ck0001683471-20211231
Horizon Kinetics Blockchain Development
ETF
(BCDF)
Listed
on NYSE
Arca, Inc.
PROSPECTUS
July 29,
2022
The
U.S. Securities and Exchange Commission (the “SEC”) has not approved or
disapproved of these securities or passed upon the accuracy or adequacy of this
Prospectus. Any representation to the contrary is a criminal
offense.
TABLE
OF CONTENTS
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HORIZON
KINETICS BLOCKCHAIN DEVELOPMENT ETF |
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Investment
Objective |
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Fees
and Expenses of the Fund |
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Portfolio
Turnover |
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Principal
Investment Strategies |
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Principal
Investment Risks |
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Performance |
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Portfolio
Management |
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Purchase
and Sale of Shares |
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Tax
Information |
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Financial
Intermediary Compensation |
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ADDITIONAL
INFORMATION ABOUT THE FUND |
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Investment
Objective |
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Principal
Investment Strategies |
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Principal
Investment Risks |
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PORTFOLIO
HOLDINGS INFORMATION |
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MANAGEMENT |
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Investment
Adviser |
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Portfolio
Managers |
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Other
Service Providers |
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HOW
TO BUY AND SELL SHARES |
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Book
Entry |
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Frequent
Purchases and Redemptions of Shares |
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Determination
of Net Asset Value |
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Fair
Value Pricing |
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DIVIDENDS,
DISTRIBUTIONS, AND TAXES |
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Dividends
and Distributions |
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Taxes |
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Taxes
on Distributions |
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Taxes
When Shares are Sold on the Exchange |
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Taxes
on Purchases and Redemptions of Creation Units |
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Net
Investments Income Tax |
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Foreign
Investments by the Fund |
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DISTRIBUTION
PLAN |
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PREMIUM/DISCOUNT
INFORMATION |
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ADDITIONAL
NOTICES |
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FINANCIAL
HIGHLIGHTS |
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HORIZON
KINETICS BLOCKCHAIN DEVELOPMENT ETF - Fund
Summary |
Investment Objective
The Horizon Kinetics
Blockchain Development ETF (the “Fund”) seeks long-term growth of
capital.
Fees and Expenses of the Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Shareholder
Fees (fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment) |
Management
Fee |
0.85% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses* |
0.00% |
Total
Annual Fund Operating Expenses |
0.85% |
*
Estimated for the current fiscal
year.
Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. The
Example does not take into account brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1 Year: |
$87 |
3
Years: |
$271 |
Portfolio Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in the Total Annual Fund Operating Expenses
or in the Example, affect the Fund’s performance. Because the Fund is newly
organized, portfolio turnover information is not yet
available.
Principal Investment Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that will invest
primarily in equity securities of listed domestic and foreign Blockchain
Development Companies (as the term is defined below), American Depository
Receipts (“ADRs”) and Global Depository Receipts (“GDRs”), that Horizon Kinetics
Asset Management LLC, the Fund’s investment adviser (the “Adviser”), expects to
benefit, either directly or indirectly, from the use of blockchain technology in
connection with the issuance, facilitation, custody, trading and administration
of digital assets, including cryptocurrencies. A blockchain is a peer-to-peer
ledger of immutable transactions consolidated into digital “blocks” of data; the
“blocks” are cryptographically linked consecutively into a chronological
“chain,” meaning that each new block references the transactions in the previous
block of data. The Fund defines “digital assets” as digital (i.e.,
non-tangible) representations of various assets (e.g.,
goods, resources, objects) and defines “cryptocurrency” (also referred to as
“virtual currency” and “digital currency”) as digital assets designed to act as
a medium of exchange. The
Fund does not invest directly in cryptocurrencies or initial coin offerings and
as a result, its performance does not seek to, and should not be expected to,
correspond to the performance of any particular cryptocurrency.
Blockchain
Development Companies may include companies that (i) verify and add digital
asset transactions to a blockchain ledger (i.e.,
digital asset mining), or that produce technology used in digital asset mining,
(ii) operate trading platforms/exchanges, asset managers, custodians, wallets,
and/or payment gateways or processors for digital assets issued on a blockchain,
(iii) develop and distribute applications and software services related to
blockchain technology and digital assets issued on a blockchain, including smart
contracts, (iv) manufacture and distribute infrastructure and/or hardware used
for blockchain activities and digital assets issued on a blockchain, or (v)
provide engineering and consulting services for the adoption and utilization of
blockchain technology and digital assets issued on a blockchain.
In
selecting individual securities for the Fund’s portfolio, the Adviser employs a
value-driven, “bottom-up” or fundamental approach. The Adviser’s research and
analysis leverages insights from diverse sources, including internal research,
to develop and refine its investment themes for the Fund and identify and take
advantage of trends that are expected to benefit individual companies or broader
sub-industries. The Adviser expects to sell portfolio holdings when it
determines that they no longer fit the Adviser’s investment thesis and/or are no
longer attractively valued.
The
Fund’s portfolio generally will include the securities of approximately 20 to 50
issuers, and those issuers may represent any combination of small-, mid-, or
large-capitalization companies at any point in time. The Fund may invest in
issuers in developed, emerging markets, and frontier markets. Frontier markets
and emerging market countries are those countries with low- and middle-income
economies, respectively, as classified by the World Bank, or included in any of
the Morgan Stanley Capital International (MSCI) frontier markets or emerging
markets indices.
Under normal circumstances, the Fund
invests at least 80% of its net assets, plus borrowings for investment purposes,
in Blockchain Development Companies. A
Blockchain Development Company means a company that has (i) publicly disclosed
its commitment to the development and use of blockchain technologies, (ii)
organized a separate identifiable business line or legal entity for the purpose
of developing and using blockchain technologies, or (iii) been defined by one or
more published indices or classified by one or more industry classification
schemes as a blockchain company.
The
Fund also may invest in the securities of issuers the Adviser believes are
actively engaged in the development and use of blockchain technologies, but
which do not meet the criteria specified above in the Fund’s definition of
Blockchain Development Companies, and anticipates investing in cash and cash
equivalents on a day-to-day basis.
The
Fund is non-diversified and therefore may invest a larger percentage of its
assets in the securities of a single issuer or smaller number of issuers than
diversified funds. The Fund expects to concentrate its investments in issuers in
the Capital Markets Industry within the Financials Sector, as classified by the
Global Industry Classification Standard (GICS®).
Principal Investment
Risks
The
principal risks of investing in the Fund are summarized below. The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with those of other funds. Each risk
summarized below is considered a “principal risk” of investing in the Fund,
regardless of the order in which it appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value (“NAV”),
trading price, yield, total return and/or ability to meet its
objective. The following risks could affect the value of your investment in
the Fund:
•Associated
Risk of Investing in Blockchain Development Companies. The
Fund will invest in Blockchain Development Companies. At times, Blockchain
Development Companies may be out of favor and underperform other industries or
groups of industries or the market as a whole. In such event, the value of the
Shares may rise and fall more than the value of shares of a fund that invests in
securities of companies in a broader range of industries. An investment in a
Blockchain Development Company may be subject to the following
risks:
◦Blockchain
technology is new and many of its uses may be untested.
The mechanics of using blockchain technology to transact in digital or other
types of assets, such as securities or derivatives, is relatively new and
untested. There is no assurance that widespread adoption will occur. A lack of
expansion in the usage of blockchain technology could adversely affect
Blockchain Development Companies.
◦Theft,
loss or destruction.
Transacting on a blockchain depends in part specifically on the use of
cryptographic keys that are required to access a user’s account (or “wallet”).
The theft, loss, or destruction of these keys could adversely affect a user’s
ownership claims over an asset or a company’s business or operations if it was
dependent on the blockchain.
◦Competing
platforms, technologies, and patents.
The development and acceptance of competing platforms or technologies may cause
consumers or investors to use an alternative to blockchains. Further, if one or
more other persons, companies or organizations has or obtains a valid patent
covering technology critical to the operation of one or more of a Blockchain
Development Company’s business lines, there can be no guarantee that such an
entity would be willing to license such technology at acceptable prices or at
all, which could have a material adverse effect on the Blockchain Development
Company’s business, financial condition and results of operations.
◦Cybersecurity
incidents.
Cybersecurity incidents may compromise an issuer, its operations, or its
business. Cybersecurity incidents may also specifically target a user’s
transaction history, digital assets, or identity, thereby leading to privacy
concerns. In addition, certain features of blockchain technology, such as
decentralization, open source protocol, and reliance on peer-to-peer
connectivity, may increase the risk of fraud or cyber-attack by potentially
reducing the likelihood of a coordinated response. Additionally, blockchain
functionality relies on the
Internet.
A significant disruption of Internet connectivity affecting large numbers of
users or geographic areas could impede the functionality of blockchain
technologies.
◦Emerging
Technologies Investment Risk.
The Fund invests primarily to gain exposure to the emerging technologies and
related activities in the blockchain and digital assets ecosystems. Companies
across a wide variety of industries, primarily in the technology, finance, and
entertainment sectors, are exploring the possible applications of these
technologies. Blockchain technology may never develop an optimization process
that may lead to increased economic returns from which the Fund seeks to
benefit. The extent of such technologies’ versatility has not yet been fully
explored. Consequently, the Fund’s holdings may include equity securities of
operating companies that have exposure to a wide variety of industries, and the
economic fortunes of certain companies held by the Fund may be significantly
tied to such industries. Currently, there are few public companies for which
these emerging technologies represent an attributable and significant revenue or
profit stream, and such technologies may not ultimately have a material effect
on the economic returns of companies in which the Fund invests.
◦Financial
Technology Risk.
Companies that are developing financial technologies that seek to disrupt or
displace established financial institutions generally face competition from much
larger and more established firms. Such companies may not be able to capitalize
on their disruptive technologies if they face political and/or legal attacks
from competitors, industry groups or local and national governments. Laws
generally vary by country, creating some challenges to achieving scale. A
financial technology company may not currently derive any revenue, and there is
no assurance that such company will derive any revenue from innovative
technologies in the future. Additionally, financial technology companies may be
adversely impacted by potential rapid product obsolescence, cybersecurity
attacks, increased regulatory oversight and disruptions in the technology they
depend on.
