volatility, periods of
steep market declines, and periods when there is limited trading activity for
Shares in the secondary market, in which case such premiums or discounts may be
significant.
◦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, and this
could lead to differences between the market price of the Shares and the
underlying value of those Shares.
•ETN
Risk (the
Alpha Seeker ETF only).
An ETN is an exchange-traded debt obligation of an investment bank, and the
returns of an ETN are linked to the performance of a market index or derivatives
linked to such index. In addition to trading ETNs on exchanges, investors may
redeem ETNs directly with the issuer on a weekly basis, typically in a minimum
amount of 50,000 units, or hold the ETNs until maturity. ETNs may be riskier
than ordinary debt securities and may have no principal protection. A Fund’s
investment in an ETN may be influenced by many unpredictable factors, including
highly volatile commodities prices, changes in supply and demand relationships,
trade, changes in interest rates, and monetary and other governmental policies,
action, and inaction. Investing in ETNs is not equivalent to investing directly
in index components or the relevant index itself. Because ETNs are debt
securities, they possess credit risk; if the issuer has financial difficulties
or goes bankrupt, the investor may not receive the return it was
promised.
•Fixed
Income Securities Risk.
The Fund may invest in fixed income securities. Fixed income securities, such as
bonds and certain asset-backed securities, involve certain risks, which
include:
◦Credit
Risk.
Credit risk refers to the possibility that the issuer of a security will not be
able to make principal and interest payments when due. Changes in an issuer’s
credit rating or the market’s perception of an issuer’s creditworthiness may
also affect the value of an investment in that issuer. The degree of credit risk
depends on both the financial condition of the issuer and the terms of the
obligation.
◦Extension
Risk.
When interest rates rise, certain obligations will be paid off by the obligor
more slowly than anticipated, causing the value of these securities to fall.
Rising interest rates tend to extend the duration of securities, making them
more sensitive to future changes in interest rates. The value of longer-term
securities generally changes more in response to changes in interest rates than
the value of shorter-term securities. As a result, in a period of rising
interest rates, securities may exhibit additional volatility and may lose
value.
◦Interest
Rate Risk.
Generally, the value of fixed income securities will change inversely with
changes in interest rates. As interest rates rise, the market value of fixed
income securities tends to decrease. Conversely, as interest rates fall, the
market value of fixed income securities tends to increase. This risk will be
greater for long-term securities than for short-term securities. The Fund may
take steps to attempt to reduce the exposure of its portfolio to interest rate
changes; however, there can be no guarantee that the Fund will take such actions
or that the Fund will be successful in reducing the impact of interest rate
changes on the portfolio. In recent periods, governmental financial regulators,
including the U.S. Federal Reserve, have taken steps to maintain historically
low interest rates. Changes in government intervention may have adverse effects
on investments, volatility, and illiquidity in debt markets.
◦Prepayment
Risk.
When interest rates fall, certain obligations will be paid off by the obligor
more quickly than originally anticipated, and the Fund may have to invest the
proceeds in securities with lower yields. In periods of falling interest rates,
the rate of prepayments tends to increase (as does price fluctuation) as
borrowers are motivated
to
pay off debt and refinance at new lower rates. During such periods, reinvestment
of the prepayment proceeds by the management team will generally be at lower
rates of return than the return on the assets that were prepaid. Prepayment
reduces the yield to maturity and the average life of the security.
◦Variable
and Floating Rate Instrument Risk.
The absence of an active market for these securities could make it difficult for
the Fund to dispose of them if the issuer defaults.
•Futures
Contracts Risks.
The value of a futures contract tends to increase and decrease in tandem with
the value of the underlying instrument. Depending on the terms of the particular
contract, futures contracts are settled through either physical delivery of the
underlying instrument on the settlement date or by payment of a cash settlement
amount on the settlement date. A decision as to whether, when, and how to use
futures involves the exercise of skill and judgment and even a well-conceived
futures transaction may be unsuccessful because of market behavior or unexpected
events. In addition to the risks associated with all derivatives, the prices of
futures can be highly volatile, using futures can lower total return, and the
potential loss from futures can exceed a Fund’s initial investment in such
contracts and could be unlimited.
•Government
Obligations Risk.
The Fund may invest in securities issued, sponsored or guaranteed by the U.S.
government, its agencies and instrumentalities. However, no assurance can be
given that the U.S. government will provide financial support to U.S.
government-sponsored agencies or instrumentalities where it is not obligated to
do so by law. For instance, securities issued by the Government National
Mortgage Association (“Ginnie Mae”) are supported by the full faith and credit
of the United States. Securities issued by Fannie Mae and Freddie Mac have
historically been supported only by the discretionary authority of the U.S.
government. While the U.S. government provides financial support to various U.S.
government-sponsored agencies and instrumentalities, such as those listed above,
no assurance can be given that it will always do so. In September 2008, at the
direction of the U.S. Department of the Treasury, Fannie Mae and Freddie Mac
were placed into conservatorship under the Federal Housing Finance Agency
(“FHFA”), an independent regulator, and they remain in such status as of the
date of this Prospectus. The U.S. government also took steps to provide
additional financial support to Fannie Mae and Freddie Mac.
