ck0001683471-20211130
PROSPECTUS
SWAN HEDGED EQUITY US LARGE CAP
ETF
(HEGD)
Listed
on Cboe BZX Exchange, Inc.
March 31,
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
The Swan Hedged Equity US
Large Cap ETF (the “Fund”) seeks long term capital appreciation while mitigating
overall market risk.
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 investments) |
None |
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Annual
Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
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| Management
Fee |
0.79% |
| Distribution
and/or Service (12b-1) Fees |
0.00% |
| Other
Expenses* |
0.00% |
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Acquired
Fund Fees and Expenses** |
0.03% |
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Total
Annual Fund Operating Expenses* |
0.82% |
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*
“Other Expenses” include
interest expense of less than 0.001%. Interest expense is borne by the Fund
separately from the management fees paid to the Adviser.
**
Total Annual Operating
Expenses in this fee table may not correlate to the expense ratios in the Fund’s
financial highlights (and the Fund’s financial statements) because the financial
highlights include only the Fund’s direct operating expenses and do not include
Acquired Fund Fees and Expenses, which represent the Fund’s pro rata share of
the fees and expenses of the exchange-traded funds in which it
invests.
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: |
$84 |
3
Years: |
$262 |
5
Years: |
$455 |
10
Years: |
$1,014 |
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 December
22, 2020 (commencement of operations) through November 30, 2021, the Fund’s
portfolio turnover rate was 2% of the average value of its
portfolio.
The
Fund is an actively-managed exchange-traded fund (“ETF”) that pursues its
investment objective by investing at least 80% of its net assets (plus any
borrowings for investment purposes) directly and indirectly through one or more
other investment companies, including ETFs, in equity securities of large
capitalization U.S. companies. “Large capitalization companies” are those within
the range of capitalizations of the S&P 500 Index. In seeking to achieve its
investment objective, the Fund also uses exchange-traded long-term put options
on the S&P 500 Index for hedging purposes and exchange-traded put and call
options on the S&P 500 Index (or exchange-traded funds seeking to track the
S&P 500 Index) to seek to generate additional returns.
The
Fund may buy and sell put and call options. The Fund seeks to provide
risk-managed growth of capital by matching or exceeding the long-term
performance of the US large-cap equity market by minimizing large declines
typically experienced during bear markets.
Hedging
Process.
The Fund utilizes the defined risk strategy (“DRS”) philosophy developed in 1997
by Randy Swan, President of Swan Capital Management, LLC (the “Adviser”), the
Fund’s adviser, and Swan Global Management, LLC (the “Sub-Adviser”), the Fund’s
sub-adviser. The DRS is based upon the Sub-Adviser’s research indicating that
market timing and/or stock selection is extremely difficult, may produce
volatile returns and that asset allocation is limited in its risk reduction. In
implementing this strategy, the equity portion of the Fund’s portfolio is hedged
using put options and the option portion of the Fund’s portfolio is
actively-managed to seek additional return or provide risk mitigation.
Specifically, the Sub-Adviser seeks to “define risk” by seeking to protect
against large losses. The Sub-Adviser seeks to do so by hedging the Fund’s
equity exposure through investments in protective long-term S&P 500 Index
put options (referred to as paying a premium) that give the Fund the right to
sell a security or index at a set
(strike)
price or sell the long-term put option on an option exchange. Generally, S&P
500 Index put options have an inverse relationship to the S&P 500 Index and
its sector-specific constituents.
Additional
Options Strategies.
In addition to seeking to protect against large losses, the Sub-Adviser seeks to
increase returns by buying and selling put and call options on the S&P 500
Index (or on ETFs that track the S&P 500 Index). A put option is a contract
that entitles the purchaser to receive from the seller a cash payment equal to
the amount of any depreciation in the value of the reference index below a fixed
price as of the valuation date of the option. A call option is a contract that
entitles the purchaser to receive from the seller a cash payment equal to the
amount of any appreciation in the value of the reference index over a fixed
price as of the valuation date of the option.
The
Sub-Adviser also will regularly engage in various spread option strategies.
Spread option strategies involve, for example, buying a six-month call option
while simultaneously selling a further out-of-the-money six-month call option.
Each spread includes a hedging element so that the Fund is not exposed to
significant losses on written options. In addition, the Fund will occasionally
write short-term (typically one to three months to expiration) S&P 500 Index
call options on a portion of the underlying equity in the Fund, similar to a
covered call strategy.
Rebalancing.
