ck0001650149-20220331
Optimize
AI Smart Sentiment Event-Driven ETF
Listed
on NYSE Arca, Inc.: OAIE
Prospectus
June 1,
2022
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved
of these securities or determined if this Prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
Optimize
AI Smart Sentiment Event-Driven ETF
A
series of Series Portfolios Trust (the
“Trust”)
TABLE
OF CONTENTS
Investment Objective
The Optimize AI Smart
Sentiment Event-Driven ETF (the “Fund”) seeks long-term 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. You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment) |
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Management
Fees |
1.00% |
Distribution
and Service (Rule 12b-1) Fees |
0.00% |
Other
Expenses(1) |
0.00% |
Total
Annual Fund Operating Expenses |
1.00% |
(1)
“Other Expenses” are estimated
for the Fund’s current fiscal year.
Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other mutual funds. The Example assumes that you invest $10,000 in
the Fund for the time periods indicated and then sell 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. Although your actual costs may be higher
or lower, based on these assumptions, your costs would be:
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One
Year |
Three
Years |
$102 |
$318 |
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 Fund shares are held in a taxable
account. These costs, which are not reflected in the annual Fund operating
expenses or in the Example, affect the Fund’s performance. No portfolio turnover
rate is provided for the Fund because the Fund had not commenced operations
prior to the date of this Prospectus.
Principal Investment Strategies
The Fund is an actively-managed,
exchange-traded fund (“ETF”) that pursues its investment objective by investing
primarily in the equity securities of U.S. listed companies. The Fund will also
invest in the securities of other investment companies, including other ETFs and
mutual funds, that invest in equity securities. Under normal market conditions,
the Fund’s portfolio will be composed of the equity securities of approximately
10 to 40 issuers. The Fund will typically trade portfolio securities before and
after corporate events of U.S. listed companies. Types of corporate events may
include earnings calls and similar announcements, other corporate events such as
product announcements, mergers and acquisitions, regulatory events such as FDA
announcements and industry and sector events that may have an impact on the
value of the stock.
To
construct the Fund’s portfolio, Optimize Advisors LLC (the “Adviser”), the
Fund’s investment adviser, uses quantitative analytics that use the prices of
the weekly and other options available on a security to assess the overall
market’s expectations for the possible price movements of the underlying
security. The Fund, however, will not invest in options and will only invest in
equity securities and the securities of other investment companies.
The
Fund’s investments in other investment companies will typically consist of
broad-based equity index ETFs and sector ETFs to supplement the core portfolio
of stock positions for purposes of risk mitigation and diversification, as well
as to maintain a sufficient level of market exposure between earnings
announcements. The Fund may also invest in ETFs before and after a large-scale
macroeconomic market event if the investment is found to be attractive according
to the Adviser's metrics.
While
the Fund does not invest in options, the Adviser believes a market participant’s
investment in an option contract is a real expression of that participant’s
expectations for the underlying security. Accordingly, the Adviser uses the
price quotes of the listed options markets, purely to derive stock and general
market sentiment. The extraction of sentiment from options market prices is
intended to provide a more accurate view of market sentiment (“Smart
Sentiment”). The Adviser believes the use of options market prices to determine
investor sentiment has advantages: it can capture the sentiment of institutional
and retail investors who do not wish to publicly announce their sentiment, and
it attributes lower value to sentiment publicly expressed by market actors who
do not influence the options market and therefore might be assumed to be less
influential generally.
The
Adviser uses quantitative analytics that include artificial intelligence
techniques to generate sentiment metrics from the listed options quotes. Smart
Sentiment information is available only for future dates that correspond to
options expiration dates because no options pricing is available between those
dates. For those available dates, Smart Sentiment metrics can provide
information about the probabilities the market is attributing to the stock or
ETF reaching different price levels, as well as allow estimation of the market’s
projections of the risk of holding the stock or ETF until those future dates.