The
total public debt of the United States as a percentage of gross domestic product
has grown rapidly since the beginning of the 2008–2009 financial downturn.
Although high debt levels do not necessarily indicate or cause economic
problems, they may create certain systemic risks if sound debt management
practices are not implemented. A high national debt can raise concerns that the
U.S. government will not be able to make principal or interest payments when
they are due. This increase has also necessitated the need for the U.S. Congress
to negotiate adjustments to the statutory debt ceiling to increase the cap on
the amount the U.S. government is permitted to borrow to meet its existing
obligations and finance current budget deficits. In August 2011, S&P lowered
its long-term sovereign credit rating on the U.S. In explaining the downgrade at
that time, S&P cited, among other reasons, controversy over raising the
statutory debt limit and growth in public spending. An increase in national debt
levels may also necessitate the need for the U.S. Congress to negotiate
adjustments to the statutory debt ceiling to increase the cap on the amount the
U.S. Government is permitted to borrow to meet its existing obligations and
finance current budget deficits. Future downgrades could increase volatility in
domestic and foreign financial markets, result in higher interest rates, lower
prices of U.S. Treasury securities and increase the costs of different kinds of
debt. Any controversy or ongoing uncertainty regarding the statutory debt
ceiling negotiations may impact the U.S. long-term sovereign credit rating and
may cause market uncertainty. As a result, market prices and yields of
securities supported by the full faith and credit of the U.S. government may be
adversely affected.
•High
Portfolio Turnover Risk. Because
each Fund may “turn over” some or all of its positions as frequently as daily,
the Fund may incur high levels of transaction costs from commissions or mark-ups
in the bid/offer spread. Higher portfolio turnover may result in a Fund paying
higher levels of transaction costs and generating greater tax liabilities for
shareholders. Portfolio turnover risk may cause a Fund’s performance to be less
than you expect. While the turnover of certain derivative instruments is not
deemed “portfolio turnover” for accounting purposes, the economic impact to a
Fund is similar to what could occur if the Fund experienced high portfolio
turnover (e.g.,
in excess of 100% per year).
•Investment
Company Risk.
Each Fund may invest in shares of investment companies, such as ETFs, that
invest in a wide range of instruments designed to track the performance of a
particular securities market index (or sector of an index) or that are actively
managed. The risks of investment in these securities typically reflect the risks
of the types of instruments in which the investment company invests. When a Fund
invests in investment company securities, shareholders of the Fund bear
indirectly their proportionate share of their fees and expenses, as well as
their share of the Fund’s fees and expenses. As a result, an investment by a
Fund in an investment company will cause the Fund’s operating expenses (taking
into account indirect expenses such as the fees and expenses of the investment
company) to be higher and, in turn, performance to be lower than if it were to
invest directly in the instruments underlying the
investment
company. Additionally, there may not be an active trading market available for
shares of some ETFs. Shares of an ETF may also trade in the market at a premium
or discount to their NAV.
•Leveraged
ETFs Risk.
Leveraged ETFs expose a Fund to all of the risks that traditional ETFs present
(see “ETF Risks” above). Leveraged ETFs, including certain ETNs tracking a
leveraged benchmark, seek to provide investment results that match a multiple
(positive or negative) of the performance of an underlying index (the “Index”)
(e.g.,
three times the inverse performance). The Alpha Seeker ETF may invest in inverse
and inverse-leveraged ETFs. Leveraged ETFs rely to some degree, often
extensively, on derivatives to achieve their objectives and, thus, a Fund is
indirectly exposed to derivatives risk through its investments in these
Leveraged ETFs. Further, investments in Leveraged ETFs are subject to the risk
that the performance of such Leveraged ETF will not correlate with the
underlying index as intended. Leveraged ETFs often “reset” daily, meaning that
they are designed to achieve their stated objectives on a daily basis. Due to
the effect of compounding, their performance over longer periods of time can
differ significantly from the performance (or inverse of the performance) of
their Index or benchmark during the same period of time. This effect can be
magnified in volatile markets. Consequently, these investment vehicles may be
extremely volatile and can potentially expose the Fund to complete loss of its
investment.
•Leverage
Risk. Each
Fund obtains investment exposure in excess of its net assets by utilizing
leverage and may lose more money in market conditions that are adverse to its
investment objective than a fund that does not utilize leverage.