The Sub-Adviser will typically rebalance the portfolio on an annual basis to
maintain appropriate weighting across the components of the strategy and to
avoid excessive exposure. Long-term protective put options are typically traded
annually, but may be rebalanced more frequently depending on market conditions,
to protect capital and/or allow for profit potential, by re-establishing a
current-market strike price which depends on whether the market has increased or
decreased.
The
Sub-Adviser intends on having low portfolio turnover as most of the ETF
portfolio will be held indefinitely. Written call options are purchased when the
Sub-Adviser believes they present an unfavorable risk and reward profile.
Purchased options are sold when the Sub-Adviser believes they present an
unfavorable risk and reward profile or when more attractive investments are
available.
The Fund is considered to be
non-diversified, which means that it may invest more of its assets in the
securities of a single issuer or a smaller number of issuers than if it were a
diversified fund.
The
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:
•Cybersecurity
Risk.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause the Fund, the Adviser, the
Sub-Adviser and/or other service providers (including custodians and financial
intermediaries) to suffer data breaches or data corruption. Additionally,
cybersecurity failures or breaches of the electronic systems of the Fund, the
Adviser, the Sub-Adviser or the Fund’s other service providers, market makers,
Authorized Participants or the issuers of securities in which the Fund invests
have the ability to cause disruptions and negatively impact the Fund's business
operations, potentially resulting in financial losses to the Fund and its
shareholders. In an extreme case, a shareholder’s ability to transact in Fund
shares may be affected.
•Derivatives
Risk. Put
and call options are referred to as “derivative” instruments since their values
are based on, or derived from, an underlying reference asset, such as an index.
Derivatives can be volatile, and a small investment in a derivative can have a
large impact on the performance of the Fund as derivatives can result in losses
in excess of the amount invested. The return on a derivative instrument may not
correlate with the return of its underlying reference asset. Derivative
instruments may be difficult to value and may be subject to wide swings in
valuations caused by changes in the value of the underlying instrument. Other
risks of investments in derivatives include risks that the transactions may
result in losses that partially or completely offset gains in portfolio
positions and risks that the derivative transaction may not be
liquid.
•Equity
Investing Risk. The
values of equity securities could decline generally or could underperform other
investments due to factors affecting a specific issuer, market or securities
markets generally.
•ETF
Risks.
The Fund is an ETF, and, as a result of its structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦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 Cboe BZX Exchange, Inc. (the “Exchange”)
and may be traded on U.S. exchanges other than the Exchange, there can be no
assurance that Shares will trade with any volume, or at all, on any stock
exchange. In stressed market conditions, the liquidity of Shares may begin to
mirror the liquidity of the Fund’s underlying portfolio holdings, which can be
significantly less liquid than Shares.
•Hedging
Risk. Options
used by the Fund to reduce volatility and generate returns may not perform as
intended. There can be no assurance that the Fund’s option strategy will be
effective. It may expose the Fund to losses, e.g.,
option premiums, to which it would not have otherwise been exposed. Further, the
option strategy may not fully protect the Fund against declines in the value of
its portfolio securities.
•Large
Capitalization Risk. The
Fund’s investments in large capitalization companies may underperform other
segments of the market because large capitalization companies may be unable to
respond quickly to new competitive challenges, such as changes in technology and
consumer tastes, and may not be able to attain the high growth rate of
successful smaller companies, especially during extended periods of economic
expansion.
•Leveraging
Risk.
The use of leverage, such as that embedded in options, could magnify the Fund’s
gains or losses.
•Limited
Operating History. 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 using proprietary investment strategies and processes.
There can be no guarantee that the Sub-Adviser’s judgments about the
attractiveness, value and potential appreciation of particular investments and
strategies for the Fund will be correct or produce the desired results or that
the Fund will achieve its investment objective. If the Sub-Adviser fails to
accurately evaluate market risk or appropriately react to current and developing
market conditions, the Fund’s share price may be adversely affected.
•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.
•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.
•Options
Risk. The
prices of options may change rapidly over time and do not necessarily move in
tandem with the price of the underlying securities. Selling call options reduces
the Fund’s ability to profit from increases in the value of the Fund’s equity
portfolio, and purchasing put options may result in the Fund’s loss of premiums
paid in the event that the put options expire unexercised. To the extent that
the Fund reduces its put option holdings relative to the number of call options
sold by the Fund, the Fund’s ability to mitigate losses in the event of a market
decline will be reduced.
•Other
Investment Company Risk.
