ck0001683471-20211231
PROSPECTUS
Morgan Creek - Exos SPAC Originated
ETF
(SPXZ)
Listed
on NYSE Arca, Inc.
April 30,
2022
The
SEC has not approved or disapproved of these securities or passed upon the
accuracy or adequacy of this Prospectus. Any representation to the contrary is a
criminal offense.
TABLE
OF CONTENTS
Investment Objective
The Morgan Creek - Exos SPAC
Originated ETF (the “Fund”) seeks capital
appreciation.
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.
|
|
|
|
|
|
|
|
|
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 |
1.00% |
| Distribution
and/or Service (12b-1) Fees |
0.00% |
| Other
Expenses |
0.00% |
| Total
Annual Fund Operating Expenses |
1.00% |
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1
Year: |
$102 |
3
Years: |
$318 |
5
Years: |
$552 |
10
Years: |
$1,225 |
Portfolio Turnover
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in the Total Annual Fund Operating Expenses
or in the Example, affect the Fund’s performance. For the fiscal period January 25, 2021
(commencement of operations) through December 31, 2021, the Fund’s portfolio
turnover rate was 165% of the average value of its
portfolio.
Principal Investment Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that seeks to achieve
its investment objective by investing primarily in U.S.-listed special purpose
acquisition companies (“SPACs”) and in companies that have merged with or been
acquired by a SPAC. Investment decisions for the Fund are made by Exos Asset
Management, LLC (the “Sub-Adviser”) with the oversight of
Morgan Creek Capital Management, LLC (the “Adviser”). A SPAC is a “blank check”
company with no commercial operations that is designed to raise capital via an
initial public offering (“IPO”) for the purpose of engaging in a merger,
acquisition, reorganization, or similar business combination (a “Combination”)
with one or more operating companies. Sponsors of SPACs typically pay the SPAC’s
offering costs and underwriting fees and contribute all or a portion of its
working capital in exchange for participation in the common stock and
derivatives (such as warrants) of the SPAC. A SPAC IPO typically involves the
sale of units consisting of one share of common stock and a warrant or right (or
portion of a warrant or right) to purchase common stock at a fixed price upon or
after the consummation of a Combination. The capital raised in the IPO is
typically placed into a trust. The proceeds of the IPO may be used only to
consummate a Combination and for other limited purposes such as paying taxes
owed by the SPAC. “Pre-Combination” SPACs are SPACs that are either seeking a
target for a Combination or have not yet completed a Combination with an
identified target. Pre-Combination SPACs often have predetermined time frames to
consummate a Combination (typically two years) or the SPAC will liquidate.
“Post-Combination” SPACs are operating companies that have completed a
Combination with a SPAC within the last three calendar years. Under normal
circumstances, at least 80% of the Fund’s net assets, plus borrowings for
investment purposes, will be invested in Pre-Combination SPACs (along with the
warrants or rights issued in connection with the IPO of Pre-Combination SPACs)
and Post-Combination SPACs.
The
Fund generally seeks to invest approximately 33% of its assets in
Pre-Combination SPACs (as well as any rights or warrants issued in connection
with the IPO of a Pre-Combination SPAC) and approximately 66% of its assets in
Post-Combination SPACs (together, the “Portfolio Targets”). However, the actual
amounts invested may be greater or lesser than the Portfolio Targets from time
to time as a result of changes in the market value of Fund holdings and during
periods when the Sub-Adviser is actively increasing or
decreasing exposure to certain investments. The Fund generally intends to weight
each Pre-Combination SPAC in its portfolio equally
and
each Post-Combination SPAC in its portfolio equally, although the weight of each
Pre-Combination SPAC may differ from each Post-Combination SPAC.
The
Fund generally will invest in Pre-Combination SPACs that are among the 50
largest publicly-traded Pre-Combination SPACs as measured by market
capitalization, but may invest in any Pre-Combination SPAC with a market
capitalization of $100 million or greater. The selection of specific
Pre-Combination SPACs will be based on a number of factors including: (i) the
number of Pre-Combination SPACs with market capitalizations over $250 million;
(ii) the expected pipeline for new SPAC IPOs; and (iii) the Fund’s regular
portfolio management activities. The Fund’s portfolio typically will include the
securities of approximately 20 to 50 Pre-Combination SPACs.
The
Fund generally will invest in Post-Combination SPACs that are among the 50
largest publicly-traded Post-Combination SPACs as measured by market
capitalizations, but may invest in any Post-Combination SPAC with a market
capitalization of $500 million or greater. The selection of specific
Post-Combination SPACs will be based on a number of factors including: (i) the
number of Post-Combination SPACs with market capitalizations over $750 million;
(ii) the number of Post-Combination SPACs attracting broad research analyst
coverage; (iii) the expected pipeline for SPAC Combinations; and (iv) the Fund’s
regular portfolio management activities. The Fund’s portfolio typically will
include the securities of approximately 20 to 50 Post-Combination SPACs.