•Non-Diversification
Risk. Each
Fund is considered to be non-diversified, which means that it may invest more of
its assets in the securities of a single issuer or a smaller number of issuers
than if it were a diversified fund. As a result, each Fund may be more exposed
to the risks associated with and developments affecting an individual issuer or
a smaller number of issuers than a fund that invests more widely. This may
increase a Fund’s volatility and cause the performance of a relatively smaller
number of issuers to have a greater impact on the Fund’s performance. However,
each Fund intends to satisfy the asset diversification requirements under
Subchapter M of the Code for qualification as a RIC.
•Options
Risk. Buying
and selling (writing) options are speculative activities and entail greater than
ordinary investment risks. Options enable a Fund to purchase exposure that is
significantly greater than the premium paid. Consequently, the value of such
options can be volatile, and a small investment in options can have a large
impact on the performance of a Fund. A Fund risks losing all or part of the cash
paid (premiums) for purchasing options. Even a small decline in the value of a
reference asset underlying call options or a small increase in the value of a
reference asset underlying put options can result in the entire investment in
such options being lost. When selling an option, a Fund will receive a
premium; however, this premium may not be enough to offset a loss incurred by
the Fund if the price of the underlying asset is below the strike price for a
put option, or above the strike price for a call option, by an amount equal to
or greater than the premium. A Fund’s options also may fail to track the
performance of their underlying reference asset, which may limit the
effectiveness of the Fund’s strategy. The potential loss from written options
can exceed a Fund’s initial investment in such options and could be
unlimited.
•Short
Position Risk (the
Alpha Seeker ETF only).
The Fund may engage in short position derivative activities, which are
significantly different from the investment activities commonly associated with
conservative stock or bond funds. Positions in shorted derivatives are
speculative and more-risky than “long” positions (purchases) because the upside
of the underlying index is, in theory, unlimited. Therefore, the potential loss
on an uncovered short derivative, such as a call option, is in theory unlimited,
whereas the potential loss on long positions is limited to the original purchase
price. You should be aware that any strategy that includes short positions could
suffer significant losses. Shorting will also result in higher transaction costs
(such as interest and dividends), which reduce the Fund’s return, and may result
in higher taxes. When the Fund is selling a position short, it must maintain a
segregated account of cash or high-grade securities equal to the margin
requirement. As a result, the Fund may maintain high levels of cash or other
liquid assets.
•Tax
Risk.
To qualify as a RIC under Subchapter M of the Code, each Fund must meet
certain requirements regarding the source of its income and the diversification
of its assets, among other requirements. Specifically, a Fund must derive at
least 90% of its gross income each taxable year from “qualifying income” and
diversify its assets as described in more detail in the Fund’s Statement of
Additional Information (“SAI”).
Certain
of a Fund’s investments, including certain VIX futures, other VIX derivatives,
certain ETNs and other over the counter derivatives, may not generate qualifying
income. Each Fund intends to take the position that VIX options and VIX futures
produce qualifying income. The Funds, however, have not secured a private letter
ruling from the IRS regarding such position and there are no assurances the IRS
or the courts will agree with a Fund that such derivatives produce qualifying
income. Furthermore, it is possible that the IRS or the courts may reach
different conclusions concerning investments for which there currently is no IRS
precedent or that the IRS may, in the future, articulate tax positions that are
adverse to a Fund’s determinations.
In
addition, for purposes of satisfying the asset diversification test (as
described more fully in the SAI) it may be difficult for a Fund to identify the
“issuer” of certain Fund investments including derivatives investments. There is
a risk that the IRS could make an adverse determination with respect to
identifying the issuer of certain Fund investments, such as derivative
investments, and could disagree with a Fund’s valuation of the underlying
issuers to a particular derivative. Such an adverse determination could,
therefore, jeopardize the Fund’s status as a RIC, which would ultimately affect
a shareholder’s return on its investment in the Fund.
If
a Fund failed to qualify as a RIC for any taxable year (but was eligible to and
did cure the failure) it would incur potentially significant additional federal
income tax expense. If, on the other hand, a Fund failed to so qualify for any
taxable year, and was ineligible to or otherwise did not cure the failure, such
a result could cause investors to incur higher tax liabilities than they
otherwise would have incurred and would have a negative impact on Fund returns.
For example, a Fund would be subject to income tax on its taxable income at the
corporate rate, with the consequence that its income available for distribution
to shareholders would be reduced. If a Fund attempted to re-qualify for taxation
as a RIC, the Fund might be required to recognize unrealized gains, pay
substantial taxes and interest and make certain distributions. In such event,
the Board of Trustees’ may determine to reorganize or close the applicable Fund
or materially change its investment objective and strategies.