The risks of investment in other investment companies, including ETFs, typically
reflect the risks of the types of instruments in which the investment companies
invest. By investing in another investment company, the Fund
becomes a shareholder of that
investment company and bears its proportionate share of the fees and expenses of
the other investment company. Investments in ETFs are also subject to the “ETF
Risks” described above.
•Tax
Risk.
The
writing of call options by the Fund may significantly reduce or eliminate its
ability to make distributions eligible to be treated as qualified dividend
income. Covered call options may also be subject to the federal tax rules
applicable to straddles under the Internal Revenue Code of 1986, as amended (the
“Code”). If positions held by the Fund were treated as “straddles” for federal
income tax purposes, or the Fund’s risk of loss with respect to a position was
otherwise diminished as set forth in Treasury regulations, dividends on stocks
that are a part of such positions would not constitute qualified dividend income
subject to such favorable income tax treatment in the hands of non-corporate
shareholders or eligible for the dividends received deduction for corporate
shareholders. In addition, generally, straddles are subject to certain rules
that may affect the amount, character and timing of the Fund’s recognition of
gains and losses with respect to straddle
positions.
The following
performance information indicates some of the risks of investing in the
Fund. The bar chart shows the Fund’s performance for the
calendar year ended December 31. The table illustrates how the Fund’s average
annual returns for the 1-year and since inception periods compared with those of
a broad measure of market performance. The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is also available on the
Fund’s website at www.etfs.swanglobalinvestments.com.
Calendar Year Total
Return
During the period of time shown
in the bar chart, the highest quarterly return
was 6.93% for the quarter ended December 31, 2021, and
the lowest quarterly return was
0.98% for the quarter ended September 30,
2021.
Average
Annual Total Returns
(for
periods ended December 31, 2021)
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Swan
Hedged Equity US Large Cap ETF |
1-Year |
Since
Inception
(12/22/20) |
| Return Before
Taxes |
16.87% |
17.80% |
| Return After Taxes on
Distributions |
16.78% |
17.72% |
| Return After Taxes on Distributions and
Sale of Shares |
10.05% |
13.57% |
|
Cboe
S&P 500 95-110 Collar Index
(reflects no deduction for
fees, expenses, or taxes) |
17.67% |
18.04% |
|
S&P
500 Total Return Index
(reflects
no deduction for fees, expenses, or taxes) |
28.71% |
30.30% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns
depend on an investor’s tax situation and may differ from those shown. After-tax
returns shown are not relevant to investors who hold their shares through
tax-deferred arrangements such as an individual retirement account (“IRA”) or
other tax-advantaged accounts.
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| Adviser |
Swan
Capital Management, LLC |
| Sub-Adviser |
Swan
Global Management, LLC |
| Portfolio
Managers |
Randy
Swan, Lead Portfolio Manager and President of the Adviser and Sub-Adviser,
Robert Swan, Portfolio Manager and Chief Operating Officer of the Adviser
and Sub-Adviser, and Chris Hausman, CMT, Managing Director of Risk and
Portfolio Manager of the Sub-Adviser, have each served as a Portfolio
Manager of the Fund since its inception in December
2020 |
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.etfs.swanglobalinvestments.com.
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 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.
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.
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
Fund has adopted the following 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, the Fund invests directly and indirectly through one of more
other investment companies, including ETFs, at least 80% of its net assets (plus
any borrowings for investment purposes) in equity securities of large
capitalization US companies. Large capitalization companies are those within the
range of capitalizations of the S&P 500 Index.
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.
•Cybersecurity
Risk.
With the increased use of technologies such as the Internet and the dependence
on computer systems to perform business and operational functions, funds (such
as the Fund) and their service providers may be prone to operational and
information security risks resulting from cyberattacks and/or technological
malfunctions. In general, cyberattacks are deliberate, but unintentional events
may have similar effects. Cyberattacks include, among others, stealing or
corrupting data maintained online or digitally, preventing legitimate users from
accessing information or services on a website, releasing confidential
information without authorization, and causing operational disruption.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause the Fund, the Adviser, the
Sub-Adviser and/or other service providers (including custodians and financial
intermediaries) to suffer data breaches or data corruption. Additionally,
cybersecurity failures or breaches of the electronic systems of the Fund, the
Adviser, the Sub-Adviser or the Fund’s other service providers, market makers,
Authorized Participants or the issuers of securities in which the Fund invests
have the ability to cause disruptions and negatively impact the Fund's business
operations, potentially resulting in financial losses to the Fund and its
shareholders. For instance, cyberattacks or technical malfunctions may interfere
with the processing of shareholder or other transactions, affect the Fund's
ability to calculate its NAV, cause the release of private shareholder
information or confidential Fund information, impede trading, cause reputational
damage, and subject the Fund to regulatory fines, penalties or financial losses,
reimbursement or other compensation costs, and additional compliance costs.