The
Fund may hold a limited number of Pre- or Post-Combination SPACs that are not
among the 50 largest Pre- or Post-Combination SPACs, respectively, where the
valuation analysis of the Sub-Adviser indicates that a
particular Pre- or Post-Combination SPAC has the potential for greater
appreciation or reduced drawdowns relative to the largest Pre- or
Post-Combination SPACs, or to achieve increased diversification for the Fund.
However, any such company will be subject to a minimum market capitalization of
$100 million for Pre-Combination SPACs and $500 million for
Post-Combination SPACs.
The
Sub-Adviser may overweight the Fund’s position in one or
more Pre- or Post-Combination SPACs that it believes offer a more advantageous
price relative to other companies until, in the determination of the Sub-Adviser, the advantageous pricing has normalized. The
occurrence of advantageous price conditions is uncertain, and advantageous price
conditions are not expected to materially change the Fund’s Portfolio Targets.
An advantageous price condition exists where the market price of a SPAC
temporarily deviates from the Sub-Adviser’s valuation.
Similarly, the Sub-Adviser may underweight the Fund’s
position in one or more Pre- or Post-Combination SPACs that it believes offer a
less advantageous price relative to other companies until, in the determination
of the Sub-Adviser, the less advantageous pricing has
normalized.
To
maintain the Portfolio Targets, the Sub-Adviser generally
will rebalance the Fund’s portfolio monthly based on the Fund’s Portfolio
Targets. The monthly rebalancing of the Fund’s portfolio may result in a higher
portfolio turnover rate than experienced by other funds that rebalance their
portfolios less frequently.
The Fund is considered to be
non-diversified, which means that it may invest more of its assets in the
securities of a single issuer or a lesser number of issuers than if it were a
diversified fund.
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
Risks of Pre-Combination SPACs. The
Fund invests in equity securities and rights and warrants of SPACs, which raise
assets to seek potential Combination opportunities. Unless and until a
Combination is completed, a SPAC generally invests its assets in U.S. government
securities, money market securities, and cash. Because SPACs have no operating
history or ongoing business other than seeking Combinations, the value of their
securities is particularly dependent on the ability of the entity’s management
to identify and complete a profitable Combination. There is no guarantee that
the SPACs in which the Fund invests will complete a Combination or that any
Combination that is completed will be profitable. Public stockholders of SPACs
may not be afforded a meaningful opportunity to vote on a proposed initial
Combination because certain stockholders, including stockholders affiliated with
the management of the SPAC, may have sufficient voting power, and a financial
incentive, to approve such a transaction without support from public
stockholders. As a result, a SPAC may complete a Combination even though a
majority of its public stockholders do not support such a Combination. Some
SPACs may pursue Combinations only within certain industries or regions, which
may increase the volatility of their prices.
•Associated
Risks of Post-Combination SPACs. The
Fund invests in companies that are derived from a SPAC. These companies may be
unseasoned and lack a trading history, a track record of reporting to investors,
and widely available research coverage. Post-Combination SPACs are thus often
subject to extreme price volatility and speculative trading. These stocks may
have above-average price appreciation in connection with a Post-Combination SPAC
prior to inclusion in the portfolio. The price of stocks included in the
portfolio may not continue to appreciate and the performance of these stocks may
not replicate the performance exhibited in the past. In addition,
Post-Combination SPACs may share similar illiquidity risks of private equity and
venture capital. The free float shares held by the public in a Post-Combination
SPAC are typically a small percentage of the market
capitalization.
The ownership of many Post-Combination SPACs often includes large holdings by
venture capital and private equity investors who seek to sell their shares in
the public market in the months following a Combination transaction when shares
restricted by lock-up are released, causing greater volatility and possible
downward pressure during the time that locked-up shares are
released.
•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.
•Equity
Market Risk. The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, sectors or companies in which the Fund invests.
Common stocks are generally exposed to greater risk than other types of
securities, such as preferred stocks and debt obligations, because common
stockholders generally have inferior rights to receive payment from issuers.
•ETF
Risks.
The Fund is an ETF, and, as a result of its structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the
business or significantly reduce their business activities and no other entities
step forward to perform their functions.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant.
◦Trading. Although
Shares are listed for trading on the NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than Shares.
•Illiquidity
Risk.
Illiquidity risk exists when particular investments are difficult to purchase or
sell, possibly preventing the Fund from selling these illiquid investments at an
advantageous price or at the time desired. A lack of liquidity may also cause
the value of investments to decline. Illiquid investments may also be difficult
to value.