If
positions held by the Fund were treated as “straddles” for federal income tax
purposes, or the Fund’s risk of loss with respect to a position was otherwise
diminished as set forth in Treasury regulations, dividends on stocks that are a
part of such positions would not constitute qualified dividend income subject to
such favorable income tax treatment in the hands of non-corporate shareholders
or eligible for the dividends received deduction for corporate shareholders. In
addition, generally, straddles are subject to certain rules that may affect the
amount, character and timing of the Fund’s gains and losses with respect to
straddle positions by requiring, among other things, that: (1) any loss realized
on disposition of one position of a straddle may not be recognized to the extent
that the Fund has unrealized gains with respect to the other position in such
straddle; (2) the Fund’s holding period in straddle positions be suspended while
the straddle exists (possibly resulting in a gain being treated as short-term
capital gain rather than long-term capital gain); (3) the losses recognized with
respect to certain straddle positions that are part of a mixed straddle and that
are not subject to Section 1256 of the Code be treated as 60% long-term and 40%
short-term capital loss; (4) losses recognized with respect to certain straddle
positions that would otherwise constitute short-term capital losses be treated
as long-term capital losses; and (5) the deduction of interest and carrying
charges attributable to certain straddle positions may be deferred.
•Volatility
Risk.
A Fund’s derivative investments that are linked to equity market volatility
levels can be highly volatile and may experience large losses. Trading in VIX
Index futures contracts or VIX Index options, particularly contracts that are
close to expiration, can be very volatile and can be expected to be very
volatile in the future. The volatile nature of these instruments may have an
adverse impact on a Fund beyond the impact of any changes in the VIX Index.
TEMPORARY
DEFENSIVE POSITIONS
From
time to time, a Fund may take temporary defensive positions that are
inconsistent with its principal investment strategies in attempting to respond
to adverse market, economic, political, or other conditions. In such
instances, a Fund may hold up to 100% of its assets in cash; short-term U.S.
government securities and government agency securities; investment grade money
market instruments; money market mutual funds; investment grade fixed-income
securities; repurchase agreements; commercial paper; cash equivalents; and ETFs
that principally invest in the foregoing instruments. As a result of
engaging in these temporary measures, a Fund may not achieve its investment
objective.
PORTFOLIO
HOLDINGS INFORMATION
Information
about each Fund’s daily portfolio holdings is available at www.lhafunds.com. A
complete description of each Fund’s policies and procedures with respect to the
disclosure of each Fund’s portfolio holdings is available in the Funds’
SAI.
MANAGEMENT
Investment
Adviser
Little
Harbor Advisors, LLC, 30 Doaks Lane, Marblehead, Massachusetts 01945, serves as
investment adviser to the Funds. The Adviser is responsible for the day-to-day
management of each Fund’s portfolio and has overall responsibility for the
administration of the Funds, including the investment and reinvestment of Fund
assets and the selection of broker-dealers to execute purchase and sale
transactions. The Adviser also arranges for transfer agency, custody, fund
administration, and all other related services necessary for the Funds to
operate. The Adviser was founded in 2012 and provides discretionary investment
services to a private collective investment fund and ETFs, including the Funds.
For
the services it provides to the Funds, each Fund pays the Adviser a unified
management fee, which is calculated daily and paid monthly, at an annual rate
based on the applicable Fund’s average daily net assets as set forth in the
table below.
|
|
|
|
|
|
Name
of Fund |
Management
Fee |
Alpha
Seeker ETF |
1.10% |
Tactical
Beta ETF |
1.10% |
Under
the Investment Advisory Agreement, the Adviser has agreed to pay all expenses
incurred by the Funds except for 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, distribution fees and
expenses paid by the Funds under any distribution plan adopted pursuant to Rule
12b-1 under the 1940 Act, and the unified management fee payable to the
Adviser.
The
Adviser shall not be liable to the Trust or any shareholder for anything done or
omitted by it, except acts or omissions involving willful misfeasance, bad
faith, negligence or reckless disregard of the duties imposed upon it by its
agreement with the Trust or for any losses that may be sustained in the
purchase, holding, or sale of any security.
The
basis for the Board of Trustees’ approval of the Alpha Seeker ETF’s Investment
Advisory Agreement is available in the Fund’s Semi-Annual
Report
to Shareholders dated June 30, 2020. The basis for the Board of Trustees’
approval of the Tactical Beta ETF’s Investment Advisory Agreement is available
in the Fund’s Annual
Report
to Shareholders dated December 31, 2020.
Portfolio
Managers
Michael
Thompson, CFA, and D. Matthew Thompson, CFA (together, the “Portfolio
Managers”), have joint and primary responsibility for the day-to-day management
of the Funds.
Michael
Thompson, CFA.