◦Key
personnel risk.
Blockchain Development Companies rely on highly skilled financial service
professionals and software engineers. Because of competition from other firms,
Blockchain Development Companies may face difficulties in recruiting and
retaining professionals of a caliber consistent with their business strategy in
the future. The inability to successfully identify and retain qualified
professionals could materially and adversely affect the growth, operations, or
financial condition of the company.
◦Lack
of liquid markets, and possible manipulation of blockchain-based assets.
Digital
assets that are represented and trade on a blockchain may not necessarily
benefit from viable trading markets. Stock exchanges have listing requirements
and vet issuers, and perhaps users. These conditions may not necessarily be
replicated on a blockchain, depending on the platform’s controls and other
policies. The more lenient a blockchain is about vetting issuers of digital
assets or users that transact on the platform, the higher the potential risk for
fraud or the manipulation of digital assets. These factors may decrease
liquidity or volume, or increase volatility of digital securities or other
assets trading on a blockchain.
◦Lack
of regulation.
Digital assets and their associated platforms are largely unregulated, and the
regulatory environment is rapidly evolving. Because blockchain technology works
by having every transaction build on every other transaction, participants can
self-police any corruption, which can mitigate the need to depend on the current
level of legal or government safeguards to monitor and control the flow of
business transactions. As a result, companies engaged in such blockchain
activities may be exposed to adverse regulatory action, fraudulent activity, or
even failure. There can be no guarantee that future regulation of blockchain
technology will not have a negative impact on the value of such technologies and
of the companies in the which the Fund invests.
◦Network
amendment risk.
Significant contributors to any cryptocurrency network could propose amendments
to the respective network’s protocols and software that, if accepted and
authorized by such network, could adversely affect a Blockchain Development
Company. For example, with respect to the bitcoin network, a small group of
individuals contribute to the bitcoin network’s source code. Those individuals
can propose refinements or improvements to the bitcoin network’s source code
through one or more software upgrades that alter the protocols and software that
govern the bitcoin network and the properties of bitcoin, including the
irreversibility of transactions and limitations on the mining of new bitcoin. To
the extent that a significant majority of the users and miners on the bitcoin
network install such software upgrade(s), the bitcoin network would be subject
to new protocols and software that may adversely affect Blockchain Development
Companies.
◦Non-Fungible
Tokens ecosystem company risk.
Non-fungible tokens (“NFTs”) act like a certificate of authenticity for a
digital record. NFTs may be purchased, sold, or held as an original digital
collectible for items such as digital art, music, videos, or other electronic
content. The value of a NFT may decline for short or long periods of time and
may be volatile due to factors such as the desirability of the particular NFT,
the availability of other similar NFTs, the accessibility of the blockchain used
by the NFT, and general risks applicable to Blockchain Development Companies.
Volatility in the value of NFTs may have a material adverse effect on a
Blockchain Development Company’s business, financial condition, and results of
operation. The NFT ecosystem includes those companies
that
either (i) currently operate services for the issuance, creation, and
commercialization of NFTs and/or (ii) invest in or fund, or will invest in or
fund, internal or external projects targeting the issuance, creation, and
commercialization of NFTs that are of material importance to such
company.
◦Third
party product defects or vulnerabilities.
Where blockchain systems are built using third party products, those products
may contain technical defects or vulnerabilities beyond a company’s control.
Open-source technologies that are used to build a blockchain application may
also introduce defects and vulnerabilities.
◦Reliance
on cryptocurrency.
Certain Blockchain Development Companies may rely on the success of the digital
currency industry, the development and acceptance of which is subject to a
variety of factors that are difficult to evaluate. Though there are many
applications of blockchain technology outside of the digital currency industry,
digital currencies remain a key driver of interest in blockchain technology.
Cryptocurrency is an emerging asset class. There are thousands of
cryptocurrencies, the most well-known of which is bitcoin. Cryptocurrency
generally operates without a central authority (such as a bank) and is not
backed by any government. Cryptocurrency is not legal tender. Federal, state
and/or foreign governments may restrict the use and exchange of cryptocurrency,
and regulation in the United States is still developing. The market price of
bitcoin has been subject to extreme fluctuations. Similar to fiat currencies
(i.e.,
a currency that is backed by a central bank or a national, supra-national or
quasi-national organization), cryptocurrencies are susceptible to theft, loss,
and destruction. Cryptocurrency exchanges and other trading venues on which
cryptocurrencies trade are relatively new and, in most cases, largely
unregulated and may therefore be more exposed to fraud and failure than
established, regulated exchanges for securities, derivatives and other
currencies. Cryptocurrency exchanges may stop operating or permanently shut down
due to fraud, technical glitches, hackers, or malware, which may also affect
volatility.
◦Exposure
to cryptocurrency.
The Fund may have exposure to cryptocurrencies indirectly through investment in
individual Blockchain Development Companies that have either direct or indirect
exposure to cryptocurrencies, including cryptocurrencies other than bitcoin. To
date, cryptocurrency markets have experienced extreme fluctuations and generally
are characterized by significant volatility. The prices of cryptocurrencies
could fall sharply (potentially to zero) for various reasons, including, but not
limited to, regulatory changes, issues impacting the distributed ledger
networks, events involving entities that facilitate transactions in
cryptocurrency, or changes in user preferences in favor of alternative
cryptocurrencies. Cryptocurrency exchanges and other trading venues on which
cryptocurrencies trade are relatively new and, in most cases, largely
unregulated. As a result, the prices of cryptocurrencies on exchanges may be
subject to greater volatility than traditional assets traded on regulated
exchanges. Cryptocurrency exchanges and other trading venues also may be more
vulnerable to fraud and failure, including financial failure due to extreme
market volatility, than established, regulated exchanges for securities,
derivatives and other currencies. The Fund’s investments in Blockchain
Development Companies with significant direct and indirect exposure to
cryptocurrencies expose the Fund to all of the risks related to cryptocurrencies
described above in addition to the risks related to the Blockchain Development
Companies. Cryptocurrency volatility may have a material adverse effect on a
Blockchain Development Company’s business, financial condition, and results of
operation.
◦Line
of business risk.
Some Blockchain Development Companies are engaged in other lines of business
unrelated to blockchain and these lines of business could adversely affect their
operating results. The operating results of these companies may fluctuate as a
result of these additional risks and events in the other lines of business. In
addition, a company’s ability to engage in new activities may expose it to
business risks with which it has less experience than it has with the business
risks associated with its traditional businesses. Despite a company’s possible
success in activities linked to its use of blockchain, there can be no assurance
that the other lines of business in which these companies are engaged will not
have an adverse effect on a company’s business or financial
condition.
•Concentration
Risk.
The Fund expects to concentrate (i.e.,
invest more than 25% of its net assets) its investments in a limited number of
issuers conducting business in the same industry or group of related industries.
To the extent the Fund does so, the Fund is more vulnerable to adverse market,
economic, regulatory, political or other developments affecting that industry or
group of related industries than a fund that invests its assets more broadly. As
of July 29, 2022, the Fund’s investments are concentrated in securities issued
by companies in the Capital Markets Industry, an industry within the Financials
Sector. As a result of the Fund’s concentration in the Capital Markets Industry,
the Fund is subject to the risks associated with that Industry.
Global
financial markets and economic conditions have been, and may continue to be,
volatile due to a variety of factors, including significant write-offs in the
Financials Sector. In particular, concerns about the general stability of
financial markets and specifically the solvency of lending counterparties, may
impact the cost of raising capital from the credit markets through increased
interest rates, tighter lending standards, difficulties in refinancing debt on
existing terms or at all and reduced, or in some cases ceasing to provide,
funding to borrowers.
•Currency
Exchange Rate Risk.
The Fund may invest a relatively large percentage of its assets in investments
denominated in non-U.S. currencies or in securities that provide exposure to
such currencies. Changes in currency exchange rates and the relative value of
non-U.S. currencies will affect the value of the Fund’s investment and the value
of your Shares. Currency exchange rates can be very volatile and can change
quickly and unpredictably. As a result, the value of an investment in the Fund
may change quickly and without warning and you may lose money.
•Cybersecurity
Risk.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause the Fund, the Adviser, the
Sub-Adviser and/or other service providers (including custodians and financial
intermediaries) to suffer data breaches or data corruption. Additionally,
cybersecurity failures or breaches of the electronic systems of the Fund, the
Adviser, the Sub-Adviser or the Fund’s other service providers, market makers,
Authorized Participants (“APs”) or the issuers of securities in which the Fund
invests have the ability to cause disruptions and negatively impact the Fund's
business operations, potentially resulting in financial losses to the Fund and
its shareholders.
•Depositary
Receipt Risk. Depositary
Receipts involve risks similar to those associated with investments in foreign
securities, such as changes in political or economic conditions of other
countries and changes in the exchange rates of foreign currencies. Depositary
Receipts listed on U.S. exchanges are issued by banks or trust companies and
entitle the holder to all dividends and capital gains that are paid out on the
underlying foreign shares (“Underlying Shares”). When the Fund invests in
Depositary Receipts as a substitute for an investment directly in the Underlying
Shares, the Fund is exposed to the risk that the Depositary Receipts may not
provide a return that corresponds precisely with that of the Underlying Shares.
•Emerging
Markets Risk.
The Fund may invest in companies organized in emerging market nations.
Investments in securities and instruments traded in developing or emerging
markets, or that provide exposure to such securities or markets, can involve
additional risks relating to political, economic, or regulatory conditions not
associated with investments in U.S. securities and instruments or investments in
more developed international markets. Such conditions may impact the ability of
the Fund to buy, sell or otherwise transfer securities, adversely affect the
trading market and price for Shares and cause the Fund to decline in value.
•Equity
Market Risk. The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, sectors or companies in which the Fund invests.