•Limited
Operating History Risk. The
Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•Management
Risk. The
Fund is actively managed and may not meet its investment objective based on the
Sub-Adviser’s success or failure in implementing the Fund’s
investment strategies.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
these factors, including the impact of the COVID-19 pandemic and related public
health issues, growth concerns in the U.S. and overseas, uncertainties regarding
interest rates, trade tensions and the threat of tariffs imposed by the U.S. and
other countries. These developments as well as other events could result in
further market volatility and negatively affect financial asset prices, the
liquidity of certain securities and the normal operations of securities
exchanges and other markets. It is unknown how long circumstances related to the
pandemic will persist, whether they will reoccur in the future, whether efforts
to support the economy and financial markets will be successful, and what
additional implications may follow from the pandemic. The impact of these events
and other epidemics or pandemics in the future could adversely affect Fund
performance.
•Market
Capitalization Risk.
◦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.
•Non-Diversification
Risk. Because the Fund is “non-diversified,” it may
invest a greater percentage of its assets in the securities of a single issuer
or a lesser number of issuers than if it was a diversified fund. As a result, a
decline in the value of an investment in a single issuer or a small number of
issuers could cause the Fund’s overall value to decline to a great degree than
if the Fund held a more diversified portfolio.
•Portfolio
Turnover Risk. Because
the Fund may “turn over” some or all of its portfolio frequently, the Fund may
incur high levels of transaction costs from commissions or mark-ups in the
bid/offer spread. Higher portfolio turnover (e.g.,
in excess of 100% per year) may result in the Fund paying higher levels of
transaction costs and generating greater tax liabilities for shareholders.
•Rights
and Warrants Risk. The
Fund may purchase rights and warrants to purchase equity securities. Investments
in rights and warrants are pure speculation in that they have no voting rights,
pay no dividends and have no rights with respect to the assets of the
corporation issuing them. They do not represent ownership of the securities, but
only the right to buy them. Rights and warrants involve the risk that the Fund
could lose the purchase value of the right or warrant if the right or warrant is
not exercised or sold prior to its expiration.
Performance
Performance information for the Fund is not
included because the Fund did not have a full calendar year of performance prior
to the date of this Prospectus. In the future, performance
information for the Fund will be presented in this section. Updated performance
information is available on the Fund’s website at www.morgancreekcap.com.
Portfolio
Management
|
|
|
|
|
|
|
Adviser |
Morgan
Creek Capital Management, LLC |
| Sub-Adviser |
Exos
Asset Management, LLC |
|
Portfolio
Manager |
Dewey
Tucker, Partner and Portfolio Manager of the Sub-Adviser, has been the portfolio manager of the Fund
since its inception in January 2021 |
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. The difference in the bid and
ask prices is referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at www.morgancreekcap.com.
Tax
Information
The
Fund’s distributions are generally taxable as ordinary income, qualified
dividend income, or capital gains (or a combination), unless your investment is
in an individual retirement account (“IRA”) or other tax-advantaged account.
Distributions on investments made through tax-deferred arrangements may be taxed
later upon withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
ADDITIONAL
INFORMATION ABOUT THE FUND
Investment
Objective
The
Fund’s investment objective has been adopted as a non-fundamental investment
policy and may be changed without shareholder approval upon written notice to
shareholders.
Principal
Investment 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.
The
Fund has adopted a policy to comply with Rule 35d-1 under the Investment Company
Act of 1940. Such policy has been adopted as a non-fundamental investment policy
and may be changed without shareholder approval upon 60 days’ written notice to
shareholders.
Under
normal circumstances, at least 80% of the Fund’s net assets, plus borrowings for
investment purposes, will be invested in Pre-Combination SPACs (along with the
warrants or rights issued in connection with the IPO of Pre-Combination SPACs)
and Post-Combination SPACs.
Temporary
Defensive Strategies
For
temporary defensive purposes during adverse market, economic, political or other
conditions, the Fund may invest in cash or cash equivalents or short-term
instruments such as commercial paper, money market mutual funds, or short-term
U.S. government securities. Taking a temporary defensive position may result in
the Fund not achieving its investment objective.
Principal
Investment Risks
An
investment in the Fund entails risks. The Fund could lose money, or its
performance could trail that of other investment alternatives. The following
provides additional information about the Fund’s principal risks. It is
important that investors closely review and understand these risks before making
an investment in the Fund. Just as in the Fund’s summary section, the principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with those of other funds. Each risk summarized below is
considered a “principal risk” of investing in the Fund, regardless of the order
in which it appears.
•Associated
Risks of Pre-Combination SPACs. The
Fund invests in equity securities and rights and warrants of SPACs, which raise
assets to seek potential Combination opportunities. Unless and until a
Combination is completed, a SPAC generally invests its assets in U.S. government
securities, money market securities, and cash. If a Combination that meets the
requirements for the SPAC is not completed within a pre-established period of
time (e.g.,
18-24 months), the invested funds are returned to the entity’s shareholders.