Cyberattacks or technical malfunctions may render records of Fund assets and
transactions, shareholder ownership of Fund Shares, and other data integral to
the functioning of the Fund inaccessible or inaccurate or incomplete. The Fund
may also incur substantial costs for cybersecurity risk management in order to
prevent cyber incidents in the future. The Fund and its shareholders could be
negatively impacted as a result.
•Derivatives
Risk.
Derivatives are financial instruments that have a value which depends upon, or
is derived from, a reference asset, such as one or more underlying securities,
pools of securities, indexes, rates or currencies. Derivatives may result in
investment exposures that are greater than their cost would suggest; in other
words, a small investment in a derivative may have a large impact on Fund
performance. The successful use of derivatives generally depends on the ability
to predict market movements. The use of these instruments requires special
skills and knowledge of investment techniques that are different than those
normally required for purchasing and selling securities. If the Sub-Adviser uses
a derivative instrument at the wrong time or judges market conditions
incorrectly, or if the derivative instrument does not perform as expected, these
strategies may significantly reduce the Fund’s return. The Fund could also
experience losses if it is unable to close out a position because the market for
an instrument or position is or becomes illiquid.
Derivatives,
including options, are subject to a number of risks, some of which are described
elsewhere in this Prospectus. The use of derivatives may entail risks greater
than, or possibly different from, such risks to which the Fund is exposed.
Certain of the different risks to which the Fund might be exposed due to the use
of derivatives include the following:
◦Correlation
Risk
is the risk that derivative instruments may be mispriced or improperly valued
and that changes in the value of the derivatives may not correlate perfectly
with the underlying asset or security.
◦Hedging
Risk
is the risk that derivative instruments used to hedge against an opposite
position may offset losses, but they also may offset gains.
◦Segregation
Risk
is the risk associated with any requirement which may be imposed to segregate
assets or enter into offsetting positions in connection with investments in
derivatives. Such segregation will not limit exposure to loss, and the
Fund
may be exposed to investment risk with respect to the segregated assets to the
extent that, but for the applicable segregation requirement, the segregated
assets would be sold.
◦Volatility
Risk
is the risk that, because some derivatives involve economic leverage, this
economic leverage will increase the volatility of the derivative instruments, as
they may increase or decrease in value more quickly than the underlying
currency, security, interest rate or other economic variable.
•Equity
Investing Risk.
An investment in the Fund involves risks similar to those of investing in any
fund holding equity securities, such as market fluctuations, changes in interest
rates and perceived trends in stock prices. The values of equity securities
could decline generally or could underperform other investments. Different types
of equity securities tend to go through cycles of outperformance and
underperformance in comparison to the general securities markets. In addition,
securities may decline in value due to factors affecting a specific issuer,
market or securities markets generally. Recent unprecedented turbulence in
financial markets, reduced liquidity in credit and fixed income markets, or
rising interest rates may negatively affect many issuers worldwide, which may
have an adverse effect on the Fund.
•ETF
Risks.
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.
•Hedging
Risk. Options
used by the Fund to reduce volatility may not perform as intended. There can be
no assurance that the Fund’s option strategy will be effective. It may expose
the Fund to losses, e.g.,
option premiums, to which it would not have otherwise been exposed if it only
invested in stocks. Further, the option strategy may not fully protect the Fund
against declines in the value of its portfolio securities.
•Large
Capitalization Risk. Investments
in large capitalization companies may go in and out of favor based on market and
economic conditions and may underperform other market segments. Some large
capitalization companies may be unable to respond quickly to new competitive
challenges, such as changes in technology and consumer tastes, and may not be
able to attain the high growth rate of successful smaller companies, especially
during extended periods of economic expansion. As such, returns on investments
in stocks of large capitalization companies could trail the returns on
investments in stocks of small and mid-capitalization companies.
•Leveraging
Risk.
The use of leverage, such as that embedded in options, will magnify the Fund’s
gains or losses. The use of leverage may cause the Fund to liquidate portfolio
positions when it would not be advantageous to do so in order to satisfy its
obligations. Written option positions expose the Fund to potential losses many
times the option premium received.