Common stocks are generally exposed to greater risk than other types of
securities, such as preferred stocks and debt obligations, because common
stockholders generally have inferior rights to receive payment from issuers.
•ETF
Risks.
The Fund is an ETF, and, as a result of its structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the
business or significantly reduce their business activities and no other entities
step forward to perform their functions.
◦Costs
of Buying or Selling Shares Risk.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV Risk. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant. Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, the Fund is likely to experience
premiums or discounts greater than those of domestic ETFs.
◦Trading
Risk. Although
Shares are listed for trading on the NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than Shares.
•Foreign
Securities Risk.
Investments in non-U.S. securities involve certain risks that may not be present
with investments in U.S. securities. For example, investments in non-U.S.
securities may be subject to risk of loss due to foreign currency fluctuations
or to political or economic instability. There may be less information publicly
available about a non-U.S. issuer than a U.S. issuer. Non-U.S. issuers may be
subject to different accounting, auditing, financial reporting and investor
protection standards than U.S. issuers. Investments in non-U.S. securities may
be subject to withholding or other taxes and may be subject to additional
trading, settlement, custodial, and operational risks. With respect to certain
countries, there is the possibility of government intervention and expropriation
or nationalization of assets. Because legal systems differ, there is also the
possibility that it will be difficult to obtain or enforce legal judgments in
certain countries. Since foreign exchanges may be open on days when the Fund
does not price its Shares, the value of the securities in the Fund’s portfolio
may change on days when shareholders will not be able to purchase or sell the
Shares. Conversely, Shares may trade on days when foreign exchanges are closed.
Each of these factors can make investments in the Fund more volatile and
potentially less liquid than other types of investments.
•Frontier
Markets Risk. Certain
foreign markets are only in the earliest stages of development and may be
considered “frontier markets.” Frontier financial markets generally are less
liquid and more volatile than other markets, including markets in developing and
emerging economies. Securities may have limited marketability and be subject to
erratic price movements. Frontier markets may be impacted by political
instability, war, terrorist activities and religious, ethnic and/or
socioeconomic unrest. These and other factors make investing in frontier market
countries significantly riskier than investing in developed market or emerging
market countries.
•Geographic
Investment Risk.
To
the extent that the Fund invests a significant portion of its assets in the
securities of companies of a single country or region, it is more likely to be
impacted by events or conditions affecting that country or region. For example,
political and economic conditions and changes in regulatory, tax, or economic
policy in a country could significantly affect the market in that country and in
surrounding or related countries and have a negative impact on the Fund’s
performance. Currency developments or restrictions, political and social
instability, and changing economic conditions have resulted in significant
market volatility.
◦Risks
of Investing in Canada.
The Fund may have significant exposure to issuers operating and/or organized in
Canada, and, as a result, investment results could be dependent on the financial
condition of the Canadian economy. The Canadian economy is reliant on the sale
of natural resources and commodities, which can pose risks such as the
fluctuation of prices and the variability of demand for exportation of such
products. Changes in spending on Canadian products by the economies of other
countries or changes in any of these economies may cause a significant impact on
the Canadian economy.
•Management
Risk. The
Fund is actively managed and may not meet its investment objective based on the
Adviser’s success or failure to implement investment strategies for the Fund.
The Adviser’s evaluations and assumptions regarding issuers, securities, and
other factors may not successfully achieve the Fund’s investment objective given
actual market conditions.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
these factors, including the impact of the COVID-19 pandemic and related public
health issues, growth concerns in the U.S. and overseas, uncertainties regarding
interest rates, trade tensions and the threat of tariffs imposed by the U.S. and
other countries. In addition, local, regional or global events such as war,
including Russia’s invasion of Ukraine, acts of terrorism, spread of infectious
diseases or other public health issues, recessions, rising inflation, or other
events could have a significant negative impact on the Fund and its investments.
These developments as well as other events could result in further market
volatility and negatively affect financial asset prices, the liquidity of
certain securities and the normal operations of securities exchanges and other
markets. It is unknown how long circumstances related to the pandemic will
persist, whether they will reoccur in the future, whether efforts to support the
economy and financial markets will be successful, and what additional
implications may follow from the pandemic. The impact of these events and other
epidemics or pandemics in the future could adversely affect Fund
performance.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing.
The securities of large-capitalization companies may be relatively mature
compared to smaller companies and therefore subject to slower growth during
times of economic expansion. Large-capitalization companies may also be unable
to respond quickly to new competitive challenges, such as changes in technology
and consumer tastes.
◦Mid-Capitalization
Investing.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large- or mid-capitalization stocks or the
stock market as a whole. There is typically less publicly available information
concerning smaller-capitalization companies than for larger, more established
companies.
•New
Fund Risk. The
Fund is a recently organized investment company with no operating history. As a
result, prospective investors have no track record or history on which to base
their investment decision.
•Non-Diversification
Risk. 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.
•Sector
Risk. To
the extent the Fund invests more heavily in particular sectors of the economy,
its performance will be especially sensitive to developments that significantly
affect those sectors. The Fund may invest a significant portion of its assets in
the following sectors and, therefore, the performance of the Fund could be
negatively impacted by events affecting each of these sectors.
◦Communication
Services Sector Risk. Market
or economic factors impacting communication services companies and companies
that rely heavily on technological advances could have a major effect on the
value of the Fund’s investments. The value of stocks of communication services
companies and companies that rely heavily on technology is particularly
vulnerable to research and development costs, substantial capital requirements,
product and services obsolescence, government regulation, and domestic and
international competition, including competition from foreign competitors with
lower production costs. Stocks of communication services companies and companies
that rely heavily on technology, especially those of smaller, less-seasoned
companies, tend to be more volatile than the overall market. Additionally,
companies in the communication services sector may face dramatic and often
unpredictable changes in growth rates and competition for the services of
qualified personnel. While all companies may be susceptible to network security
breaches, certain companies in the communication services sector may be
particular targets of hacking and potential theft of proprietary or consumer
information or disruptions in service, which could have a material adverse
effect on their businesses.
◦Financials
Sector Risk.
Performance of companies in the Financials Sector may be adversely impacted by
many factors, including, among others, government regulations, economic
conditions, credit rating downgrades, changes in interest rates, and decreased
liquidity in credit markets. This sector has experienced significant losses in
the recent past, and the impact of more stringent capital requirements and of
recent or future regulation on any individual financial company or on the sector
as a whole cannot be predicted.
◦Information
Technology Sector Risk. Market
or economic factors impacting information technology companies and companies
that rely heavily on technological advances could have a significant effect on
the value of the Fund’s investments. The value of stocks of information
technology companies and companies that rely heavily on technology is
particularly vulnerable to rapid changes in technology product cycles, rapid
product obsolescence, government regulation and competition, both domestically
and internationally, including competition from foreign competitors with lower
production costs. Stocks of information technology companies and companies that
rely heavily on technology, especially those of smaller, less-seasoned
companies, tend to be more volatile than the overall market. Information
technology companies are heavily dependent on patent and intellectual property
rights, the loss or impairment of which may adversely affect
profitability.
Performance
The Fund is new and therefore does not have a
performance history for a full calendar year. In the future,
performance information for the Fund will be presented in this section. Updated
performance information is available on the Fund’s website at www.horizonkinetics.com/products/etf/BCDF.
Portfolio
Management
|
|
|
|
|
|
Adviser |
Horizon
Kinetics Asset Management LLC |
Portfolio
Managers |
Murray
Stahl, Chairman and Chief Investment Strategist, Steven Bregman,
President, Peter B. Doyle, Managing Director, James Davolos, Portfolio
Manager, and Brandon Colavita, Vice President, have been the portfolio
managers of the Fund since its inception in July,
2022 |
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. The difference in the bid and
ask prices is referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at www.horizonkinetics.com/products/etf/BCDF.
Tax
Information
The
Fund’s distributions are generally taxable as ordinary income, qualified
dividend income, or capital gains (or a combination), unless your investment is
in an individual retirement account (“IRA”) or other tax-advantaged account.
Distributions on investments made through tax-deferred arrangements may be taxed
later upon withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
ADDITIONAL
INFORMATION ABOUT THE FUND
Investment
Objective
The
Fund’s investment objective has been adopted as a non-fundamental investment
policy and may be changed without shareholder approval upon written notice to
shareholders.
Principal
Investment Strategies
The
following information is in addition to, and should be read along with, the
description of the Fund’s principal investment strategies in the section titled
“Fund Summary—Principal Investment Strategies” above.
In
accordance with Rule 35d-1 under the Investment Company Act of 1940 (the “1940
Act”), the Fund has adopted a non-fundamental investment policy to invest, under
normal circumstances, at least 80% of its net assets, plus borrowings for
investment purposes, in Blockchain Development Companies. Such policy may be
changed without shareholder approval upon 60 days’ written notice to the Fund’s
shareholders.
Temporary
Defensive Positions.
For temporary defensive purposes during adverse market, economic, political or
other conditions, the Fund may invest in cash or cash equivalents or short-term
instruments such as commercial paper, money market mutual funds, or short-term
U.S. government securities. Taking a temporary defensive position may result in
the Fund not achieving its investment objective.
Principal
Investment Risks
An
investment in the Fund entails risks. The Fund could lose money, or its
performance could trail that of other investment alternatives. The following
provides additional information about the Fund’s principal risks. It is
important that investors closely review and understand these risks before making
an investment in the Fund. Just as in the Fund’s summary section, the principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with those of other funds. Each risk summarized below is
considered a “principal risk” of investing in the Fund, regardless of the order
in which it appears.
•Associated
Risk of Investing in Blockchain Development Companies. The
Fund will invest in Blockchain Development Companies. At times, Blockchain
Development Companies may be out of favor and underperform other industries or
groups of industries or the market as a whole. In such event, the value of the
Shares may rise and fall more than the value of shares of a fund that invests in
securities of companies in a broader range of industries. An investment in a
Blockchain Development Company may be subject to the following
risks:
◦Blockchain
technology is new and many of its uses may be untested.