Because SPACs have no operating history or ongoing business other than seeking
Combinations, the value of their securities is particularly dependent on the
ability of the entity’s management to identify and complete a profitable
Combination. Public stockholders of SPACs may not be afforded a meaningful
opportunity to vote on a proposed initial Combination because certain
stockholders, including stockholders affiliated with the management of the SPAC,
may have sufficient voting power, and a financial incentive, to approve such a
transaction without support from public stockholders. As a result, a
Pre-Combination SPAC may complete a Combination even though a majority of its
public stockholders do not support such a Combination. There is no guarantee
that the SPACs in which the Fund invests will complete a Combination or that any
Combinations that are completed will be profitable. Some SPACs may pursue
Combinations only within certain industries or regions, which may increase the
volatility of their prices. In addition, these securities, which are typically
traded in the over-the-counter market, may be considered illiquid and/or be
subject to restrictions on resale. SPACs may also encounter intense competition
from other entities having a similar business objective, such as private
investors or investment vehicles and other SPACs, competing for the same
Combination opportunities, which could make completing an attractive Combination
more difficult.
•Associated
Risks of Post-Combination SPACs. The
Fund invests in companies that are derived from a SPAC. These companies may be
unseasoned and lack a trading history, a track record of reporting to investors,
and widely available research coverage. Post-Combination SPACs are thus often
subject to extreme price volatility and speculative trading. These stocks may
have above-average price appreciation in connection with a potential Combination
with a Post-Combination SPAC prior to inclusion in the portfolio. The price of
stocks included in the portfolio may not continue to appreciate and the
performance of these stocks may not replicate the performance exhibited in the
past. In addition, Post-Combination SPACs may share similar illiquidity risks of
private equity and venture capital. The free float shares held by the public in
a Post-Combination SPAC are typically a small percentage of the market
capitalization. The ownership of many Post-Combination SPACs often includes
large holdings by venture capital and private equity investors who seek to sell
their shares in the public market in the months following a Combination
transaction when shares restricted by lock-up are released, causing greater
volatility and possible downward pressure during the time that locked-up shares
are released.
•Cybersecurity
Risk.
With the increased use of technologies such as the Internet and the dependence
on computer systems to perform business and operational functions, funds (such
as the Fund) and their service providers may be prone to operational and
information security risks resulting from cyber-attacks and/or technological
malfunctions. In general, cyber-attacks are deliberate,
but
unintentional events may have similar effects. Cyber-attacks include, among
others, stealing or corrupting data maintained online or digitally, preventing
legitimate users from accessing information or services on a website, releasing
confidential information without authorization, and causing operational
disruption. Cybersecurity incidents may allow an unauthorized party to gain
access to Fund assets or proprietary information, or cause the Fund, the
Adviser, 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, APs or the issuers of securities in which the Fund invests have the
ability to cause disruptions and negatively impact the Fund’s business
operations, potentially resulting in financial losses to the Fund and its
shareholders. For instance, cyber-attacks or technical malfunctions may
interfere with the processing of shareholder or other transactions, affect the
Fund’s ability to calculate its NAV, cause the release of private shareholder
information or confidential Fund information, impede trading, cause reputational
damage, and subject the Fund to regulatory fines, penalties or financial losses,
reimbursement or other compensation costs, and additional compliance costs.
Cyber-attacks or technical malfunctions may render records of Fund assets and
transactions, shareholder ownership of Fund Shares, and other data integral to
the functioning of the Fund inaccessible or inaccurate or incomplete. The Fund
may also incur substantial costs for cybersecurity risk management in order to
prevent cyber incidents in the future. The Fund and its shareholders could be
negatively impacted as a result.
•Equity
Market Risk. 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.
Investors buying or selling Shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers, as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of Shares. In addition, secondary market investors will also incur the cost of
the difference between the price at which an investor is willing to buy Shares
(the “bid” price) and the price at which an investor is willing to sell Shares
(the “ask” price). This difference in bid and ask prices is often referred to as
the “spread” or “bid/ask spread.” The bid/ask spread varies over time for Shares
based on trading volume and market liquidity, and is generally lower if Shares
have more trading volume and market liquidity and higher if Shares have little
trading volume and market liquidity. Further, a relatively small investor base
in the Fund, asset swings in the Fund and/or increased market volatility may
cause increased bid/ask spreads. Due to the costs of buying or selling Shares,
including bid/ask spreads, frequent trading of Shares may significantly reduce
investment results and an investment in Shares may not be advisable for
investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. Although it is expected that the market price of Shares will
approximate the Fund’s NAV, there may be times
when
the market price of Shares is more than the NAV intra-day (premium) or less than
the NAV intra-day (discount) due to supply and demand of Shares or during
periods of market volatility. This risk is heightened in times of market
volatility or periods of steep market declines and periods when there is limited
trading activity for Shares in the secondary market, in which case such premiums
or discounts may be significant. The market price of Shares during the trading
day, like the price of any exchange-traded security, includes a “bid/ask” spread
charged by the exchange specialist, market makers or other participants that
trade Shares. In times of severe market disruption, the bid/ask spread can
increase significantly. At those times, Shares are most likely to be traded at a
discount to NAV, and the discount is likely to be greatest when the price of
Shares is falling fastest, which may be the time that you most want to sell your
Shares. The Adviser believes that, under normal market conditions, large market
price discounts or premiums to NAV will not be sustained because of arbitrage
opportunities.