•Limited
Operating History. Each
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 uses proprietary investment strategies and
processes. There can be no guarantee that the Sub-Adviser’s judgments about the
attractiveness, value and potential appreciation of particular investments and
strategies for the Fund will be correct or produce the desired results and no
guarantee that the Fund will achieve its investment objective or outperform
other investment strategies over the short- or long-term market cycles. If the
Sub-Adviser fails to accurately evaluate market risk or appropriately react to
current and developing market conditions, the Fund’s share price may be
adversely affected. Securities selected by the Sub-Adviser may not perform as
expected. This could result in the Fund’s underperformance compared to other
funds with similar investment objectives.
•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.
•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.
•Options
Risk. Options
are subject to correlation risk because there may be an imperfect correlation
between the prices of options and movements in the price of the underlying
securities. Options may expire unexercised, causing the Fund to lose the premium
paid for them. The success of the Fund’s investment in options depends upon many
factors, such as the price of the options which is a function of various factors
that may change rapidly over time. If a counterparty defaults, the Fund’s only
recourse will be to pursue contractual remedies against the counterparty, and
the Fund may be unsuccessful in its pursuit. The Fund thus assumes the risk that
it may be delayed in or prevented from obtaining payments owed to it pursuant to
an over-the-counter options transaction.
Exchange
traded index options give the holder of the option the right to buy (or to sell)
a position in an index of securities to the writer of the option, at a certain
price. Selling index call options reduces the Fund’s ability to profit from
increases in the value of the Fund’s equity portfolio, and purchasing put
options may result in the Fund’s loss of premiums paid in the event that the put
options
expire unexercised. To the extent that the Fund reduces its put option holdings
relative to the number of call options sold by the Fund, the Fund’s ability to
mitigate losses in the event of a market decline will be reduced.
When
the Fund sells an option, it gains the amount of the premium it receives, but
also incurs a liability representing the value of the option it has sold until
the option is either exercised and finishes “in the money,” meaning it has value
and can be sold, or the option expires worthless, or the expiration of the
option is “rolled,” or extended forward. The value of the options in which the
Fund invests is based partly on the volatility used by market participants to
price such options (i.e.,
implied volatility). Accordingly, increases in the implied volatility of such
options will cause the value of such options to increase (even if the prices of
the options’ underlying stocks do not change), which will result in a
corresponding increase in the liabilities of the Fund under such options and
thus decrease the Fund’s NAV.
•Other
Investment Companies Risk.
The Fund may invest in shares of other investment companies, such as ETFs. The
risks of investment in these securities typically reflect the risks of the types
of instruments in which the investment company invests. When the Fund invests in
investment company securities, shareholders of the Fund bear indirectly their
proportionate share of their fees and expenses, as well as their share of the
Fund’s fees and expenses. As a result, an investment by the Fund in an
investment company could cause the Fund’s operating expenses (taking into
account indirect expenses such as the fees and expenses of the investment
company) to be higher and, in turn, performance to be lower than if it were to
invest directly in the instruments underlying the investment company.
Investments in ETFs are also subject to the “ETF Risks” described
above.
•Tax
Risk.
The writing of call options by the Fund may significantly reduce or eliminate
its ability to make distributions eligible to be treated as qualified dividend
income. Covered call options may also be subject to the federal tax rules
applicable to straddles under the Code. If positions held by the Fund were
treated as “straddles” for federal income tax purposes, or the Fund’s risk of
loss with respect to a position was otherwise diminished as set forth in
Treasury regulations, dividends on stocks that are a part of such positions
would not constitute qualified dividend income subject to such favorable income
tax treatment in the hands of non-corporate shareholders or eligible for the
dividends received deduction for corporate shareholders. In addition, generally,
straddles are subject to certain rules that may affect the amount, character and
timing of the Fund’s recognition of gains and losses with respect to straddle
positions by requiring, among other things, that: (1) any loss realized on
disposition of one position of a straddle may not be recognized to the extent
that the Fund has unrealized gains with respect to the other position in such
straddle; (2) the Fund’s holding period in straddle positions be suspended while
the straddle exists (possibly resulting in a gain being treated as short-term
capital gain rather than long-term capital gain); (3) the losses recognized with
respect to certain straddle positions that are part of a mixed straddle and that
are not subject to Section 1256 of the Internal Revenue Code be treated as 60%
long-term and 40% short-term capital loss; (4) losses recognized with respect to
certain straddle positions that would otherwise constitute short-term capital
losses be treated as long-term capital losses; and (5) the deduction of interest
and carrying charges attributable to certain straddle positions may be
deferred.