The mechanics of using blockchain technology to transact in digital or other
types of assets, such as securities or derivatives, is relatively new and
untested. There is no assurance that widespread adoption will occur. A lack of
expansion in the usage of blockchain technology could adversely affect
Blockchain Development Companies.
◦Theft,
loss or destruction.
Transacting on a blockchain depends in part specifically on the use of
cryptographic keys that are required to access a user’s account (or “wallet”).
The theft, loss, or destruction of these keys could adversely affect a user’s
ownership claims over an asset or a company’s business or operations if it was
dependent on the blockchain.
◦Competing
platforms, technologies, and patents.
The development and acceptance of competing platforms or technologies may cause
consumers or investors to use an alternative to blockchains. Further, if one or
more other persons, companies or organizations has or obtains a valid patent
covering technology critical to the operation of one or more of a Blockchain
Development Company’s business lines, there can be no guarantee that such an
entity would be willing to license such technology at acceptable prices or at
all, which could have a material adverse effect on the Blockchain Development
Company’s business, financial condition and results of operations.
◦Cybersecurity
incidents.
Cybersecurity incidents may compromise an issuer, its operations, or its
business. Cybersecurity incidents may also specifically target a user’s
transaction history, digital assets, or identity, thereby leading to privacy
concerns. In addition, certain features of blockchain technology, such as
decentralization, open source protocol, and reliance on peer-to-peer
connectivity, may increase the risk of fraud or cyber-attack by potentially
reducing the likelihood of a coordinated response. Additionally, blockchain
functionality relies on the Internet. A significant disruption of Internet
connectivity affecting large numbers of users or geographic areas could impede
the functionality of blockchain technologies.
◦Emerging
Technologies Investment Risk.
The Fund invests primarily to gain exposure to the emerging technologies and
related activities in the blockchain and digital assets ecosystems. Companies
across a wide variety of industries, primarily in the technology, finance, and
entertainment sectors, are exploring the possible applications of these
technologies.
Blockchain technology may never develop an optimization process that may lead to
increased economic returns in which the Fund invests. The extent of such
technologies’ versatility has not yet been fully explored. Consequently, the
Fund’s holdings may include equity securities of operating companies that have
exposure to a wide variety of industries, and the economic fortunes of certain
companies held by the Fund may be significantly tied to such industries.
Currently, there are few public companies for which these emerging technologies
represent an attributable and significant revenue or profit stream, and such
technologies may not ultimately have a material effect on the economic returns
of companies in which the Fund invests.
◦Financial
Technology Risk.
Companies that are developing financial technologies that seek to disrupt or
displace established financial institutions generally face competition from much
larger and more established firms. Such companies may not be able to capitalize
on their disruptive technologies if they face political and/or legal attacks
from competitors, industry groups or local and national governments. Laws
generally vary by country, creating some challenges to achieving scale. A
financial technology company may not currently derive any revenue, and there is
no assurance that such company will derive any revenue from innovative
technologies in the future. Additionally, financial technology companies may be
adversely impacted by potential rapid product obsolescence, cybersecurity
attacks, increased regulatory oversight and disruptions in the technology they
depend on.
◦Key
personnel risk.
Blockchain Development Companies rely on highly skilled financial service
professionals and software engineers. Because of competition from other firms,
Blockchain Development Companies may face difficulties in recruiting and
retaining professionals of a caliber consistent with their business strategy in
the future. The inability to successfully identify and retain qualified
professionals could materially and adversely affect the growth, operations, or
financial condition of the company.
◦Lack
of liquid markets, and possible manipulation of blockchain-based assets.
Digital
assets that are represented and trade on a blockchain may not necessarily
benefit from viable trading markets. Stock exchanges have listing requirements
and vet issuers, and perhaps users. These conditions may not necessarily be
replicated on a blockchain, depending on the platform’s controls and other
policies. The more lenient a blockchain is about vetting issuers of digital
assets or users that transact on the platform, the higher the potential risk for
fraud or the manipulation of digital assets. These factors may decrease
liquidity or volume, or increase volatility of digital securities or other
assets trading on a blockchain.
◦Lack
of regulation.
Digital assets and their associated platforms are largely unregulated, and the
regulatory environment is rapidly evolving. Because blockchain technology works
by having every transaction build on every other transaction, participants can
self-police any corruption, which can mitigate the need to depend on the current
level of legal or government safeguards to monitor and control the flow of
business transactions. As a result, companies engaged in such blockchain
activities may be exposed to adverse regulatory action, fraudulent activity, or
even failure. There can be no guarantee that future regulation of blockchain
technology will not have a negative impact on the value of such technologies and
of the companies in the which the Fund invests.
◦Network
amendment risk.
Significant contributors to any cryptocurrency network could propose amendments
to the respective network’s protocols and software that, if accepted and
authorized by such network, could adversely affect a Blockchain Development
Company. For example, with respect to the bitcoin network, a small group of
individuals contribute to the bitcoin network’s source code. Those individuals
can propose refinements or improvements to the bitcoin network’s source code
through one or more software upgrades that alter the protocols and software that
govern the bitcoin network and the properties of bitcoin, including the
irreversibility of transactions and limitations on the mining of new bitcoin. To
the extent that a significant majority of the users and miners on the bitcoin
network install such software upgrade(s), the bitcoin network would be subject
to new protocols and software that may adversely affect Blockchain Development
Companies.
◦Non-Fungible
Tokens ecosystem company risk.
The value of NFTs may decline for short or long periods of time and may be
volatile due to factors such as the desirability of the particular NFT, the
availability of other similar NFTs, the accessibility of the blockchain used by
the NFT, and general risks applicable to Blockchain Development Companies.
Volatility in the value of NFTs may have a material adverse effect on a
Blockchain Development Company’s business, financial condition, and results of
operation.
◦Third
party product defects or vulnerabilities.
Where blockchain systems are built using third party products, those products
may contain technical defects or vulnerabilities beyond a company’s control.
Open-source technologies that are used to build a blockchain application may
also introduce defects and vulnerabilities.
◦Reliance
on cryptocurrency.
Certain Blockchain Development Companies may rely on the success of the digital
currency industry, the development and acceptance of which is subject to a
variety of factors that are difficult to evaluate. Cryptocurrencies (also
referred to as “virtual currencies” and “digital currencies”) are digital assets
designed
to act as a medium of exchange. Though there are many applications of blockchain
technology outside of the digital currency industry, digital currencies remain a
key driver of interest in blockchain technology. Cryptocurrency is an emerging
asset class. There are thousands of cryptocurrencies, the most well-known of
which is bitcoin. Cryptocurrency generally operates without a central authority
(such as a bank) and is not backed by any government. Cryptocurrency is not
legal tender. Federal, state and/or foreign governments may restrict the use and
exchange of cryptocurrency, and regulation in the United States is still
developing. The market price of bitcoin has been subject to extreme
fluctuations. Similar to fiat currencies (i.e.,
a currency that is backed by a central bank or a national, supra-national or
quasi-national organization), cryptocurrencies are susceptible to theft, loss,
and destruction. Cryptocurrency exchanges and other trading venues on which
cryptocurrencies trade are relatively new and, in most cases, largely
unregulated and may therefore be more exposed to fraud and failure than
established, regulated exchanges for securities, derivatives and other
currencies. Cryptocurrency exchanges may stop operating or permanently shut down
due to fraud, technical glitches, hackers, or malware, which may also affect
volatility.
◦Exposure
to cryptocurrency.
The Fund may have exposure to cryptocurrencies indirectly through investment in
individual Blockchain Development Companies that have either direct or indirect
exposure to cryptocurrencies, including cryptocurrencies other than bitcoin. To
date, cryptocurrency markets have experienced extreme fluctuations and generally
are characterized by significant volatility. The prices of cryptocurrencies
could fall sharply (potentially to zero) for various reasons, including, but not
limited to, regulatory changes, issues impacting the distributed ledger
networks, events involving entities that facilitate transactions in
cryptocurrency, or changes in user preferences in favor of alternative
cryptocurrencies. Furthermore, events that impact one cryptocurrency may lead to
a decline in the value of other cryptocurrencies within a short period of time.
Cryptocurrency exchanges and other trading venues on which cryptocurrencies
trade are relatively new and, in most cases, largely unregulated. Cryptocurrency
exchanges may not have the same features as traditional exchanges to enhance the
stability of trading on the exchange, such as measures designed to prevent
sudden price swings such as “flash crashes.” As a result, the prices of
cryptocurrencies on exchanges may be subject to greater volatility than
traditional assets traded on regulated exchanges. Cryptocurrency exchanges and
other trading venues also may be more vulnerable to fraud and failure, including
financial failure due to extreme market volatility, than established, regulated
exchanges for securities, derivatives and other currencies. The temporary or
permanent closure of a cryptocurrency exchange or other trading venue with
significant trading volume may significantly and adversely affect the value of
cryptocurrencies. The Fund’s investments in Blockchain Development Companies
with significant direct and indirect exposure to cryptocurrencies expose the
Fund to all of the risks related to cryptocurrencies described above in addition
to the risks related to the Blockchain Development Companies. Cryptocurrency
volatility may have a material adverse effect on a Blockchain Development
Company’s business, financial condition, and results of operation.
◦Line
of business risk.
Some Blockchain Development Companies are engaged in other lines of business
unrelated to blockchain and these lines of business could adversely affect their
operating results. The operating results of these companies may fluctuate as a
result of these additional risks and events in the other lines of business. In
addition, a company’s ability to engage in new activities may expose it to
business risks with which it has less experience than it has with the business
risks associated with its traditional businesses. Despite a company’s possible
success in activities linked to its use of blockchain, there can be no assurance
that the other lines of business in which these companies are engaged will not
have an adverse effect on a company’s business or financial
condition.
•Concentration
Risk.
The Fund expects to concentrate (i.e.,
invest more than 25% of its net assets) its investments in a limited number of
issuers conducting business in the same industry or group of related industries.