The Fund generally limits Smart Sentiment analysis to stocks with weekly options
to potentially increase the available dates for analysis before and after
upcoming events, and also because such stocks are typically actively traded and
liquid.
The
Adviser believes that Smart Sentiment provides good short-term investment
guidance around events, and that trading before and after events tactically is a
good way to enhance long term capital appreciation while reducing general market
risk. Under stable market conditions, stocks experience their greatest price
movements around events such as earnings calls.
The
Fund may sell a security if its value becomes unattractive, such as when the
Adviser’s quantitative investment process suggests the value of the security may
deteriorate, or when other investment opportunities emerge that the Adviser
believes may have more attractive risk-adjusted return potential.
The
Smart Sentiment investment strategy employed by the Adviser with respect to the
Fund typically results in high portfolio turnover. Accordingly, the Fund may
experience increased transaction costs.
The
Fund is “non-diversified,” meaning that a relatively high percentage of its
assets are invested in a limited number of issuers of securities. The Adviser
will engage in active trading with high portfolio turnover of the Fund’s
portfolio investments to achieve the Fund’s investment
objective.
Principal Risks
As with any fund, there are risks
to investing. An investment in the Fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency. In
addition to possibly not achieving your investment goals,
you could lose all or a portion
of your investment in the Fund over short or even long periods of
time. The principal risks of
investing in the Fund are summarized below.
Equity
Risk.
The prices of equity securities will fluctuate and can decline and reduce the
value of a portfolio investing in equities. The value of equity securities
purchased by the Fund could decline if the financial condition of the companies
the Fund invests in decline or if overall market and economic conditions
deteriorate.
Large
Capitalization Risk.
Larger, more established companies may be unable to respond quickly to new
competitive challenges such as changes in technology and consumer tastes. Larger
companies also may not be able to attain the high growth rates of successful
smaller companies.
Other
Investment Companies Risk. The
Fund may invest in shares of investment companies, including shares of 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.
Event-Driven
Strategies Risk.
Event-driven investing requires the Adviser to make predictions about the
likelihood that an event or transaction will occur and the impact such event or
transaction will have on the value of a security. If the event or transaction
fails to occur or it does not have the anticipated effect, losses can
result.
Smart
Sentiment Analytics Risk.
Deriving
sentiment from options quotes data involves addressing certain
challenges:
•Poor
quotes. Quotes
data for stock options may not be precise and accurate, with wide bid-offer
spreads, and incorrect or missing quotes data
•Options
pricing uncertainty. Pricing
of an option contract is affected by many imperfectly known parameters, such as
security price (at moments the equity quote is wide), interest rates, dividends,
and early assignment probability
•Contradictory
pricing.
In snapshot data, individual quotes from different options may be simultaneously
making different assumptions about future prices, effectively contradicting each
other in a single market snapshot
•Risk
premia. Certain
options may be over-priced because some market participants are compelled to buy
insurance against unlikely events, but the extent of over-pricing is imprecisely
known. Over-pricing occurs especially if the security has experienced recent
sudden moves due to the need for at-risk investors to buy protection against
additional losses, even if they don't believe further adverse moves are
likely.
High
Portfolio Turnover Risk.
A high portfolio turnover rate (100% or more) has the potential to result in the
realization and distribution to shareholders of higher capital gains, which may
subject you to a higher tax liability. High portfolio turnover also necessarily
results in greater transaction costs which may reduce Fund
performance.
Quantitative
System Risk.
The Fund’s trading strategies are dependent on the generation of Sentiment
Metrics and other quantitative systems. The Fund’s Portfolio managers rely on
the quantitative systems that generate Sentiment Metrics and other data in their
decision making. These systems may have faults, defects or other anomalies that
cause the generation of inaccurate information in future situations.
Historical
Backtesting Risk.
In the formulation of the Fund’s strategy, the Adviser has used and may continue
to use historical data to simulate normal and stress conditions for the Fund to
formulate and refine the strategy. Historical data frequently differs from
future conditions and historical performance is not indicative of future
performance.