Michael Thompson joined the Adviser as a portfolio manager in 2020 and has over
23 years of experience constructing and managing portfolios with a focus on
volatility and risk management strategies. He originally co-developed a VIX
trading strategy with his brother, D. Matthew Thompson, in October of 2011
while employed at Hills Capital as a portfolio manager. In 2013, Michael
Thompson began trading the VIX trading strategy directly in the futures market
for the proprietary trading desk of ED&F Man Ltd and as a commodity trading
advisor, first as a principal of Advocate Asset Management LLC and subsequently
for Typhon Capital Management LLC. In 2015, he became the Chief Investment
Officer at Kaizen Advisory LLC, where he helped to launch the securities
products currently managed by Thompson Capital. In 2019, Michael Thompson
and his brother created Thompson Capital where Michael Thompson is the Chief
Investment Officer, Chief Compliance Officer, Portfolio Manager, and a trader.
Michael Thompson received his Bachelor of Science in Economics from the
University of Illinois/Champaign in 1996 and is a member of the CFA Society of
Chicago.
D.
Matthew Thompson, CFA.
Matthew Thompson joined the Adviser as a portfolio manager in 2020 and has over
20 years of capital markets and investing experience, focusing on futures
trading with an emphasis on VIX-related exchange-traded products. From July 2013
through September of 2014, he traded the VIX trading strategy directly in the
futures market for the proprietary trading desk of ED&F Man Ltd and as a
commodity trading advisor, first as a principal of Advocate Asset Management LLC
and subsequently for Typhon Capital Management LLC. In 2015, Matthew
Thompson became the Director of Research at Kaizen Advisory LLC. In 2019, he and
his brother created Thompson Capital where Matthew Thompson is the Director of
Research, Portfolio Manager, and a trader. Matthew Thompson received his
Bachelor of Science in Economics from the University of Illinois/Champaign in
1999 and is a member of the CFA Society of Chicago.
The
Funds’ SAI provides additional information about each Portfolio Manager’s
compensation structure, other accounts that the Portfolio Managers manage, and
their ownership of Shares.
HOW
TO BUY AND SELL SHARES
Each
Fund issues and redeems Shares at NAV only in Creation Units. Only APs may
acquire Shares directly from a Fund, and only APs may tender their Shares for
redemption directly to a 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 (defined below), and that has been
accepted by a 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.
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
Funds impose 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 a Fund, are an essential part of the ETF process and help
keep Share trading prices in line with NAV. As such, the Funds accommodate
frequent purchases and redemptions by APs. However, the Board has also
determined that 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 Funds employ fair value pricing and may impose transaction
fees on purchases and redemptions of Creation Units to cover the custodial and
other costs incurred by a Fund in effecting trades. In addition, the Funds and
the Adviser reserve the right to reject any purchase order at any time.
Determination
of NAV
Each
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (“NYSE”), generally 4:00 p.m. Eastern time, each day
the NYSE is open for business. The NAV for each Fund is calculated by dividing
the Fund’s net assets by its Shares outstanding.
In
calculating its NAV, each 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. If such
information is not available for a security held by a 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 Funds will take into account all reasonably available information that may
be relevant to a particular valuation including, but not limited to, fundamental
analytical data regarding the issuer, information relating to the issuer’s
business, recent trades or offers of the security, general and/or specific
market conditions and the specific facts giving rise to the need to fair value
the security. Fair value determinations are made in good faith and in accordance
with the fair value methodologies included in the Board-adopted valuation
procedures. Due to the subjective and variable nature of fair value pricing,
there can be no assurance that the Adviser will be able to obtain the fair value
assigned to the security upon the sale of such security.
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, including Shares. Registered
investment companies are permitted to invest in a Fund beyond the limits set
forth in section 12(d)(1) subject to certain terms and conditions set forth in a
rule under the 1940 Act, including that such investment companies enter into an
agreement with a Fund. The relief from Section 12(d)(1) is not available for
investments in the Tactical Beta ETF because the Fund operates as a “fund of
funds” and/or has significant holdings in other ETFs.
Delivery
of Shareholder Documents – Householding
Householding
is an option available to certain investors of the Funds. Householding is a
method of delivery, based on the preference of the individual investor, in which
a single copy of certain shareholder documents can be delivered to investors who
share the same address, even if their accounts are registered under different
names. Householding for the Funds is available through certain broker-dealers.
If you are interested in enrolling in householding and receiving a single copy
of prospectuses and other shareholder documents, please contact your
broker-dealer. If you are currently enrolled in householding and wish to change
your householding status, please contact your broker-dealer.
DIVIDENDS,
DISTRIBUTIONS, AND TAXES
Dividends
and Distributions
Each
Fund intends to pay out dividends, if any, and distribute any net realized
capital gains to its shareholders at least annually. Each 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 Funds. Your investment
in a Fund may have other tax implications. Please consult your tax advisor about
the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws.