To the extent the Fund does so, the Fund is more vulnerable to adverse market,
economic, regulatory, political or other developments affecting that industry or
group of related industries than a fund that invests its assets more broadly. As
of July 29, 2022, the Fund’s investments are concentrated in securities issued
by companies in the Capital Markets Industry, an industry within the Financials
Sector. As a result of the Fund’s concentration in the Capital Markets Industry,
the Fund is subject to the risks associated with that Industry.
Global
financial markets and economic conditions have been, and may continue to be,
volatile due to a variety of factors, including significant write-offs in the
Financials Sector. In volatile times, the cost of raising capital in the debt
and equity capital markets, and the ability to raise capital, may be impacted.
In particular, concerns about the general stability of financial markets and
specifically the solvency of lending counterparties, may impact the cost of
raising capital from the credit markets through increased interest rates,
tighter lending standards, difficulties in refinancing debt on existing terms or
at all and reduced, or in some cases ceasing to provide, funding to borrowers.
In addition, lending counterparties under existing revolving credit facilities
and other debt instruments may be unwilling or unable to meet their funding
obligations.
•Currency
Exchange Rate Risk.
Changes
in currency exchange rates and the relative value of non-U.S. currencies may
affect the value of the Fund’s investments and the value of your Shares. Because
the Fund’s NAV is determined based on U.S. dollars, the U.S. dollar value of
your investment in the Fund may go down if the value of the local currency of
the non-U.S. markets in which the Fund invests depreciates against the U.S.
dollar. This is true even if the local currency value of securities in the
Fund’s holdings goes up. Conversely, the dollar value of your investment in the
Fund may go up if the value of the local currency appreciates against the U.S.
dollar. The value of the U.S. dollar measured against other currencies is
influenced by a variety of factors. These factors include: national debt levels
and trade deficits, changes in balances of payments and trade, domestic and
foreign interest and inflation rates, global or regional political, economic or
financial events, monetary policies of governments, actual or potential
government intervention, and global energy prices. Political instability, the
possibility of government intervention and restrictive or opaque business and
investment policies may also reduce the value of a country’s currency.
Government monetary policies and the buying or selling of currency by a
country’s government may also influence exchange rates. Currency exchange rates
can be very volatile and can change quickly and unpredictably. As a result, the
value of an investment in the Fund may change quickly and without warning, and
you may lose money.
•Cybersecurity
Risk.
With the increased use of technologies such as the Internet and the dependence
on computer systems to perform business and operational functions, funds (such
as a Fund) and their service providers may be prone to operational and
information security risks resulting from cyber-attacks and/or technological
malfunctions. In general, cyber-attacks are deliberate, but unintentional events
may have similar effects. Cyber-attacks include, among others, stealing or
corrupting data maintained online or digitally, preventing legitimate users from
accessing information or services on a website, releasing confidential
information without authorization, and causing operational disruption.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause a Fund, the Adviser, the Sub-Adviser
and/or other service providers (including custodians and financial
intermediaries) to suffer data breaches or data corruption. Additionally,
cybersecurity failures or breaches of the electronic systems of a Fund, the
Adviser, the Sub-Adviser or a Fund’s other service providers, market makers, APs
or the issuers of securities in which such Fund invests have the ability to
cause disruptions and negatively impact the Fund’s business operations,
potentially resulting in financial losses to the Fund and its shareholders. For
instance, cyber-attacks or technical malfunctions may interfere with the
processing of shareholder or other transactions, affect a Fund’s ability to
calculate its NAV, cause the release of private shareholder information or
confidential Fund information, impede trading, cause reputational damage, and
subject a Fund to regulatory fines, penalties or financial losses, reimbursement
or other compensation costs, and additional compliance costs. Cyber-attacks or
technical malfunctions may render records of Fund assets and transactions,
shareholder ownership of Fund Shares, and other data integral to the functioning
of a Fund inaccessible or inaccurate or incomplete. A Fund may also incur
substantial costs for cybersecurity risk management in order to prevent cyber
incidents in the future. A Fund and its respective shareholders could be
negatively impacted as a result.
•Depositary
Receipt Risk.
The Fund may hold the securities of non-U.S. companies in the form of ADRs and
GDRs. ADRs are negotiable certificates issued by a U.S. financial institution
that represent a specified number of shares in a foreign stock and trade on a
U.S. national securities exchange, such as the New York Stock Exchange.
Sponsored ADRs are issued with the support of the issuer of the foreign stock
underlying the ADRs and carry all of the rights of common shares, including
voting rights. GDRs are similar to ADRs but may be issued in bearer form and are
typically offered for sale globally and held by a foreign branch of an
international bank. The underlying issuers of certain depositary receipts,
particularly unsponsored or unregistered depositary receipts, are under no
obligation to distribute shareholder communications to the holders of such
receipts, or to pass through to them any voting rights with respect to the
deposited securities. Issuers of unsponsored depositary receipts are not
contractually obligated to disclose material information in the U.S. and,
therefore, such information may not correlate to the market value of the
unsponsored depositary receipt. The underlying securities of the ADRs and GDRs
in the Fund’s portfolio are usually denominated or quoted in currencies other
than the U.S. Dollar. As a result, changes in foreign currency exchange rates
may affect the value of the Fund’s portfolio. In addition, because the
underlying securities of ADRs and GDRs trade on foreign exchanges at times when
the U.S. markets are not open for trading, the value of the securities
underlying the ADRs and GDRs may change materially at times when the U.S.
markets are not open for trading, regardless of whether there is an active U.S.
market for Shares.
•Emerging
Markets Risk. Investments
in securities and instruments traded in developing or emerging markets, or that
provide exposure to such securities or markets, can involve additional risks
relating to political, economic, or regulatory conditions not associated with
investments in U.S. securities and instruments. For example, developing and
emerging markets may be subject to (i) greater market volatility,
(ii) lower trading volume and liquidity, (iii) greater social,
political and economic uncertainty, (iv) governmental controls on foreign
investments and limitations on repatriation of invested capital, (v) lower
disclosure, corporate governance, auditing and financial reporting standards,
(vi) fewer protections of property rights, (vii) fewer investor rights
and limited legal or practical remedies available to investors
against
emerging market companies, (viii) restrictions on the transfer of
securities or currency, and (ix) settlement and trading practices that
differ from those in U.S. markets. Each of these factors may impact the ability
of the Fund to buy, sell or otherwise transfer securities, adversely affect the
trading market and price for Shares and cause the Fund to decline in
value.
•Equity
Market Risk. Common
stocks are susceptible to general stock market fluctuations and to volatile
increases and decreases in value as market confidence in and perceptions of
their issuers change. These investor perceptions are based on various and
unpredictable factors including: expectations regarding government, economic,
monetary and fiscal policies; inflation and interest rates; economic expansion
or contraction; and global or regional political, economic and banking crises.
If you held common stock, or common stock equivalents, of any given issuer, you
would generally be exposed to greater risk than if you held preferred stocks and
debt obligations of the issuer because common stockholders, or holders of
equivalent interests, generally have inferior rights to receive payments from
issuers in comparison with the rights of preferred stockholders, bondholders,
and other creditors of such issuers.
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, supply chain disruptions, and so-called “stay-at-home”
orders throughout much of the United States and many other countries. The
fall-out from these disruptions has included the rapid closure of businesses
deemed “non-essential” by federal, state, or local governments and rapidly
increasing unemployment, as well as greatly reduced liquidity for certain
instruments at times. Some sectors of the economy and individual issuers have
experienced particularly large losses. Such disruptions may continue for an
extended period of time or reoccur in the future to a similar or greater extent.
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.
The Fund is an ETF, and, as a result of its structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk.
The Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the business or
significantly reduce their business activities and no other entities step
forward to perform their functions.
◦Costs
of Buying or Selling Shares Risk.
Investors buying or selling Shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers, as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of Shares. In addition, secondary market investors will also incur the cost of
the difference between the price at which an investor is willing to buy Shares
(the “bid” price) and the price at which an investor is willing to sell Shares
(the “ask” price). This difference in bid and ask prices is often referred to as
the “spread” or “bid/ask spread.” The bid/ask spread varies over time for Shares
based on trading volume and market liquidity, and is generally lower if Shares
have more trading volume and market liquidity and higher if Shares have little
trading volume and market liquidity. Further, a relatively small investor base
in the Fund, asset swings in the Fund and/or increased market volatility may
cause increased bid/ask spreads. Due to the costs of buying or selling Shares,
including bid/ask spreads, frequent trading of Shares may significantly reduce
investment results and an investment in Shares may not be advisable for
investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV Risk.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. Although it is expected that the market price of Shares will
approximate the Fund’s NAV, there may be times when the market price of Shares
is more than the NAV intra-day (premium) or less than the NAV intra-day
(discount) due to supply and demand of Shares or during periods of market
volatility. This risk is heightened in times of market volatility or periods of
steep market declines and periods when there is limited trading activity for
Shares in the secondary market, in which case such premiums or discounts may be
significant. The market price of Shares during the trading day, like the price
of any exchange-traded security, includes a “bid/ask” spread charged by the
exchange specialist, market makers or other participants that trade Shares. In
times of
severe
market disruption, the bid/ask spread can increase significantly. At those
times, Shares are most likely to be traded at a discount to NAV, and the
discount is likely to be greatest when the price of Shares is falling fastest,
which may be the time that you most want to sell your Shares. The Adviser
believes that, under normal market conditions, large market price discounts or
premiums to NAV will not be sustained because of arbitrage opportunities.
Because securities held by the Fund may trade on foreign exchanges that are
closed when the Fund’s primary listing exchange is open, the Fund is likely to
experience premiums or discounts greater than those of domestic
ETFs.
◦Trading
Risk.
Although Shares are listed for trading on the Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange “circuit breaker”
rules, which temporarily halt trading on the Exchange when a decline in the
S&P 500 Index during a single day reaches certain thresholds (e.g.,
7%, 13%, and 20%). Additional rules applicable to the Exchange may halt trading
in Shares when extraordinary volatility causes sudden, significant swings in the
market price of Shares. There can be no assurance that Shares will trade with
any volume, or at all, on any stock exchange. In stressed market conditions, the
liquidity of Shares may begin to mirror the liquidity of the Fund’s underlying
portfolio holdings, which can be significantly less liquid than
Shares.