◦Trading.
Although Shares are listed for trading on the Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange “circuit breaker”
rules, which temporarily halt trading on the Exchange when a decline in the
S&P 500 Index during a single day reaches certain thresholds (e.g.,
7%, 13%, and 20%). Additional rules applicable to the Exchange may halt trading
in Shares when extraordinary volatility causes sudden, significant swings in the
market price of Shares. There can be no assurance that Shares will trade with
any volume, or at all, on any stock exchange. In stressed market conditions, the
liquidity of Shares may begin to mirror the liquidity of the Fund’s underlying
portfolio holdings, which can be significantly less liquid than
Shares.
•Illiquidity
Risk.
Illiquidity risk exists when particular investments are difficult to purchase or
sell, possibly preventing the Fund from selling these illiquid investments at an
advantageous price or at the time desired. A lack of liquidity may also cause
the value of investments to decline. Illiquid investments may also be difficult
to value.
•Limited
Operating History Risk. The
Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•Management
Risk. The
Fund is actively managed and may not meet its investment objective based on the
Sub-Adviser’s success or failure to implement investment
strategies for the Fund. The Sub-Adviser’s evaluations and
assumptions regarding issuers, securities, and other factors may not
successfully achieve the Fund’s investment objective given actual market
conditions.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
economic, political and global macro factors, including public health issues,
growth concerns in the U.S. and overseas, uncertainties regarding interest
rates, trade tensions and the threat of tariffs imposed by the U.S. and other
countries. These developments as well as other events could result in further
market volatility and negatively affect financial asset prices, the liquidity of
certain securities and the normal operations of securities exchanges and other
markets, which could have an adverse effect on the Fund.
COVID-19
has resulted in a pandemic and major disruption to economies and markets around
the world, including the United States. The pandemic has resulted in a wide
range of social and economic disruptions, including closed borders, voluntary or
compelled quarantines of large populations, stressed healthcare systems, reduced
or prohibited domestic or international travel, supply chain disruptions, and
so-called “stay-at-home” orders throughout much of the United States and many
other countries. Financial markets have experienced extreme volatility and
severe losses, and trading in many instruments has been disrupted. Some sectors
of the economy and individual issuers have experienced particularly large
losses. Such disruptions may continue for an extended period of time or reoccur
in the future to a similar or greater extent. Liquidity for many instruments has
been greatly reduced for periods of time. In response to these disruptions, the
U.S. government and the Federal Reserve have taken extraordinary actions to
support the domestic economy and financial markets, resulting in very low
interest rates and in some cases negative yields. It is unknown how long
circumstances related to the pandemic will persist, whether they will reoccur in
the future, whether efforts to support the economy and financial markets will be
successful, and what additional implications may follow from the pandemic. The
impact of these events and other epidemics or pandemics in the future could
adversely affect Fund performance.
•Market
Capitalization Risk.
◦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.
•Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may invest a greater percentage of its
assets in the securities of a single issuer or a lesser number of issuers than
if it was a diversified fund. As a result, the Fund may be more exposed to the
risks associated with and developments affecting an individual issuer or a
lesser number of issuers than a fund that invests more widely. This may increase
the Fund’s volatility and cause the performance of a relatively small number of
issuers to have a greater impact on the Fund’s performance.
•Portfolio
Turnover Risk.
Because
the Fund may “turn over” some or all of its options as frequently as monthly,
the Fund may incur high levels of transaction costs from commissions or mark-ups
in the bid/offer spread. Higher portfolio turnover may result in the Fund paying
higher levels of transaction costs and generating greater tax liabilities for
shareholders. Portfolio turnover risk may cause the Fund’s performance to be
less than you expect. While the turnover of the warrants is not deemed
“portfolio turnover” for accounting purposes, the economic impact to the Fund is
similar to what could occur if the Fund experienced high portfolio turnover
(e.g.,
in excess of 100% per year).
•Rights
and Warrants Risk. The
Fund may purchase rights and warrants to purchase equity securities. Investments
in rights and warrants are pure speculation in that they have no voting rights,
pay no dividends and have no rights with respect to the assets of the
corporation issuing them. They do not represent ownership of the securities, but
only the right to buy them. The prices of rights (if traded independently) and
warrants do not necessarily move parallel to the prices of the underlying
securities. Rights and warrants involve the risk that the Fund could lose the
purchase value of the right or warrant if the right or warrant is not exercised
prior to its expiration. They also involve the risk that the effective price
paid for the right or warrant added to the subscription price of the related
security may be greater than the value of the subscribed security’s market
price.