New
Fund Risk.
The Fund is a recently organized investment company with no operating history.
As a result, prospective investors have no track record or history on which to
base their investment decision.
New
Adviser Risk.
The Adviser has not previously served as an adviser to a registered fund
(including ETFs). As a result, there is no long-term track record against which
an investor may judge the Adviser and it is possible the Adviser may not achieve
the Fund’s intended investment objective. Additionally, the Adviser’s investment
strategy for the Fund is new and untested over a market cycle.
Management
Risk.
The
Fund is actively-managed and may not meet its investment objective based on the
Adviser’s success or failure to implement investment strategies for the Fund.
The Adviser’s evaluations and assumptions regarding
issuers,
securities, and other factors may not successfully achieve the Fund’s investment
objective given actual market conditions.
Reliance
on Technology Risk.
The Fund’s trading strategies are highly reliant on technology, including
hardware, software and telecommunications systems. In addition, data gathering,
research, forecasting, order execution, trade allocation, risk management,
operational, back office and accounting systems are all highly automated and
computerized. Such automation and computerization relies on an extensive amount
of both proprietary software and third-party hardware and software.
Future
Competition Risk. Smart
Sentiment is an emerging field that may attract other investors. It is possible
that additional investors overcome the technical hurdles addressed by the
Adviser’s quantitative systems. This may create increased competition, causing
overcrowding that reduces the performance of the Fund, or generating pressure to
enhance the underlying quantitative analytics for greater speed or accuracy,
which may change the performance profile.
Non-Diversification
Risk.
The Fund is non-diversified, which means that
it may invest a high percentage of its assets in a limited number of securities.
Since the Fund is non-diversified, its NAV and total returns may fluctuate or
fall more than a diversified mutual fund. Gains or losses on a single stock may
have a greater impact 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 only a limited number of institutional investors (known as “Authorized
Participants” or “APs”) that are authorized to purchase and redeem shares
directly from the Fund. 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 of the Fund may trade at a material discount
to the Fund’s net asset value (“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 of the Fund, 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 of the Fund may be bought and sold in the secondary market
at market prices. Although it is expected that the market price of shares of the
Fund 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 of the Fund are listed for trading on the NYSE Arca, Inc. (the
“Exchange”), there can be no assurance that an active trading market for shares
will develop or be maintained or that shares will trade with any volume, or at
all, on any stock exchange. In stressed market conditions, the market for shares
of the Fund may become less liquid in response to deteriorating liquidity in the
markets for the Fund’s underlying portfolio holdings. This adverse effect on
liquidity for the Fund’s shares, in turn, can lead to differences between the
market price of the Fund’s shares and the underlying value of those shares. In
addition, trading in Fund shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in shares of the Fund
inadvisable.
Market
Events Risk. One
or more markets in which the Fund invests may go down in value, including the
possibility that the markets will go down sharply and unpredictably. This may be
due to numerous factors, including interest rates, the outlook for corporate
profits, the health of the national and world economies, national and world
social and political events, and the fluctuation of other stock markets around
the world. The global pandemic outbreak of an infectious
respiratory illness caused by a novel
coronavirus known as COVID-19 and subsequent efforts to contain its spread have
resulted and may continue to result in substantial market volatility and global
business disruption, affecting the global economy and the financial health of
individual companies in significant and unforeseen ways. In addition, the Fund
may face challenges with respect to its day-to-day operations if key personnel
of the Adviser or other service providers are unavailable due to quarantines,
restrictions on travel, or other restrictions imposed by state or federal
regulatory authorities. The duration and future impact of COVID-19 are currently
unknown, which may exacerbate the other risks that apply to the Fund and could
adversely affect the value and liquidity of the Fund’s investments, impair the
Fund’s ability to satisfy AP transaction requests, and negatively affect the
Fund’s performance.
Performance
Performance information
for the Fund is not included because the Fund had not commenced operations prior
to the date of this Prospectus. Performance information will be available
once the Fund has at least one calendar year of performance.