Information
about the Fund’s daily portfolio holdings is available at
www.etfs.swanglobalinvestments.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”).
Swan
Capital Management, LLC, located at 1099 Main Avenue, Suite 206, Durango,
Colorado 81301, serves as the investment adviser for the Fund. The Adviser
oversees the day-to-day operations of the Fund, subject to the oversight of the
Board of Trustees (the “Board”) of Listed Funds Trust (the “Trust”). The Adviser
is responsible for assuring that the Fund’s investments are made according to
the Fund’s investment objective, policies and restrictions. The Adviser also
arranges for sub-advisory, transfer agency, custody, fund administration,
distribution and all other services necessary for the Fund to operate. The
Adviser is an SEC-registered investment adviser established in 2012 for the
purpose of managing mutual funds. As of February 28, 2022, it had approximately
$1.5 billion in assets under management.
The
Adviser continuously reviews, supervises, and administers the Fund’s investment
program. In particular, the Adviser provides investment and operational
oversight of the Sub-Adviser, 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 |
| Swan
Hedged Equity US Large Cap ETF |
0.79% |
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 following: the fee payable to the Adviser under
the Advisory Agreement, interest charges on any borrowings, dividends, and other
expenses on securities sold short, taxes, brokerage commissions
and
other expenses incurred in placing orders for the purchase and sale of
securities and other investment instruments, acquired fund fees and expenses,
accrued deferred tax liability, extraordinary expenses, and distribution (12b-1)
fees and expenses (if any). The Adviser, in turn, compensates the Sub-Adviser
from the management fee it receives.
Swan
Global Management, LLC, located at 20 Ridge Top Drive, Humacao, Puerto Rico
00791, serves as sub-adviser to the Fund. The Sub-Adviser is an affiliate of the
Adviser with the same ownership and management as the Adviser. The Sub-Adviser
was established in 2014 for the purpose of managing mutual funds and other
separately managed accounts. As of February 28, 2022, it had approximately $2.6
billion in assets under management.
Subject
to the oversight of the Adviser, the Sub-Adviser is responsible for the
day-to-day management of the Fund’s investment portfolio, including selecting
broker-dealers to execute purchase and sale transactions. The Sub-Adviser is
responsible for selecting the Fund’s investments according to the Fund’s
investment objective, policies and restrictions. Pursuant to the Sub-Advisory
Agreement, the Adviser will pay to the Sub-Adviser as compensation for the
Sub-Adviser’s services rendered, a fee, computed monthly at a rate of 70% of the
Adviser’s net advisory fee.
The
Fund is managed by Randy Swan, Robert Swan, and Chris Hausman (collectively, the
“Portfolio Managers”).
Randy
Swan is the President and founder of the Adviser and Sub-Adviser and oversees
the team that runs all of the firms’ investment activities. Before forming the
Sub-Adviser in 2014 and the Adviser in 2012, Randy Swan was a Senior Manager for
KPMG, working in the financial services sector. Randy Swan is a 1990 graduate of
the University of Texas with a BBA and an MPA (Master’s Degree in Professional
Accounting).
Robert
Swan serves as the Chief Operating Officer and Portfolio Manager of the Adviser,
providing daily oversight of operations, investment management, trading, and the
development and maintenance of proprietary technologies enabling the firms to
scale and execute the DRS strategy across multiple funds and platforms. Prior to
joining the Sub-Adviser in 2010 and the Adviser in 2012, Robert Swan worked at
Boeing Company as a flight testing and aerodynamics engineer. Robert Swan
graduated from the University of Texas with a BS in Aeronautical and
Astronautical Engineering.
Chris
Hausman serves as a Portfolio Manager of the Sub-Adviser, with responsibility
for risk management and assisting in the daily operations and trading for all
DRS investments and positions. Prior to joining the Sub-Adviser in 2015, Mr.
Hausman served in various roles at Saliba Portfolio Management, including Senior
Portfolio Manager, Chief Portfolio Strategist and Director of Trading
Operations. Mr. Hausman is a graduate of the University of Pennsylvania’s
Wharton School of Business with a BS in Finance, and is also a Chartered Market
Technician.
The
Fund’s SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts managed by the Portfolio Managers, and
the Portfolio Managers’ ownership of Shares.