PORTFOLIO
HOLDINGS INFORMATION
Information
about the Fund’s daily portfolio holdings is available at
www.morgancreekcap.com. A complete description of the Fund’s policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is
available in the Fund’s Statement of Additional Information
(“SAI”).
MANAGEMENT
Investment
Adviser
Morgan
Creek Capital Management, LLC, located at 301 West Barbee Chapel Road, Suite
200, Chapel Hill, North Carolina 27517, serves as the investment adviser for the
Fund. The Adviser, subject to the oversight of the Board of Trustees (the
“Board” of Listed Funds Trust (the “Trust”), provides investment management and
operational oversight of the Sub-Adviser. The Adviser also
arranges for transfer agency, custody, fund administration, distribution and all
other services necessary for the Fund to operate. The Adviser is an
SEC-registered investment adviser that provides investment advisory services to
separately managed accounts and sub-advisory services to institutional clients,
in addition to providing investment advisory services to the Fund. As of
December 31, 2021, the Adviser had approximately $2.15 billion in assets under
management.
For
the services it provides to the Fund, the Adviser is entitled to a unified
management fee, which is calculated daily and paid monthly, at an annual rate
based on the Fund’s average daily net assets as set forth in the table
below.
|
|
|
|
|
|
| Fund
|
Management
Fee |
|
Morgan
Creek - Exos SPAC Originated ETF |
1.00% |
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
Adviser, in turn, compensates the Sub-Adviser from the
management fee it receives.
Exos
Asset Management, LLC, a Delaware limited liability company located at 370
Broadway, Suite 1450, New York, New York 10018, serves as sub-adviser to the
Fund. An SEC-registered investment adviser formed in 2019, the Sub-Adviser is
majority owned by Exos TFP Holdings LLC. As of December 31, 2021, the
Sub-Adviser had approximately $719.52 million in assets under
management.
Pursuant
to a sub-advisory agreement between the Trust, on behalf of the Fund, the
Adviser and the Sub-Adviser (the “Sub-Advisory Agreement”),
subject to the oversight of the Adviser and the Board, the Sub-Adviser is responsible for the day-to-day investment
management and operations of the Fund’s portfolio, including selecting
broker-dealers to execute purchase and sale transactions. For its services, the
Sub-Adviser is entitled to a fee paid by the Adviser, which
fee is calculated daily and paid monthly, at a rate of 0.50% of the Adviser’s
management fee, net of Fund expenses paid by the Adviser and expenses paid by
the Adviser related to the statutory distributor.
Dewey
Tucker is responsible for day-to-day management of the Fund’s
portfolio.
Mr.
Tucker has over 14 years of experience in financial markets. In October 2017, he
joined the Sub-Adviser as Partner, Head of Trading
Strategies. Mr. Tucker began his career at Knight Capital Group in January 2005,
developing trading strategies for the automated equities market making business.
He later transitioned to managing a variety of proprietary trading strategies at
Knight Capital Americas, LLC and then KCG Americas LLC, specifically focused on
equities, futures, and fixed income market making. Mr. Tucker has a Ph.D.
from MIT in Electrical Engineering, specializing in statistical signal
processing and probabilistic modeling.
The
Fund’s SAI provides additional information about the Portfolio Manager’s
compensation structure, other accounts managed by the Portfolio Manager, and the
Portfolio Manager’s ownership of Shares.
Foreside
Fund Services, LLC (the “Distributor”) is the principal underwriter and
distributor of the Fund’s shares. The Distributor’s principal address is Three
Canal Plaza, Suite 100, Portland, Maine 04101. The Distributor will not
distribute shares in less than whole Creation Units, and it does not maintain a
secondary market in the shares. The Distributor is a broker-dealer registered
under the Securities Exchange Act of 1934 and a member of the Financial Industry
Regulatory Authority, Inc. (“FINRA”). The Distributor has no role in determining
the policies of the Fund or the securities that are purchased or sold by the
Fund and is not affiliated with the Adviser, Sub-Adviser,
or any of their respective affiliates.
U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services,
located at 615 East Michigan Street, Milwaukee, Wisconsin 53202, serves as the
administrator and transfer agent for the Fund.
U.S.
Bank National Association, located at 1555 N. Rivercenter Drive, Suite 302,
Milwaukee, Wisconsin 53212, serves as the custodian for the Fund.
Morgan,
Lewis & Bockius LLP, located at 1111 Pennsylvania Avenue, N.W., Washington,
D.C. 20004, serves as legal counsel to the Trust.
Cohen
& Company, Ltd., located at 1350 Euclid Avenue, Suite 800, Cleveland, Ohio
44115, serves as the Fund’s independent registered public accounting firm. The
independent registered public accounting firm is responsible for auditing the
annual financial statements of the Fund.