The Fund’s past performance,
before and after taxes, is not necessarily an indication of how the Fund will
perform in the future and does not guarantee future results.
Updated performance information will be available on the Fund’s website at
smartsentimentetfs.com
or by calling the Fund toll-free at 1-800-617-0004.
Management
Investment
Adviser
Optimize
Advisors LLC is the Fund’s investment adviser.
Portfolio
Managers
Mr.
Michael Khouw, Chief Strategist and Chief Investment Officer of the Adviser, and
Mr. Andrew DeFeo, Strategist and Head Trader of the Adviser, are each portfolio
managers responsible for the day-to-day management of the Fund. Mr. Khouw and
Mr. DeFeo have each managed the Fund since its inception in 2022.
Purchase
and Sale of Fund Shares
Shares
of the Fund are listed on the Exchange, and individual shares may only be bought
and sold in the secondary market through brokers at market prices, rather than
NAV. Because shares of the Fund trade at market prices rather than NAV, Shares
may trade at a price greater than NAV (premium) or less than NAV
(discount).
The
Fund issues and redeems its shares at NAV only in large specified numbers of
shares known as “Creation Units,” which only APs (typically, broker-dealers) may
purchase or redeem. The Fund generally issues and redeems Creation Units in
exchange for a portfolio of securities and/or a designated amount of U.S.
cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at smartsentimentetfs.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an IRA
or other tax-advantaged account. Distributions on investments made through
tax-deferred arrangements may be taxed later upon withdrawal of assets from
those accounts.
Payments
to Broker-Dealers and Other Financial Intermediaries
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.
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Additional
Information About the Fund |
Investment
Objective
The
Fund’s investment objective is long-term capital appreciation. The investment
objective is not fundamental and may be changed by the Board of Trustees of the
Trust (the “Board”) without shareholder approval upon 60 days’ prior written
notice to shareholders.
Principal
Investment Strategies
Smart
Sentiment
While
the Fund does not invest in options, the Fund does use the price quotes of the
listed options markets, purely to derive stock and general market sentiment. The
Adviser believes a market participant’s investment in an option contract is a
real expression of that participant’s expectations for the underlying security.
For example, when a market participant buys a call for a stock with a higher
strike price than that stock’s current price, it may indicate the participant’s
expectations for an increase in the price of the underlying
security.
The
extraction of sentiment from options market prices is intended to provide a more
reliable view of market sentiment than other methods (“Smart Sentiment”). The
Adviser believes that using options prices to derive sentiment may address
certain disadvantages of other sentiment analysis methods that survey social
media and other public sources, because the options market:
•can
provide an aggregated view of sentiment that includes the views of silent
institutional and retail investors who do not wish to publicly announce their
sentiment over social media; and
•is
less likely to be misled by segments of social media that are not influential in
the markets. This is because options prices are only impacted by influential
opinion makers who invest themselves or have a significant following that has
the conviction to invest based on their opinions.
Smart
Sentiment Metrics and Score
To
construct the Fund’s portfolio, Smart Sentiment metrics for a security are
generated from its listed weekly and other options quotes. The Adviser is
licensed to use Tradelegs LLC’s proprietary Smart Sentiment system, which uses
advanced artificial intelligence techniques. The Adviser believes that the use
of this system increases the accuracy of the Smart Sentiment information
extracted by the analysis of options prices and exhibits correlation with actual
performance of the price of a security. Tradelegs LLC is the owner of the
Adviser, and the costs of the software license are borne by the Adviser out of
the management fee it receives from the Fund.
Smart
Sentiment metrics are available only for future dates that correspond to options
expiration dates, because no options pricing is available between expiration
dates. For the available dates, Smart Sentiment metrics can provide reward and
risk estimates for holding stock and ETF positions. The estimates are used to
guide the Adviser’s portfolio construction.