•Foreign
Securities Risk.
Investments in non-U.S. securities involve certain risks that may not be present
with investments in U.S. securities. For example, investments in non-U.S.
securities may be subject to risk of loss due to foreign currency fluctuations
or to political or economic instability. There may be less information publicly
available about a non-U.S. issuer than a U.S. issuer. Non-U.S. issuers may be
subject to different accounting, auditing, financial reporting and investor
protection standards than U.S. issuers. Investments in non-U.S. securities may
be subject to withholding or other taxes and may be subject to additional
trading, settlement, custodial, and operational risks. With respect to certain
countries, there is the possibility of government intervention and expropriation
or nationalization of assets. Because legal systems differ, there is also the
possibility that it will be difficult to obtain or enforce legal judgments in
certain countries. Since foreign exchanges may be open on days when the Fund
does not price its Shares, the value of the securities in the Fund’s portfolio
may change on days when shareholders will not be able to purchase or sell the
Shares. Conversely, Shares may trade on days when foreign exchanges are closed.
Each of these factors can make investments in the Fund more volatile and
potentially less liquid than other types of investments.
•Frontier
Markets Risk. Certain
foreign markets are only in the earliest stages of development and may be
considered “frontier markets.” Frontier financial markets generally are less
liquid and more volatile than other markets, including markets in developing and
emerging economies. Frontier markets have a high concentration of market
capitalization and trading volume in a small number of issuers representing a
limited number of industries. Securities may have limited marketability and be
subject to erratic price movements. Frontier market governments typically
exercise substantial influence over many aspects of the private sector. In
certain cases, the government owns or controls many companies, including the
largest company in the country. Accordingly, governmental actions in the future
could have a significant effect on economic conditions in frontier market
countries. This could affect private sector companies and the Fund, as well as
the value of securities in the Fund’s portfolio. Further, substantial
limitations may exist in certain frontier market countries with respect to the
Fund’s ability to protect its legal interests and ability to repatriate its
investment, investment income or capital gains. The Fund could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation of capital, as well as by the application to the Fund of any
restrictions on investment. Procedures concerning transaction settlement and
dividend collection may be less reliable than in developed markets and larger
emerging markets. Frontier markets have been, and may continue to be, impacted
by political instability, war, terrorist activities and religious, ethnic and/or
socioeconomic unrest. These and other factors make investing in frontier market
countries significantly riskier than investing in developed market or emerging
market countries.
•Geographic
Investment Risk.
To
the extent that the Fund invests a significant portion of its assets in the
securities of companies of a single country or region, it is more likely to be
impacted by events or conditions affecting that country or region. For example,
political and economic conditions and changes in regulatory, tax, or economic
policy in a country could significantly affect the market in that country and in
surrounding or related countries and have a negative impact on the Fund’s
performance. Currency developments or restrictions, political and social
instability, and changing economic conditions have resulted in significant
market volatility.
◦Risks
of Investing in Canada.
Because the Fund may have significant exposure to Canadian companies or
companies that have a significant presence in Canada, investment results could
be dependent on the financial condition of the Canadian economy. The Canadian
economy is reliant on the sale of natural resources and commodities, which can
pose
risks such as the fluctuation of prices and the variability of demand for
exportation of such products. Changes in spending on Canadian products by the
economies of other countries or changes in any of these economies may cause a
significant impact on the Canadian economy.
•Management
Risk.
The Fund is actively managed and may not meet its investment objective based on
the Adviser’s success or failure to implement investment strategies for the
Fund. The Adviser’s evaluations and assumptions regarding issuers, securities,
and other factors may not successfully achieve the Fund’s investment objective
given actual market conditions.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
economic, political and global macro factors, including public health issues,
growth concerns in the U.S. and overseas, uncertainties regarding interest
rates, trade tensions and the threat of tariffs imposed by the U.S. and other
countries. In addition, local, regional or global events such as war, including
Russia’s invasion of Ukraine, acts of terrorism, spread of infectious diseases
or other public health issues, recessions, rising inflation, or other events
could have a significant negative impact on the Fund and its investments. These
developments as well as other events could result in further market volatility
and negatively affect financial asset prices, the liquidity of certain
securities and the normal operations of securities exchanges and other markets,
which could have an adverse effect on the Fund.
COVID-19
has resulted in a pandemic and major disruption to economies and markets around
the world, including the United States. The pandemic has resulted in a wide
range of social and economic disruptions, including closed borders, voluntary or
compelled quarantines of large populations, stressed healthcare systems, reduced
or prohibited domestic or international travel, supply chain disruptions, and
so-called “stay-at-home” orders throughout much of the United States and many
other countries. Financial markets have experienced extreme volatility and
severe losses, and trading in many instruments has been disrupted. Some sectors
of the economy and individual issuers have experienced particularly large
losses. Such disruptions may continue for an extended period of time or reoccur
in the future to a similar or greater extent. Liquidity for many instruments has
been greatly reduced for periods of time. In response to these disruptions, the
U.S. government and the Federal Reserve have taken extraordinary actions to
support the domestic economy and financial markets, resulting in very low
interest rates and in some cases negative yields. It is unknown how long
circumstances related to the pandemic will persist, whether they will reoccur in
the future, whether efforts to support the economy and financial markets will be
successful, and what additional implications may follow from the pandemic. The
impact of these events and other epidemics or pandemics in the future could
adversely affect Fund performance.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing.
The
securities of large-capitalization companies may be relatively mature compared
to smaller companies and therefore subject to slower growth during times of
economic expansion. Large-capitalization companies may also be unable to respond
quickly to new competitive challenges, such as changes in technology and
consumer tastes.
◦Mid-Capitalization
Investing.
The
securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole. Some medium capitalization companies have limited product lines,
markets, financial resources, and management personnel and tend to concentrate
on fewer geographical markets relative to large-capitalization companies.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
larger-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than larger capitalization stocks or the stock
market as a whole. Some small capitalization companies have limited product
lines, markets, and financial and managerial resources and tend to concentrate
on fewer geographical markets relative to larger capitalization companies. There
is typically less publicly available information concerning
smaller-capitalization companies than for larger, more established companies.
Small-capitalization companies also may be particularly sensitive to changes in
interest rates, government regulation, borrowing costs and earnings.
•New
Fund Risk. The
Fund is a recently organized investment company with no operating history. As a
result, prospective investors have no track record or history on which to base
their investment decision. Moreover, investors will not be able to evaluate the
Fund against one or more comparable funds on the basis of relative performance
until the Fund has established a track record.
•Non-Diversification
Risk.
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.
•Sector
Risk. The
Fund’s investing approach may result in an emphasis on certain sectors or
sub-sectors of the market at any given time. To the extent the Fund invests more
heavily in one sector or sub-sector of the market, it thereby presents a more
concentrated risk and its performance will be especially sensitive to
developments that significantly affect those sectors or sub-sectors. In
addition, the value of Shares may change at different rates compared to the
value of shares of a fund with investments in a more diversified mix of sectors
and industries. An individual sector or sub-sector of the market may have
above-average performance during particular periods, but may also move up and
down more than the broader market. The several industries that constitute a
sector may all react in the same way to economic, political or regulatory
events. The Fund’s performance could also be affected if the sectors or
sub-sectors do not perform as expected. Alternatively, the lack of exposure to
one or more sectors or sub-sectors may adversely affect performance.
◦Communication
Services Sector Risk. Market
or economic factors impacting communication services companies and companies
that rely heavily on technological advances could have a major effect on the
value of the Fund’s investments. Communication services companies are
particularly vulnerable to the potential obsolescence of products and services
due to technological advancement and the innovation of competitors. Companies in
the communication services sector may also be affected by other competitive
pressures, such as pricing competition, as well as research and development
costs, substantial capital requirements and government regulation. Additionally,
fluctuating domestic and international demand, shifting demographics and often
unpredictable changes in consumer tastes can drastically affect a communication
services company’s profitability. Stocks of communication services
companies and companies that rely heavily on technology, especially those of
smaller, less-seasoned companies, tend to be more volatile than the overall
market. Additionally, companies in the communication services sector may face
dramatic and often unpredictable changes in growth rates and competition for the
services of qualified personnel. While all companies may be susceptible to
network security breaches, certain companies in the communication services
sector may be particular targets of hacking and potential theft of proprietary
or consumer information or disruptions in service, which could have a material
adverse effect on their businesses.
◦Financials
Sector Risk.
The financials sector includes companies involved in such activities as banking,
commercial and consumer finance, investment banking, brokerage, asset
management, custody and insurance. Companies in the financials sector may be
subject to extensive government regulation that affects the scope of their
activities, the prices they can charge and the amount of capital they must
maintain. The profitability of companies in the financials sector may be
adversely affected by increases in interest rates. The profitability of
companies in the financials sector may be adversely affected by loan losses,
which usually increase in economic downturns. In addition, the financials sector
in certain countries is undergoing numerous changes, including continuing
consolidations, development of new products and structures and changes to its
regulatory framework, which may have an impact on the issuers included in the
Fund. Furthermore, increased government involvement in the financials sector,
including measures such as taking ownership positions in financial institutions,
could result in a dilution of the Fund’s investments in financial institutions.
◦Information
Technology Sector Risk.
Market
or economic factors impacting information technology companies and companies
that rely heavily on technological advances could have a significant effect on
the value of the Fund’s investments. The value of stocks of information
technology companies and companies that rely heavily on technology is
particularly vulnerable to rapid changes in technology product cycles, rapid
product obsolescence, government regulation and competition, both domestically
and internationally, including competition from foreign competitors with lower
production costs. Stocks of information technology companies and companies that
rely heavily on technology, especially those of smaller, less-seasoned
companies, tend to be more volatile than the overall market. Information
technology companies are heavily dependent on patent and intellectual property
rights, the loss or impairment of which may adversely affect profitability.