Prior
Performance of Similarly Managed Accounts
The
Portfolio Managers are also responsible for managing separate accounts for
clients which comprise the Swan Defined Risk US Large Cap Prime Strategy (the
“Strategy Accounts”). The accounts in the Strategy Accounts employ the same
features of the Fund’s principal investment strategies including investment in
S&P 500 Index and related options. Consequently, the Strategy Accounts are
substantially similar to the strategy employed by the Fund. The Strategy
Accounts are also managed by the same investment team as the Fund, and the
investment team intends to use substantially the same goals and style of
investment management in managing the Fund. The Fund will have substantially the
same investment objective, policies and strategies as the Strategy Accounts.
The
information for the Strategy Accounts since their inception date of October 1,
2019, which includes all substantially similar accounts, is provided to show the
past performance of those accounts as measured against the specified benchmark
and index. The performance of the Strategy Accounts does not represent the
historical performance of the Fund, and should not be considered indicative of
future performance of the Strategy Accounts or the Fund. Future results will
differ from past results because of differences in future behavior of the
various investment markets, in brokerage commissions, account expenses, the size
of positions taken in relation to account size and diversification of
securities, and the timing of purchases and sales, among other things. In
addition, the accounts comprising the Strategy Accounts are not subject to
certain investment limitations and other restrictions imposed by the 1940 Act
and the Code which, if applicable, might have adversely affected the performance
of the Strategy Accounts during the periods shown. Performance of the Fund for
future periods will vary, and some months and some quarters may result in
negative performance; indeed, some future years may have negative
performance.
The
Sub-Adviser provided the information shown below and calculated the performance
information. The Strategy Accounts returns shown include realized and unrealized
gains plus income, including accrued income. These returns have been adjusted to
reflect the estimated expenses of the shares of the Fund in place of the fees
charged for the Strategy Accounts. The performance is shown net of estimated
operating expenses (excluding the expenses incurred within underlying funds,
such as ETFs) for the first year of operations of the Fund. Results include the
reinvestment of dividends and capital gains. Returns from cash and cash
equivalents in the Strategy Accounts are included in the performance
calculations, and the cash and cash equivalents are included in the total assets
on which the performance is calculated. The Strategy Accounts were valued on a
monthly basis, which differs from the SEC return calculation method that employs
daily valuation.
|
|
|
|
|
|
|
|
|
|
One
Year
(1/1/2021 - 12/31/2021) |
Since
Inception (10/1/2019 - 12/31/2021) |
| Swan
Defined Risk U.S. Large Cap Prime Strategy (net 0.79%) |
17.89% |
16.82% |
|
S&P
500 Index1 |
28.71% |
25.33% |
1The
S&P 500 Index is a market-capitalization-weighted index of the 500 largest
U.S. publicly traded companies.
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.
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.
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.
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.
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).
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.
The
Fund intends 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.
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax adviser
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws.
The
Fund has elected and intends to qualify each year for treatment as a RIC under
Subchapter M of the 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).
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. The Fund’s investment
strategies may limit their ability to make distributions eligible for treatment
as qualified dividend income in the hands of non-corporate shareholders or
eligible for the dividends received deduction for corporate
shareholders.
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from the Fund.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by the Fund before
your investment (and thus were included in the Shares’ NAV when you purchased
your Shares).
You
may wish to avoid investing in the Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your
investment.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
the Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
your Shares from non-U.S. shareholders generally are not subject to U.S.
taxation, unless you are a nonresident alien individual who is physically
present in the U.S. for 183 days or more per year. The Fund may, under
certain
circumstances, report all or a portion of a dividend as an “interest-related
dividend” or a “short-term capital gain dividend,” which would generally be
exempt from this 30% U.S. withholding tax, provided certain other requirements
are met. Different tax consequences may result if you are a foreign shareholder
engaged in a trade or business within the United States or if a tax treaty
applies.
Under
legislation generally known as “FATCA” (the Foreign Account Tax Compliance Act),
the Fund is required to withhold 30% of certain ordinary dividends it pays to
shareholders that are foreign entities and that fail to meet prescribed
information reporting or certification requirements.
The
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage of the taxable distributions and sale proceeds paid to any
shareholder who fails to properly furnish a correct taxpayer identification
number, who has underreported dividend or interest income, or who fails to
certify that the shareholder is not subject to such withholding.
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.
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.
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.