Each
Fund has elected and intends to continue to qualify each year for treatment as a
RIC. If a Fund 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, a 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 a 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
Each
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 a Fund owned the investments that generated them, rather
than how long a shareholder has owned his or her Shares. Sales of assets held by
a Fund for more than one year generally result in long-term capital gains and
losses, and sales of assets held by a Fund for one year or less generally result
in short-term capital gains and losses. Distributions of a Fund’s net capital
gain (the excess of net long-term capital gains over net short-term capital
losses) that are reported by such Fund as capital gain dividends (“Capital Gain
Dividends”) will be taxable as long-term capital gains, which for non-corporate
shareholders are subject to tax at reduced rates of up to 20% (lower rates apply
to individuals in lower tax brackets). Distributions of short-term capital gain
will generally be taxable as ordinary income. Dividends and distributions are
generally taxable to you whether you receive them in cash or reinvest them in
additional Shares.
Distributions
reported by a 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 a Fund received in respect of stock of certain foreign
corporations may be qualified dividend income if that stock is readily tradable
on an established U.S. securities market. Certain of a Fund’s investment
strategies may significantly limit its ability to make distributions eligible
for the reduced rates applicable to qualified dividend income.
Certain
of a Fund’s investments may be subject to complex provisions of the Code that,
among other things, may affect the Fund’s ability to qualify as a RIC, affect
the character of gains and losses realized by the Fund (e.g.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer losses. These rules could therefore
affect the character, amount and timing of distributions to shareholders. These
provisions also may require a Fund to mark to market certain types of positions
in its portfolio (i.e.,
treat them as if they were closed out) which may cause the Fund to recognize
income without the Fund receiving cash with which to make distributions in
amounts sufficient to enable the Fund to satisfy the RIC distribution
requirements for avoiding income and excise taxes. Each Fund intends to monitor
its transactions, intends to make appropriate tax elections, and intends to make
appropriate entries in its books and records to mitigate the effect of these
rules and preserve the Fund’s qualification for treatment as a RIC. To the
extent a Fund invests in an ETF or underlying fund that is taxable as a RIC, the
rules applicable to the tax treatment of complex securities will also apply to
such ETF or underlying fund that also invests in such complex securities and
investments.
Certain
derivative investments by a Fund, such as exchange-traded products and
over-the-counter derivatives, may not produce qualifying income for purposes of
the “qualifying income requirement” (described in the section entitled “Federal
Income Taxes” in the SAI), which must be met in order for the Fund to maintain
its status as a RIC under the Code. In addition, the determination of the value
and the identity of the issuer of such derivative investments are often unclear
for purposes of the “diversification requirement” (described in the section
entitled “Federal Income Taxes” in the SAI). Each Fund intends to carefully
monitor such investments to ensure that any non-qualifying income does not
exceed permissible limits and to ensure that it is adequately diversified under
the “diversification requirement”. A Fund, however, may not be able to
accurately predict the non-qualifying income from these investments and there
are no assurances that the IRS will agree with the Fund's determination of the
“diversification requirement” with respect to such derivatives. Failure of the
“diversification requirement” might also result from a determination by the IRS
that financial instruments in which a Fund invests are not
securities.
Shortly
after the close of each calendar year, you will be informed of the character of
any distributions received from a Fund.
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.
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 a Fund before your
investment (and thus were included in the Shares’ NAV when you purchased your
Shares).
You
may wish to avoid investing in a 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
a Fund’s distributions exceed its earnings and profits, all or a portion of the
distributions made for a taxable year may be recharacterized as a return of
capital to shareholders. A return of capital distribution will generally not be
taxable, but will reduce each shareholder’s cost basis in Shares and result in a
higher capital gain or lower capital loss when the Shares are sold. After a
shareholder’s basis in Shares has been reduced to zero, distributions in excess
of earnings and profits in respect of those Shares will be treated as gain from
the sale of the Shares.
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
a 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 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. A Fund may, under certain circumstances, report all or a
portion of a dividend as an “interest-related dividend” or a “short-term capital
gain dividend,” which would generally be exempt from this 30% U.S. withholding
tax, provided certain other requirements are met. Different tax consequences may
result if you are a foreign shareholder engaged in a trade or business within
the United States or if a tax treaty applies.
Under
legislation generally known as “FATCA” (the Foreign Account Tax Compliance Act),
a 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.
Each
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 the
shareholder is not subject to such withholding.
Taxes
When Shares are Sold on the Exchange
Any
capital gain or loss realized upon a sale of Shares generally is treated as a
long-term capital gain or loss if Shares have been held for more than one year
and as a short-term capital gain or loss if Shares have been held for one year
or less. However, any capital loss on a sale of Shares held for six months or
less is treated as long-term capital loss to the extent of Capital Gain
Dividends paid with respect to such Shares. Any loss realized on a sale will be
disallowed to the extent Shares of a 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 a Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Code. The difference between the
selling price and the cost basis of Shares generally determines the amount of
the capital gain or loss realized on the sale or exchange of Shares. Contact the
broker through whom you purchased your Shares to obtain information with respect
to the available cost basis reporting methods and elections for your
account.