Specifically,
Smart Sentiment system generates estimates for:
•the
implied probabilities of the security settling at different price levels on that
date
•the
implied probability of profit for a long position in the security
•the
expected return of buying the security and holding to the date (the weighted
average of returns)
•the
implied “value at risk” for holding a long position until the date
These
quantitative metrics are then combined for each security to yield a “Sentiment
Score” that captures the reward/risk of holding a long-only position in the
security up to the chosen date. This score forms the basis for the Fund’s
security selection: the strategy generally selects portfolios that reflect the
best scores.
Stock
Events and Trade Ranking
Event
Trading. The
Adviser believes that Smart Sentiment provides good short-term investment
guidance around events, and that trading events tactically is a good way to
enhance long term capital appreciation while reducing general market
risk.
Under
stable market conditions, stocks experience their greatest price movements
around events such as earnings calls. By comparison to diversified funds with
low turnover, strategies that focus on stock events shift exposure towards
company news while reducing exposure to general market moves.
High
Portfolio Turnover. Event
trades typically yield shorter duration trades and a high turnover. This
increases transaction costs, but also allows capital to be tactically shifted to
the best opportunities at the time of trading. Further, the high turnover allows
the Fund's portfolio to adapt quickly to the prevailing market conditions since
the conditions influence sentiment.
Types
of Events. Eligible
upcoming common stock events for investment include:
•earnings
calls and announcements
•other
corporate events such as product announcements, mergers and
acquisitions
•regulatory
events such as FDA announcements
•industry
and sector events influencing the stock
Weekly
Options. The
Fund generally limits Smart Sentiment analysis to stocks with weekly options to
potentially increase the available dates for analysis before and after upcoming
events, and also because such stocks are typically actively traded and
liquid.
Large
Capitalization Stocks. While
the Fund may invest in securities of companies of any market capitalization, the
Fund typically invests in the securities of large-capitalization companies. The
Fund considers large capitalization companies to be companies with market
capitalization in excess of $10 billion at the time of purchase.
Investments
in ETFs
The
Fund may invest in broad-based equity index and sector ETF positions. This is
primarily to supplement the core of stock positions for risk mitigation and
diversification, as well as to maintain a sufficient level of market exposure in
between earnings seasons where most common stock events are scheduled.
However,
an ETF position may also be entered around an event if the position is found to
be attractive according to the Adviser’s generated Sentiment Metrics for the
ETF.
Eligible
upcoming ETF events include:
•market
or macro-economic events
•industry
and sector events influencing the ETF.
The
Fund may sell a security if its value becomes unattractive, such as when the
Adviser’s quantitative investment process suggests the value of the security may
deteriorate, or when other investment opportunities exist that may have more
attractive return potential.
The
Fund is “non-diversified,” meaning that a relatively high percentage of its
assets are invested in a limited number of issuers of securities. The Adviser
will engage in active trading with high portfolio turnover of the Fund’s
portfolio investments to achieve the Fund’s investment objective.
Please
see the Fund’s SAI for additional information about the securities and
investment strategies described in this Prospectus and about additional
securities and investment strategies that may be used by the Fund.
Temporary
Defensive Positions. The
Fund may, from time to time, take temporary defensive positions that are
inconsistent with the Fund’s principal investment strategies in an attempt to
respond to adverse or unstable market, economic, political, or other conditions.
During such times, the Fund may hold up to 100% of its portfolio in cash or cash
equivalent positions. When the Fund takes a temporary defensive position, the
Fund may not be able to pursue its investment objectives.
Principal
Risks
An
investment in the Fund entails risks. The Fund could lose money, or its
performance could trail that of other investment alternatives. The following
provides additional information about the Fund’s principal risks. It is
important that investors closely review and understand these risks before making
an investment decision.
Equity
Securities Risk. Stock
markets are volatile. The prices of stocks will fluctuate and can decline and
reduce the value of the Fund’s investments. The value of equity securities
purchased by the Fund could decline if the financial condition of the companies
the Fund invests in decline, if overall market and economic conditions
deteriorate, or due to factors that affect a particular industry or industries.