HOW
TO BUY AND SELL SHARES
The
Fund issues and redeems Shares only in Creation Units at the NAV per share next
determined after receipt of an order from an AP. Only APs may acquire Shares
directly from the Fund, and only APs may tender their Shares for redemption
directly to the Fund, at NAV. APs must be a member or participant of a clearing
agency registered with the SEC and must execute a Participant Agreement that has
been agreed to by the Distributor, and that has been accepted by the Fund’s
transfer agent, with respect to purchases and redemptions of Creation Units.
Once created, Shares trade in the secondary market in quantities less than a
Creation Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Individual Shares are listed for trading on the secondary market on the Exchange
and can be bought and sold throughout the trading day like other publicly traded
securities.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the spread between the
bid and the offer price in the secondary market on each leg of a round trip
(purchase and sale) transaction. In addition, because secondary market
transactions occur at market prices, you may pay more than NAV when you buy
Shares, and receive less than NAV when you sell those Shares.
Book
Entry
Shares
are held in book-entry form, which means that no stock certificates are issued.
The Depository Trust Company (“DTC”) or its nominee is the record owner of all
outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial owner of Shares, you
are not entitled to receive physical delivery of stock certificates or to have
Shares registered in your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other securities that you hold in book entry or
“street name” through your brokerage account.
Frequent
Purchases and Redemptions of Shares
The
Fund imposes no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly with the Fund, are an essential part of the ETF process and help
keep Share trading prices in line with NAV. As such, the Fund accommodates
frequent purchases and redemptions by APs. However, frequent purchases and
redemptions for cash may increase tracking error and portfolio transaction costs
and may lead to the realization of capital gains. To minimize these potential
consequences of frequent purchases and redemptions, the Fund employs fair value
pricing and may impose transaction fees on purchases and redemptions of Creation
Units to cover the custodial and other costs incurred by the Fund in effecting
trades. In addition, the Fund and the Adviser reserve the right to reject any
purchase order at their discretion.
Determination
of Net Asset Value
The
Fund’s NAV is calculated as of the scheduled close of regular trading on the 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” or are deemed to be unreliable.
For example, such circumstances may arise when: (i) a security has been
de-listed or has had its trading halted or suspended; (ii) a security’s primary
pricing source is unable or unwilling to provide a price; (iii) a security’s
primary trading market is closed during regular market hours; or (iv) a
security’s value is materially affected by events occurring after the close of
the security’s primary trading market. Generally, when fair valuing a security,
the Fund will take into account all reasonably available information that may be
relevant to a particular valuation including, but not limited to, fundamental
analytical data regarding the issuer, information relating to the issuer’s
business, recent trades or offers of the security, general and/or specific
market conditions and the specific facts giving rise to the need to fair value
the security. Fair value determinations are made in good faith and in accordance
with the fair value methodologies included in the Board-adopted valuation
procedures. Due to the subjective and variable nature of fair value pricing,
there can be no assurance that the Adviser or Sub-Adviser
will be able to obtain the fair value assigned to the security upon the sale of
such security.
DIVIDENDS,
DISTRIBUTIONS, AND TAXES
Dividends
and Distributions
The
Fund intends to pay out dividends annually, if any, and distribute any net
realized capital gains to its shareholders at least annually. The Fund will
declare and pay capital gain distributions, if any, in cash. Distributions in
cash may be reinvested automatically in additional whole Shares only if the
broker through whom you purchased Shares makes such option available. Your
broker is responsible for distributing the income and capital gain distributions
to you.
Taxes
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax adviser
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws. This summary does not apply
to shares held in an IRA or other tax-qualified plans, which are generally not
subject to current tax. Transactions relating to shares held in such accounts
may, however, be taxable at some time in the future. This summary is based on
current tax laws, which may change.
The
Fund intends to elect and to qualify each year for treatment as a regulated
investment company (a “RIC”) under Subchapter M of the Internal Revenue Code of
1986, as amended (the “Internal Revenue Code”). If it meets certain minimum
distribution requirements, a RIC is not subject to tax at the fund level on
income and gains from investments that are timely distributed to shareholders.
However, the Fund’s failure to qualify as a RIC or to meet minimum distribution
requirements would result (if certain relief provisions were not available) in
fund-level taxation and, consequently, a reduction in income available for
distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA 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.
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.
Net
Investment Income Tax
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8% tax
on all or a portion of their “net investment income,” which includes interest,
dividends, and certain capital gains (generally including capital gains
distributions and capital gains realized on the sale of Shares). This 3.8% tax
also applies to all or a portion of the undistributed net investment income of
certain shareholders that are estates and trusts.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in the Fund. It is not a substitute for
personal tax advice. You also may be subject to state and local tax on Fund
distributions and sales of Shares. Consult your personal tax adviser about the
potential tax consequences of an investment in Shares under all applicable tax
laws. For more information, please see the section entitled “Federal Income
Taxes” in the SAI.
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.morgancreekcap.com.