Additionally, companies in the technology sector may face dramatic and often
unpredictable changes in growth rates and competition for the services of
qualified personnel.
PORTFOLIO
HOLDINGS INFORMATION
Information
about the Fund’s daily portfolio holdings is available at
www.horizonkinetics.com/products/etf/BCDF. A complete description of the Fund’s
policies and procedures with respect to the disclosure of the Fund’s portfolio
holdings is available in the Fund’s Statement of Additional Information
(“SAI”).
MANAGEMENT
Investment
Adviser
Horizon
Kinetics Asset Management LLC, located at 470 Park Avenue South, 3rd Floor
South, New York, New York 10016, serves as the investment adviser for the Fund.
The Adviser is subject to the oversight of the Board, provides an investment
management program for the Fund, and manages the day-to-day investment of the
Fund’s assets. The Adviser also arranges for transfer agency, custody, fund
administration, distribution and all other services necessary for the Fund to
operate. The Adviser is an SEC-registered investment adviser that offers a broad
range of portfolio management, portfolio advisory and other business activities.
As of May 31, 2022, the Adviser had approximately $7.34 billion in assets under
management.
For
the services it provides to the Fund, the Adviser is entitled to a unified
management fee, which is calculated daily and paid monthly, at an annual rate of
0.85% based on the average daily net assets of the Fund.
Pursuant
to an investment advisory agreement between the Trust, on behalf of the Fund,
and the Adviser (the “Advisory Agreement”), the Adviser has agreed to pay all
expenses of the Fund except the fee paid to the Adviser under the Advisory
Agreement, interest charges on any borrowings, dividends, and other expenses on
securities sold short, taxes, brokerage commissions and other expenses incurred
in placing orders for the purchase and sale of securities and other investment
instruments, acquired fund fees and expenses, accrued deferred tax liability,
extraordinary expenses, and distribution (12b-1) fees and expenses (if any).
The
basis for the Board of Trustees’ approval of the Advisory Agreement for the Fund
will be available in the Fund’s first Semi-Annual or Annual Report to
Shareholders.
Portfolio
Managers
The
individual identified below are jointly and primarily responsible for the
day-to-day management of the Fund’s portfolio.
Murray
Stahl is the Chairman and Chief Investment Strategist of the Adviser. In 1994,
he co-founded Horizon Asset Management LLC (“Horizon”) and, in 1996, he
co-founded Kinetics Asset Management LLC (“Kinetics”). From 1996 through 2011,
Mr. Stahl was a dual employee of both Horizon and Kinetics. In April 2019,
Kinetics reorganized into Horizon and was renamed Horizon Kinetics Asset
Management, LLC.
Steven
Bregman is the President of the Adviser. In 1994, he co-founded Horizon, which
in 2019 was reorganized into the Adviser, and currently serves as President and
Director of Research for Horizon Kinetics LLC, the parent company of the
Adviser.
Peter
B. Doyle is a Managing Director of the Adviser and the President of Kinetic
Mutual Funds, Inc. In 1994, he co-founded Horizon and, in 1996, he co-founded
Kinetics. From 1996 through 2011, Mr. Doyle was a dual employee of both Horizon
and Kinetics. In April 2019, Kinetics reorganized into Horizon and was renamed
Horizon Kinetics Asset Management, LLC.
James
Davolos is a Portfolio Manager for the Adviser. He joined Kinetics as an analyst
in 2005, and became a Portfolio Manager of Kinetics in 2006, focusing on, among
other things, emerging markets. In 2019, Kinetics was reorganized into the
Adviser.
Brandon
Colavita is a Portfolio Manager for the Adviser. He joined the Adviser in 2014
and is a member of the firm’s ESG committee. Mr. Colavita is involved in
developing research and investment ideas, and is responsible for portfolio
analytics and client relationship management. He received a B.S. in Economics
from The Wharton School of the University of Pennsylvania, and is a
CFA®
charterholder.
The
Fund’s SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts managed by the Portfolio Manager, and the
Portfolio Manager’s ownership of Shares.
Other
Service Providers
Foreside
Fund Services, LLC (the “Distributor”) is the principal underwriter and
distributor of the Fund’s shares. The Distributor’s principal address is Three
Canal Plaza, Suite 100, Portland, Maine 04101. The Distributor will not
distribute shares in less than whole Creation Units, and it does not maintain a
secondary market in the shares. The Distributor is a broker-dealer registered
under the Securities Exchange Act of 1934 and a member of the Financial Industry
Regulatory Authority, Inc. (“FINRA”). The Distributor has no role in determining
the policies of the Fund or the securities that are purchased or sold by the
Fund and is not affiliated with the Adviser or any of its affiliates.
U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services,
located at 615 East Michigan Street, Milwaukee, Wisconsin 53202, serves as the
administrator and transfer agent for the Fund.
U.S.
Bank National Association, located at 1555 N. Rivercenter Drive, Suite 302,
Milwaukee, Wisconsin 53212, serves as the custodian for the Fund.
Morgan,
Lewis & Bockius LLP, located at 1111 Pennsylvania Avenue, N.W., Washington,
D.C. 20004, serves as legal counsel to the Trust.
Cohen
& Company, Ltd., located at 1350 Euclid Avenue, Suite 800, Cleveland, Ohio
44115, serves as the Fund’s independent registered public accounting firm. The
independent registered public accounting firm is responsible for auditing the
annual financial statements of the Fund.
HOW
TO BUY AND SELL SHARES
The
Fund issues and redeems Shares only in Creation Units at the NAV per share next
determined after receipt of an order from an AP. Only APs may acquire Shares
directly from the Fund, and only APs may tender their Shares for redemption
directly to the Fund, at NAV. APs must be a member or participant of a clearing
agency registered with the SEC and must execute a Participant Agreement that has
been agreed to by the Distributor, and that has been accepted by the Fund’s
transfer agent, with respect to purchases and redemptions of Creation Units.
Once created, Shares trade in the secondary market in quantities less than a
Creation Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Individual Shares are listed for trading on the secondary market on the Exchange
and can be bought and sold throughout the trading day like other publicly traded
securities.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the spread between the
bid and the offer price in the secondary market on each leg of a round trip
(purchase and sale) transaction. In addition, because secondary market
transactions occur at market prices, you may pay more than NAV when you buy
Shares, and receive less than NAV when you sell those Shares.
Book
Entry
Shares
are held in book-entry form, which means that no stock certificates are issued.
The Depository Trust Company (“DTC”) or its nominee is the record owner of all
outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial owner of Shares, you
are not entitled to receive physical delivery of stock certificates or to have
Shares registered in your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other securities that you hold in book entry or
“street name” through your brokerage account.
Frequent
Purchases and Redemptions of Shares
The
Fund imposes no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly with the Fund, are an essential part of the ETF process and help
keep Share trading prices in line with NAV. As such, the Fund accommodates
frequent purchases and redemptions by APs. However, frequent purchases and
redemptions for cash may increase tracking error and portfolio transaction costs
and may lead to the realization of capital gains. To minimize these potential
consequences of frequent purchases and redemptions, the Fund employs fair value
pricing and may impose transaction fees on purchases and redemptions of Creation
Units to cover the custodial and other costs incurred by the Fund in effecting
trades. In addition, the Fund and the Adviser reserve the right to reject any
purchase order at their discretion.
Determination
of Net Asset Value
The
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (the “NYSE”), generally 4:00 p.m. Eastern time, each day the
NYSE is open for business. The NAV is calculated by dividing the Fund’s net
assets by its Shares outstanding.
In
calculating its NAV, the Fund generally values its assets on the basis of market
quotations, last sale prices, or estimates of value furnished by a pricing
service or brokers who make markets in such instruments. The values of non-U.S.
dollar denominated securities are converted to U.S. dollars using foreign
currency exchange rates generally determined as of 4:00
p.m.,
Eastern time (NYSE close). If such information is not available for a security
held by the Fund or is determined to be unreliable, the security will be valued
at fair value estimates under guidelines established by the Board (as described
below).
Fair
Value Pricing
The
Board has adopted procedures and methodologies to fair value Fund securities
whose market prices are not “readily available,” which includes market prices
that are deemed to be unreliable. Such circumstances may arise when: (i) a
security has been de-listed or has had its trading halted or suspended; (ii) a
security’s primary pricing source is unable or unwilling to provide a price;
(iii) a security’s primary trading market is closed during regular market hours;
or (iv) a security’s value is materially affected by events occurring after the
close of the security’s primary trading market. Generally, when fair valuing a
security, the Fund will take into account all reasonably available information
that may be relevant to a particular valuation including, but not limited to,
fundamental analytical data regarding the issuer, information relating to the
issuer’s business, recent trades or offers of the security, general and/or
specific market conditions and the specific facts giving rise to the need to
fair value the security. Fair value determinations are made in good faith and in
accordance with the fair value methodologies included in the Board-adopted
valuation procedures. Due to the subjective and variable nature of fair value
pricing, there can be no assurance that the Adviser will be able to obtain the
fair value assigned to the security upon the sale of such security.
DIVIDENDS,
DISTRIBUTIONS, AND TAXES
Dividends
and Distributions
The
Fund expects to pay out dividends, if any, and distribute any net realized
capital gains to its shareholders at least annually. The Fund will declare and
pay capital gain distributions, if any, in cash. Distributions in cash may be
reinvested automatically in additional whole Shares only if the broker through
whom you purchased Shares makes such option available. Your broker is
responsible for distributing the income and capital gain distributions to you.
Taxes
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax adviser
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws. This summary does not apply
to shares held in an IRA or other tax-qualified plans, which are generally not
subject to current tax. Transactions relating to shares held in such accounts
may, however, be taxable at some time in the future. This summary is based on
current tax laws, which may change.