Taxes
on Purchases and Redemptions of Creation Units
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered, plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The IRS may
assert, however, that a loss that is realized upon an exchange of securities for
Creation Units may not be currently deducted under the rules governing “wash
sales” (for an AP who does not mark-to-market their holdings), or on the basis
that there has been no significant change in economic position. Persons
exchanging securities should consult their own tax advisor with respect to
whether wash sale rules apply and when a loss might be deductible.
Any
gain or loss realized upon a creation or redemption of Creation Units will be
treated as capital 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.
Each
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. Such Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause such 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, such Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in each 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 advisor 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
The
Distributor, Quasar Distributors, LLC, is a broker-dealer registered with the
SEC. The Distributor distributes Creation Units for the Funds on an agency basis
and does not maintain a secondary market in Shares. The Distributor has no role
in determining the policies of the Funds or the securities that are purchased or
sold by the Funds. The Distributor’s principal address is 111 East Kilbourn
Avenue, Suite 2200, Milwaukee, Wisconsin 53202.
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, each 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 Funds, 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, free of charge, on the Funds’
website at www.lhafunds.com.
ADDITIONAL
NOTICES
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange makes no
representation or warranty, express or implied, to the owners of Shares or any
member of the public regarding the ability of a Fund to achieve its objective.
The Exchange is not responsible for, nor has it participated in the
determination of, the timing, prices, or quantities of Shares to be issued, nor
in the determination or calculation of the equation by which Shares are
redeemable. The Exchange has no obligation or liability to owners of Shares in
connection with the administration, marketing, or trading of
Shares.
Without
limiting any of the foregoing, in no event shall the Exchange have any liability
for any lost profits or indirect, punitive, special, or consequential damages
even if notified of the possibility thereof.
The
Adviser and the Funds 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 Funds particularly.
FINANCIAL
HIGHLIGHTS
The
financial highlights tables are intended to help you understand each Fund’s
financial performance for each Fund’s five most recent fiscal years (or the life
of the Fund, if shorter). Certain information reflects financial results for a
single Share. The total returns in the tables represent the rate that an
investor would have earned or lost on an investment in a Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by Cohen & Company, Ltd., the Funds’ independent registered public
accounting firm, whose report, along with the Funds’ financial statements, is
included in the Funds’ annual report, which is available upon request.
LHA
Market State™
Alpha
Seeker ETF
For
a capital share outstanding throughout the year/period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2021 |
|
Period
Ended
December
31,
2020(a) |
Net
asset value, beginning of year/period |
$ |
23.64 |
|
|
|
$ |
25.00 |
|
|
|
|
|
|
|
|
INCOME
(LOSS) FROM INVESTMENT OPERATIONS: |
|
|
|
|
|
Net
investment income (loss)(b)(f) |
(0.29) |
|
|
|
(0.20) |
|
|
Net
realized and unrealized gain (loss) on investments |
1.76 |
|
|
|
(0.71) |
|
|
Total
from investment operations |
1.47 |
|
|
|
(0.91) |
|
|
|
|
|
|
|
|
DISTRIBUTIONS
TO SHAREHOLDERS: |
|
|
|
|
|
From
net investment income |
(0.09) |
|
|
|
(0.46) |
|
|
Total
distributions to shareholders |
(0.09) |
|
|
|
(0.46) |
|
|
|
|
|
|
|
|
CAPITAL
SHARE TRANSACTIONS: |
|
|
|
|
|
Transaction
fees |
0.00 |
|
(i) |
|
0.01 |
|
|
|
|
|
|
|
|
Net
asset value, end of year/period |
$ |
25.02 |
|
|
|
$ |
23.64 |
|
|
|
|
|
|
|
|
Total
return |
6.28 |
% |
|
|
-3.62 |
% |
(c) |
|
|
|
|
|
|
SUPPLEMENTAL
DATA: |
|
|
|
|
|
Net
assets at end of year/period (000’s) |
$ |
27,526 |
|
|
|
$ |
17,729 |
|
|
|
|
|
|
|
|
RATIOS
TO AVERAGE NET ASSETS: |
|
|
|
|
|
Expenses
to average net assets(g)(h) |
1.17 |
% |
|
|
1.42 |
% |
(d) |
Net
investment income (loss) to average net assets(f) |
-1.14 |
% |
|
|
-1.33 |
% |
(d) |
Portfolio
turnover rate(e) |
3520 |
% |
|
|
1603 |
% |
(c) |
(a)The
Fund commencement of operations on May 13, 2020.