If
positions held by the Fund were treated as “straddles” for federal income tax
purposes, or the Fund’s risk of loss with respect to a position was otherwise
diminished as set forth in Treasury Regulations, dividends on stocks that are a
part of such positions would not constitute qualified dividend income subject to
such favorable income tax treatment and would not be eligible for the
dividends-dividends received deduction for corporate shareholders. In addition,
generally, straddles are subject to certain rules that may affect the amount,
character and timing of the Fund’s gains and losses with respect to straddle
positions by requiring, among other things,
that:
(1) any loss realized on disposition of one position of a straddle may not be
recognized to the extent that the Fund has unrealized gains with respect to the
other position in such straddle; (2) the Fund’s holding period in straddle
positions be suspended while the straddle exists (possibly resulting in a gain
being treated as short-term capital gain rather than long-term capital gain);
(3) the losses recognized with respect to certain straddle positions that are
part of a mixed straddle and that are not subject to Code Section 1256 be
treated as 60% long-term and 40% short-term capital loss; (4) losses recognized
with respect to certain straddle positions that would otherwise constitute
short-term capital losses be treated as long-term capital losses; and (5) the
deduction of interest and carrying charges attributable to certain straddle
positions may be deferred.
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.
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.
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.etfs.swanglobalinvestments.com.
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.
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
November
30, 2021(1) |
|
| Net
Asset Value, Beginning of Period |
|
|
$ |
16.49 |
|
|
|
|
|
|
|
| Income
from investment operations: |
|
|
|
|
|
Net
investment income(2) |
|
|
0.04 |
|
|
| Net
realized and unrealized gain on investments |
|
|
2.50 |
|
|
| Total
from investment operations |
|
|
2.54 |
|
|
|
|
|
|
|
| Capital
share transactions: |
|
|
|
|
| Transaction
fees |
|
|
0.01 |
|
|
|
|
|
|
|
| Net
Asset Value, End of Period |
|
|
$ |
19.04 |
|
|
|
|
|
|
|
|
Total
return, at NAV(3) |
|
|
15.46 |
% |
(4) |
|
Total
return, at Market(3) |
|
|
15.52 |
% |
(4) |
|
|
|
|
|
| Supplemental
Data and Ratios: |
|
|
|
|
| Net
assets, end of period (000’s) |
|
|
$ |
145,083 |
|
|
|
|
|
|
|
|
Ratio
of expenses to average net assets(7)(8) |
|
|
0.79 |
% |
(5) |
|
Ratio
of net investment income to average net assets(8) |
|
|
0.27 |
% |
(5) |
|
Portfolio
turnover rate(6) |
|
|
2 |
% |
(4) |
(1)The
Fund commenced operations on December 22, 2020.
(2)Per
share net investment income was calculated using average shares
outstanding.
(3)Total
return in the table represents the rate that the investor would have earned or
lost on an investment in the Fund, assuming reinvestment of
distributions.
(4)Not
annualized for periods less than one year.
(5)Annualized
for periods less than one year.
(6)Excludes
in-kind transactions associated with creations and redemptions of the
Fund.
(7)Includes
interest expense of 0.00% for the period ended November 30, 2021.
(8)Does
not include income and expenses of investment companies in which the Fund
invests.
SWAN
HEDGED EQUITY US LARGE CAP ETF
|
|
|
|
|
|
|
|
|
|
|
|
Adviser
|
Swan
Capital Management, LLC
1099
Main Avenue, Suite 206
Durango,
Colorado 81301 |
Transfer
Agent
and
Administrator
|
U.S.
Bancorp Fund Services, LLC
d/b/a
U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
| Sub-Adviser |
Swan
Global Management, LLC
20
Ridge Top Drive
Humacao,
Puerto Rico 00791 |
Custodian |
U.S.
Bank National Association
1555
N. Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212 |
| Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue, NW
Washington,
DC 20004-2541 |
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 |
|
|
Investors
may find more information about the Fund in the following
documents:
Statement
of Additional Information: The
Fund’s SAI provides additional details about the investments of the Fund and
certain other additional information. The SAI is on file with the SEC and is
herein incorporated by reference into this Prospectus. It is legally considered
a part of this Prospectus.
Annual/Semi-Annual
Reports: Additional
information about the Fund’s investments is available in the Fund’s annual and
semi-annual reports to shareholders. In the annual
report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund’s performance.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Fund by contacting the Fund at c/o U.S. Bank Global
Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701 or by calling
1-800-617-0004.
Shareholder
reports and other information about the Fund are also available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
•Free
of charge from the Fund’s Internet web site at
www.etfs.swanglobalinvestments.com; or
(SEC
Investment Company Act File No. 811-23226)