The
Fund intends to qualify each year for treatment as a RIC. If it meets certain
minimum distribution requirements, a RIC is not subject to tax at the fund level
on income and gains from investments that are timely distributed to
shareholders. However, the Fund’s failure to qualify as a RIC or to meet minimum
distribution requirements would result (if certain relief provisions were not
available) in fund-level taxation and, consequently, a reduction in income
available for distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA plan, you need to be aware of the possible tax
consequences when the Fund makes distributions, when you sell your Shares listed
on the Exchange, and when you purchase or redeem Creation Units (APs only).
Taxes
on Distributions
The
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long the Fund owned the investments that generated them,
rather than how long a shareholder has owned his or her Shares. Sales of assets
held by the Fund for more than one year generally result in long-term capital
gains and losses, and sales of assets held by the Fund for one year or less
generally result in short-term capital gains and losses. Distributions of the
Fund’s net capital gain (the excess of net long-term capital gains over net
short-term capital losses) that are reported by the Fund as capital gain
dividends (“Capital Gain Dividends”) will be taxable as long-term capital gains,
which for non-corporate shareholders are subject to tax at reduced rates of up
to 20% (lower rates apply to individuals in lower tax brackets). Distributions
of short-term capital gain will generally be taxable as ordinary income.
Dividends and distributions are generally taxable to you whether you receive
them in cash or reinvest them in additional Shares.
Distributions
reported by the Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided holding period and other requirements are met. “Qualified dividend
income” generally is income derived from dividends paid by U.S. corporations or
certain foreign corporations that are either incorporated in a U.S. possession
or eligible for tax benefits under certain U.S. income tax treaties. In
addition, dividends that
the
Fund receives in respect of stock of certain foreign corporations may be
qualified dividend income if that stock is readily tradable on an established
U.S. securities market. Corporate shareholders may be entitled to a dividends
received deduction for the portion of dividends they receive from the Fund that
are attributable to dividends received by the Fund from U.S. corporations,
subject to certain limitations. For such dividends to be taxed as qualified
dividend income to a non-corporate shareholder, the Fund must satisfy certain
holding period requirements with respect to the underlying stock and the
non-corporate shareholder must satisfy holding period requirements with respect
to his or her ownership of the Fund’s shares. Holding periods may be suspended
for these purposes for stock that is hedged.
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from the Fund.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by the Fund before
your investment (and thus were included in the Shares’ NAV when you purchased
your Shares).
You
may wish to avoid investing in the Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your
investment.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
the Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
your Shares from non-U.S. shareholders generally are not subject to U.S.
taxation, unless you are a nonresident alien individual who is physically
present in the U.S. for 183 days or more per year. The Fund may, under certain
circumstances, report all or a portion of a dividend as an “interest-related
dividend” or a “short-term capital gain dividend,” which would generally be
exempt from this 30% U.S. withholding tax, provided certain other requirements
are met. Different tax consequences may result if you are a foreign shareholder
engaged in a trade or business within the United States or if a tax treaty
applies.
Under
legislation generally known as “FATCA” (the Foreign Account Tax Compliance Act),
the Fund is required to withhold 30% of certain ordinary dividends it pays to
shareholders that are foreign entities and that fail to meet prescribed
information reporting or certification requirements.
The
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage of the taxable distributions and sale proceeds paid to any
shareholder who fails to properly furnish a correct taxpayer identification
number, who has underreported dividend or interest income, or who fails to
certify that the shareholder is not subject to such withholding.
Taxes
When Shares are Sold on the Exchange
Any
capital gain or loss realized upon a sale of Shares generally is treated as a
long-term capital gain or loss if Shares have been held for more than one year
and as a short-term capital gain or loss if Shares have been held for one year
or less. However, any capital loss on a sale of Shares held for six months or
less is treated as long-term capital loss to the extent of Capital Gain
Dividends paid with respect to such Shares. Any loss realized on a sale will be
disallowed to the extent Shares of the Fund are acquired, including through
reinvestment of dividends, within a 61-day period beginning 30 days before and
ending 30 days after the disposition of Shares. The ability to deduct capital
losses may be limited.
The
cost basis of Shares of the Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Internal Revenue Code. The difference
between the selling price and the cost basis of Shares generally determines the
amount of the capital gain or loss realized on the sale or exchange of Shares.
Contact the broker through whom you purchased your Shares to obtain information
with respect to the available cost basis reporting methods and elections for
your account.
Taxes
on Purchases and Redemptions of Creation Units
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered, plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The
Internal Revenue Service may assert, however, that a loss that is realized upon
an exchange of securities for Creation Units may not be currently deducted under
the rules governing “wash sales” (for an AP who does not mark-to-market its
holdings) or on the basis that there has been no significant change in economic
position. APs exchanging securities should consult their own tax adviser with
respect to whether wash sale rules apply and when a loss might be
deductible.
Any
gain or loss realized upon redemption of Creation Units is treated as capital
gain or loss or ordinary gain or loss depending on the circumstances. Any
capital gain or loss realized upon redemption of Creation Units is generally
treated as long-term capital gain or loss if Shares have been held for more than
one year and as a short-term capital gain or loss if Shares have been held for
one year or less.
The
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. The Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in kind. As a result, the Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
Net
Investment Income Tax
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8% tax
on all or a portion of their “net investment income,” which includes interest,
dividends, and certain capital gains (generally including capital gains
distributions and capital gains realized on the sale of Shares). This 3.8% tax
also applies to all or a portion of the undistributed net investment income of
certain shareholders that are estates and trusts.
Foreign
Investments by the Fund
Interest
and other income received by the Fund with respect to foreign securities may
give rise to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. If as of the close of a taxable year more than 50% of the
value of the Fund’s assets consists of certain foreign stock or securities, the
Fund will be eligible to elect to “pass through” to investors the amount of
foreign income and similar taxes (including withholding taxes) paid by the Fund
during that taxable year. This means that investors would be considered to have
received as additional income their respective shares of such foreign taxes, but
may be entitled to either a corresponding tax deduction in calculating taxable
income, or, subject to certain limitations, a credit in calculating federal
income tax. If the Fund does not so elect, it will be entitled to claim a
deduction for certain foreign taxes incurred by the Fund. The Fund (or a
financial intermediary, such as a broker, through which a shareholder owns
Shares) will notify you if it makes such an election and provide you with the
information necessary to reflect foreign taxes paid on your income tax return.
Foreign
tax credits, if any, received by the Fund as a result of an investment in
another RIC (including an ETF which is taxable as a RIC) will not be passed
through to you unless the Fund qualifies as a “qualified fund-of-funds” under
the Internal Revenue Code. If the Fund is a “qualified fund-of-funds” it will be
eligible to file an election with the Internal Revenue Service that will enable
the Fund to pass along these foreign tax credits to its shareholders. The Fund
will be treated as a “qualified fund-of-funds” under the Internal Revenue Code
if at least 50% of the value of the Fund’s total assets (at the close of each
quarter of the Fund’s taxable year) is represented by interests in other RICs.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in the Fund. It is not a substitute for
personal tax advice. You also may be subject to state and local tax on Fund
distributions and sales of Shares. Consult your personal tax adviser about the
potential tax consequences of an investment in Shares under all applicable tax
laws. For more information, please see the section entitled “Federal Income
Taxes” in the SAI.
DISTRIBUTION
PLAN
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, the Fund is authorized to
pay an amount up to 0.25% of its average daily net assets each year for certain
distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Fund, and there are no plans to impose
these fees. However, in the event Rule 12b-1 fees are charged in the future,
because the fees are paid out of Fund assets, over time these fees will increase
the cost of your investment and may cost you more than certain other types of
sales charges.
PREMIUM/DISCOUNT
INFORMATION
Information
regarding how often Shares traded on the Exchange at a price above (i.e.,
at a premium) or below (i.e.,
at a discount) the NAV per share is available on the Fund’s website at
www.horizonkinetics.com/products/etf/BCDF.
ADDITIONAL
NOTICES
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange is not
responsible for, nor has it participated in the determination of, the timing,
prices, or quantities of Shares to be issued, nor in the determination or
calculation of the equation by which Shares are redeemable. The Exchange has no
obligation or liability to owners of Shares in connection with the
administration, marketing, or trading of Shares.
Without
limiting any of the foregoing, in no event shall the Exchange have any liability
for any lost profits or indirect, punitive, special, or consequential damages
even if notified of the possibility thereof.
The
Adviser and the Fund make no representation or warranty, express or implied, to
the owners of Shares or any member of the public regarding the advisability of
investing in securities generally or in the Fund particularly.
FINANCIAL
HIGHLIGHTS
Financial
information is not available because the Fund had not commenced operations prior
to the date of this Prospectus.
Horizon
Kinetics Blockchain Development ETF
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Adviser |
Horizon
Kinetics Asset Management LLC
470
Park Avenue South
New
York, New York 10016 |
Transfer
Agent and Administrator |
U.S.
Bancorp Fund Services, LLC
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Custodian |
U.S.
Bank National Association
1555
North Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212 |
Distributor |
Foreside
Fund Services, LLC
Three
Canal Plaza, Suite 100
Portland,
Maine 04101 |
Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
1350
Euclid Avenue, Suite 800
Cleveland,
Ohio 44115 |
Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue, NW
Washington,
DC 20004-2541 |
Investors
may find more information about the Fund in the following documents:
Statement
of Additional Information: The
Fund’s SAI provides additional details about the investments of the Fund and
certain other additional information. The SAI is on file with the SEC and is
herein incorporated by reference into this Prospectus. It is legally considered
a part of this Prospectus.
Annual/Semi-Annual
Reports: Additional
information about the Fund’s investments will be available in the Fund’s annual
and semi-annual reports to shareholders. In the annual report, when available,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund’s performance after the first fiscal year
the Fund is in operation.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Fund by contacting the Fund at c/o U.S. Bank Global
Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701 or by calling
1-800-617-0004.
Shareholder
reports and other information about the Fund are also available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov;
•Free
of charge from the Fund’s Internet website at
www.horizonkinetics.com/products/etf/BCDF; or
•For
a fee, by e-mail request to publicinfo@sec.gov.
(SEC
Investment Company Act File No. 811-23226)