(b)Calculated
based on average shares outstanding during the period.
(c)Not
annualized.
(d)Annualized.
(e)Excludes
the impact of in-kind transactions.
(f)Recognition
of net investment income by the Fund is affected by the timing of the
declaration of dividends by the underlying investment companies in which the
Fund invests. The ratio does not include net investment income of the underlying
companies in which the Fund invests.
(g)Does
not include expenses of investment companies in which the Fund
invests.
(h)Includes
broker interest expense of 0.07% and 0.32%, respectively.
(i)Less
than $0.005.
LHA
Market State™
Tactical Beta ETF
For
a capital share outstanding throughout the year/period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2021 |
|
Period
Ended
December
31,
2020(a) |
Net
asset value, beginning of year/period |
$ |
26.92 |
|
|
|
$ |
25.00 |
|
|
|
|
|
|
|
|
INCOME
(LOSS) FROM INVESTMENT OPERATIONS: |
|
|
|
|
|
Net
investment income (loss)(b)(f) |
(0.08) |
|
|
|
(0.01) |
|
|
Net
realized and unrealized gain (loss) on investments |
6.07 |
|
|
|
2.41 |
|
|
Total
from investment operations |
5.99 |
|
|
|
2.40 |
|
|
|
|
|
|
|
|
DISTRIBUTIONS
TO SHAREHOLDERS: |
|
|
|
|
|
From
net investment income |
— |
|
|
|
(0.27) |
|
|
From
net realized gains |
(0.71) |
|
|
|
(0.21) |
|
|
Total
distributions to shareholders |
(0.71) |
|
|
|
(0.48) |
|
|
|
|
|
|
|
|
CAPITAL
SHARE TRANSACTIONS |
|
|
|
|
|
Transaction
fees |
0.01 |
|
|
|
— |
|
|
|
|
|
|
|
|
Net
asset value, end of year/period |
$ |
32.21 |
|
|
|
$ |
26.92 |
|
|
|
|
|
|
|
|
Total
return |
22.25 |
% |
|
|
9.65 |
% |
(c) |
|
|
|
|
|
|
SUPPLEMENTAL
DATA: |
|
|
|
|
|
Net
assets at end of year/period (000’s) |
$ |
342,181 |
|
|
|
$ |
36,343 |
|
|
|
|
|
|
|
|
RATIOS
TO AVERAGE NET ASSETS: |
|
|
|
|
|
Expenses
to average net assets(g)(h) |
1.13 |
% |
|
|
1.13 |
% |
(d) |
Net
investment income (loss) to average net assets(f) |
-0.27 |
% |
|
|
-0.11 |
% |
(d) |
Portfolio
turnover rate(e) |
132 |
% |
|
|
132 |
% |
(c) |
(a)The
Fund commencement of operations on September 29, 2020.
(b)Calculated
based on average shares outstanding during the period.
(c)Not
annualized.
(d)Annualized.
(e)Excludes
the impact of in-kind transactions.
(f)Recognition
of net investment income by the Fund is affected by the timing of the
declaration of dividends by the underlying investment companies in which the
Fund invests. The ratio does not include net investment income of the underlying
companies in which the Fund invests.
(g)Does
not include expenses of investment companies in which the Fund
invests.
(h)Includes
broker interest expense of 0.03%.
LHA
MARKET STATE™
ALPHA SEEKER ETF
LHA
MARKET STATE™
TACTICAL BETA ETF
|
|
|
|
|
|
|
|
|
|
|
|
Adviser |
Little
Harbor Advisors, LLC
30
Doaks Lane
Marblehead,
Massachusetts 01945 |
Transfer
Agent, Fund Accountant and Fund Administrator |
U.S.
Bancorp Fund Services, LLC
d/b/a
U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Custodian |
U.S.
Bank National Association
1555
N. Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212 |
Distributor |
Quasar
Distributors, LLC
111
East Kilbourn Avenue, Suite 2200
Milwaukee,
Wisconsin 53202 |
Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue, NW
Washington,
D.C. 20004-2541 |
Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
342
North Water Street, Suite 830
Milwaukee,
Wisconsin 53202 |
Investors
may find more information about the Funds in the following documents:
Statement
of Additional Information: The
Funds’ SAI provides additional details about the investments and techniques of
the Funds and certain other additional information. A current SAI dated
April 30, 2022 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 each Fund’s investments is available in the Funds’ annual and
semi-annual reports to shareholders. In the annual
report
you will find a discussion of the market conditions and investment strategies
that significantly affected each Fund’s performance.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Funds by contacting the Funds at c/o U.S. Bank
Global Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701 or calling
1-800-617-0004.
Shareholder
reports and other information about the Funds 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 Funds’ Internet website at www.lhafunds.com; or
(SEC
Investment Company Act File No. 811-22668)