In addition, the value of equity securities may fluctuate due to general market
conditions that are not specifically related to a company or industry, such as
real or perceived adverse economic conditions, changes in the general outlook
for corporate earnings, changes in interest or currency rates or generally
adverse investor sentiment.
Large
Capitalization Risk.
Larger, more established companies may be unable to respond quickly to new
competitive challenges such as changes in technology and consumer tastes. Larger
companies also may not be able to attain the high growth rates of successful
smaller companies. If valuations of large capitalization companies appear to be
greatly out of proportion to the valuations of small or medium capitalization
companies, investors may migrate to the stocks of small and medium-sized
companies.
Other
Investment Companies Risk.
The Fund may invest in shares of investment companies, including shares of 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.
Event-Driven
Strategies Risk.
Generally, the success of event-driven strategies depends on the successful
prediction of whether various events will occur or be consummated. Investing in
or seeking exposure to securities in anticipation of an event carries the risk
that the expected event may not be completed or may take considerable time to
complete, it may be completed on less favorable terms than originally expected,
or the market may react differently than expected to the event, in which case
the Fund may experience losses or fail to achieve a desired rate of return. The
Fund may also incur losses unwinding its event-driven positions if an upcoming
event such as an earnings call includes highly impactful negative news that
reduces the liquidity of the stock by a much greater extent than expected by the
Adviser based on its prior trading history. In addition, certain events, such as
companies emerging from bankruptcy or restructurings resulting from bankruptcy,
carry additional risks because of the issuer’s financial fragility and the
likelihood that its management has little experience with bankruptcy, and the
securities of such companies may be more likely to lose value than the
securities of more financially stable companies.
Smart
Sentiment Analytics Risk.
Deriving
sentiment from options quotes data involves addressing certain
challenges:
•Poor
quotes. Quotes
data for stock options may not be precise and accurate, with wide bid-offer
spreads, and incorrect or missing quotes data.
•Options
pricing uncertainty. Pricing
of an option contract is affected by many imperfectly known parameters, such as
security price (at moments the equity quote is wide), interest rates, dividends,
and early assignment probability. In addition, over time equity prices might
converge with options prices prior to the Adviser’s ability to trade a security.
•Contradictory
pricing.
In snapshot data, individual quotes from different options may be simultaneously
making different assumptions about future prices, effectively contradicting each
other in a single market snapshot.
•Risk
premia. Certain
options may be over-priced because some market participants are compelled to buy
insurance against unlikely events, but the extent of over-pricing is imprecisely
known. Over-pricing occurs especially if the security has experienced recent
sudden moves due to the need for at-risk investors to buy protection against
additional losses, even if they don't believe further adverse moves are
likely.
High
Portfolio Turnover Risk. The
Fund’s principal investment strategies involve actively trading securities,
resulting in a high portfolio turnover rate, which can increase transaction
costs (thus lowering performance) and taxable distributions. A high portfolio
turnover rate generally involves correspondingly greater brokerage commission
expenses, which must be borne directly by the Fund, reducing Fund returns
accordingly. The portfolio turnover rate of the Fund may vary from year to
year.
Quantitative
System Risk.
The Fund’s trading strategies are dependent on the generation of Sentiment
Metrics and other quantitative systems. The Fund’s portfolio managers rely on
the quantitative systems that generate Sentiment Metrics and other data in their
decision making. These systems may have faults, defects or other anomalies that
cause the generation of inaccurate information in future situations. The Adviser
has policies and procedures in place designed to ensure the systems are
operating as intended.
Historical
Backtesting Risk.
In the formulation of the Fund’s strategy, the Adviser has used and may continue
to use historical data to simulate normal and stress conditions for the Fund to
formulate and refine the strategy. Historical data frequently differs from
future conditions and historical performance is not indicative of future
performance.
New
Fund Risk.
As of the date of this Prospectus, the Fund has no operating history and there
can be no assurance that the Fund will grow to or maintain an economically
viable size, in which case the Board may determine to liquidate the Fund.