ADDITIONAL
NOTICES
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange is not
responsible for, nor has it participated in the determination of, the timing,
prices, or quantities of Shares to be issued, nor in the determination or
calculation of the equation by which Shares are redeemable. The Exchange has no
obligation or liability to owners of Shares in connection with the
administration, marketing, or trading of Shares.
Without
limiting any of the foregoing, in no event shall the Exchange have any liability
for any lost profits or indirect, punitive, special, or consequential damages
even if notified of the possibility thereof.
The
Adviser, the Sub-Adviser, and the Fund make no
representation or warranty, express or implied, to the owners of Shares or any
member of the public regarding the advisability of investing in securities
generally or in the Fund particularly.
FINANCIAL
HIGHLIGHTS
The
following financial highlights table shows the financial performance information
for the Fund’s five most recent fiscal years (or the life of the Fund, if
shorter). Certain information reflects financial results for a single share of
the Fund. The total returns in the table represent the rate that you would have
earned or lost on an investment in the Fund (assuming you reinvested all
distributions). This information has been audited by Cohen & Company, Ltd.,
the independent registered public accounting firm of the Fund, whose report,
along with the Fund’s financial statements, is included in the Fund’s annual
report, which is available upon request.
Financial
Highlights
For
a Share Outstanding Throughout the Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
Ended
December
31, 2021(1) |
|
| Net
Asset Value, Beginning of Period |
|
|
$ |
25.00 |
|
|
|
|
|
|
|
| Income
(Loss) from investment operations: |
|
|
|
|
|
Net
investment income (loss)(2) |
|
|
(0.06) |
|
|
| Net
realized and unrealized gain (loss) on investments |
|
|
(8.96) |
|
|
| Total
from investment operations |
|
|
(9.02) |
|
|
|
|
|
|
|
| Less
distributions paid: |
|
|
|
|
| From
net investment income |
|
|
(0.08) |
|
|
| Total
distributions paid |
|
|
(0.08) |
|
|
|
|
|
|
|
| Net
Asset Value, End of Period |
|
|
$ |
15.90 |
|
|
|
|
|
|
|
|
Total
return, at NAV(3)(4) |
|
|
(36.08 |
%) |
|
|
Total
return, at Market(3)(4) |
|
|
(36.31 |
%) |
|
|
|
|
|
|
| Supplemental
Data and Ratios: |
|
|
|
|
| Net
assets, end of period (000’s) |
|
|
$ |
11,928 |
|
|
|
|
|
|
|
|
Ratio
of expenses to average net assets(5) |
|
|
1.00 |
% |
|
|
Ratio
of net investment income (loss) to average net assets(5) |
|
|
(0.30 |
%) |
|
|
Portfolio
turnover rate(4)(6) |
|
|
165 |
% |
|
(1)The
Fund commenced investment operations on January 25, 2021.
(2)Per
share net investment income (loss) was calculated using average shares
outstanding.
(3)Total
return in the table represents the rate that the investor would have earned or
lost on an investment in the Fund, assuming reinvestment of
dividends.
(4)Not
annualized for periods less than one year.
(5)Annualized
for periods less than one year.
(6)Excludes
in-kind transactions associated with creations and redemptions of the
Fund.
Morgan
Creek - Exos SPAC Originated ETF
|
|
|
|
|
|
|
|
|
|
|
|
| Adviser |
Morgan
Creek Capital Management, LLC
301
West Barbee Chapel Road, Suite 200
Chapel
Hill, North Carolina 27517 |
Sub-Adviser |
Exos
Asset Management, LLC
370
Broadway, Suite 1450
New
York, New York 10018 |
| Distributor |
Foreside
Fund Services, LLC
Three
Canal Plaza, Suite 100
Portland,
Maine 04101 |
Transfer
Agent and Administrator |
U.S.
Bancorp Fund Services, LLC
d/b/a
U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
| Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue, NW
Washington,
DC 20004-2541 |
Custodian |
U.S.
Bank National Association
1555
North Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212 |
| Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
1350
Euclid Avenue, Suite 800
Cleveland,
Ohio 44115 |
|
|
Investors
may find more information about the Fund in the following
documents:
Statement
of Additional Information: The
Fund’s SAI provides additional details about the investments of the Fund and
certain other additional information. The SAI is on file with the SEC and is
herein incorporated by reference into this Prospectus. It is legally considered
a part of this Prospectus.
Annual/Semi-Annual
Reports: Additional
information about the Fund’s investments is available in the Fund’s annual and
semi-annual reports to shareholders. In the annual
report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund’s performance.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Fund by contacting the Fund at c/o U.S. Bank Global
Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701 or by calling
1-855-857-2677.
Shareholder
reports and other information about the Fund are also available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov;
•Free
of charge from the Fund’s Internet web site at www.morgancreekcap.com;
or
(SEC
Investment Company Act File No. 811-23226)