Liquidation of the Fund can be initiated without shareholder approval by the
Trust’s Board of Trustees if it determines it is in the best interest of
shareholders. As a result, the timing of any Fund liquidation may not be
favorable to certain individual shareholders.
New
Adviser Risk. The
Adviser has not previously served as an adviser to a registered fund (including
ETFs). As a result, there is no long-term track record against which an investor
may judge the Adviser and it is possible the Adviser may not achieve the Fund’s
intended investment objective. Additionally, the Adviser’s investment strategy
for the Fund is new and untested over a market cycle.
Management
Risk.
The Fund is actively-managed and may not meet its investment objective based on
the Adviser’s success or failure to implement investment strategies for the
Fund. The Adviser’s evaluations and assumptions regarding issuers, securities,
and other factors may not successfully achieve the Fund’s investment objective
given actual market conditions.
Reliance
on Technology Risk.
The Fund’s trading strategies are highly reliant on technology, including
hardware, software and telecommunications systems. In addition, data gathering,
research, forecasting, order execution, trade allocation, risk management,
operational, back office and accounting systems are all highly automated and
computerized. Such automation and computerization relies on an extensive amount
of both proprietary software and third-party hardware and software.
Future
Competition Risk. Smart
Sentiment is an emerging field that may attract other investors. It is possible
that additional investors overcome the technical hurdles addressed by the
Adviser’s quantitative systems. This may create increased competition or
overcrowding that may lead to reduced performance of the Fund. The Adviser may
also
experience
pressure to enhance the underlying quantitative analytics for greater speed or
accuracy, which may change the Fund’s performance profile.
Non-Diversification
Risk.
If a Fund is “non-diversified,” then its investments are not required to meet
certain diversification requirements under Federal law. A “non-diversified” Fund
is permitted to invest a greater percentage of its assets in the securities of a
single issuer than a diversified fund. Thus, the Fund may have fewer holdings
than other funds. As a result, a decline in the value of those investments would
cause the Fund’s overall value to decline to a greater degree than if the Fund
held a more diversified portfolio.
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 only a limited number of institutional investors 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 of the Fund may trade at a material discount to the Fund’s 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 of the Fund 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 of the Fund. 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 of the Fund (the “bid” price) and the price at which an investor is
willing to sell shares of the Fund (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 of the Fund based on trading volume and
market liquidity, and is generally lower if the Fund’s shares have more trading
volume and market liquidity and higher if Fund’s 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 of the
Fund, including bid/ask spreads, frequent trading of the Fund’s shares may
significantly reduce investment results and an investment in Fund 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 of the Fund may be bought and sold in the secondary market
at market prices. Although it is expected that the market price of shares of the
Fund 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. The market price of shares of the Fund 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 of the Fund. In times of severe market
disruption, the bid/ask spread can increase significantly. At those times,
shares of the Fund 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 of the Fund 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 of the Fund 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 of the Fund when
extraordinary volatility causes sudden, significant swings in the market price
of shares of the Fund. There can be no assurance that shares of the Fund will
trade with any volume, or at all, on any stock exchange. In stressed market
conditions, the market for the Fund’s shares may become less liquid in response
to deteriorating liquidity in the markets for the Fund’s underlying portfolio
holdings. These factors, among others, may lead to the Fund’s shares trading at
a premium or discount to NAV.
◦Early
Close/Trading Halt.
An exchange or market may close early or issue trading halts on specific
securities or financial instruments. The ability to trade certain securities or
financial instruments may be restricted, which may disrupt the Fund’s creation
and redemption process, potentially affect the price at which the Fund’s shares
trade in the secondary market, and/or result in the Fund being unable to trade
certain securities or financial instruments. In these circumstances, the Fund
may be unable to rebalance its portfolio, may be unable to accurately price its
investments and/or may incur substantial trading losses.
Market
Events Risk. One
or more markets in which the Fund invests may go down in value, including the
possibility that the markets will go down sharply and unpredictably. This may be
due to numerous factors, including interest rates, the outlook for corporate
profits, the health of the national and world economies, national and world
social and political events, and the fluctuation of other stock markets around
the world. The global pandemic outbreak of an infectious respiratory illness
caused by a novel coronavirus known as COVID-19 and subsequent efforts to
contain its spread have resulted and may continue to result in, among other
things, substantial market volatility and reduced liquidity in financial
markets; exchange trading suspensions and closures; higher default rates; travel
restrictions and disruptions; significant global disruptions to business
operations and supply chains; lower consumer demand for goods and services;
significant job losses and increasing unemployment; event and service
cancellations and restrictions; significant challenges in healthcare service
preparation and delivery; prolonged quarantines; and general concern and
uncertainty. The impact of this pandemic and any other public health emergencies
(such as any other epidemics or pandemics) that may arise in the future could
adversely affect the economies of many nations or the entire global economy and
the financial performance of individual issuers, sectors, industries, asset
classes, and markets in significant and unforeseen ways. Extraordinary actions
taken by governments and central banks to support local and global economies and
the financial markets in response to the COVID-19 pandemic may not succeed or
have the intended effect, and in some cases, have resulted in a large expansion
of government deficits and debt, the long-term consequences of which are not
known. This crisis or other public health crises may also exacerbate other
pre-existing political, social, economic, market and financial risks. In
addition, the Fund may face challenges with respect to its day-to-day operations
if key personnel of the Adviser or other service providers are unavailable due
to quarantines, restrictions on travel, or other restrictions imposed by state
or federal regulatory authorities. The duration and future impact of COVID-19
are currently unknown and cannot be determined with certainty, which may
exacerbate the other risks that apply to the Fund and could adversely affect the
value and liquidity of the Fund’s investments, impair the Fund’s ability to
satisfy AP transaction requests, and negatively affect the Fund’s
performance.
Portfolio
Holdings
Information
about the Fund’s daily portfolio holdings is available at
smartsentimentetfs.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”).
Investment
Adviser
The
Fund has entered into an investment advisory agreement (“Advisory Agreement”)
with Optimize Advisors LLC (the “Adviser” or “Optimize”), located at 112 West
34th Street, 18th Floor, New York, New York 10120. The Adviser was formed in May
2020 and is a wholly-owned subsidiary of Tradelegs LLC, a financial technology
company that utilizes Options Artificial Intelligence to generate a new class of
systematic strategies.
Subject
to the oversight of the Board, the Adviser is responsible for the day-to-day
management of the Fund in accordance with the Fund’s investment objective and
policies. For the services it provides to the Fund, the Fund pays the Adviser a
unified management fee, which is calculated daily and paid monthly, at an annual
rate of 1.00% of the Fund’s average daily net assets. Under the Advisory
Agreement, the Adviser has agreed to pay all expenses incurred by the Fund
except for interest charges on any borrowings, dividends and other expenses on
securities sold short; taxes; brokerage commissions and other expenses incurred
in placing orders for the purchase and sale of securities and other investment
instruments; acquired fund fees and expenses; accrued deferred tax liability;
extraordinary expenses; distribution fees and expenses paid by the Fund under
any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act, and the
unified management fee payable to the Adviser (collectively, the “Excluded
Expenses”).
A
discussion regarding the basis for the Board’s initial approval of the Advisory
Agreement between the Adviser and the Trust will be available in the Fund’s
first semi-annual report to shareholders after the Fund’s commencement of
operations. The Adviser has no prior experience as an investment adviser to an
ETF, and the Fund may be adversely affected by this lack of
experience.
The
Fund, as a series of the Trust, does not hold itself out as related to any other
series of the Trust for purposes of investment and investor services, nor does
it share the same investment adviser with any other series of the
Trust.
Portfolio
Managers
Mr.
Michael Khouw and Mr. Andrew DeFeo are the portfolio managers of the Fund and
responsible for the day-to-day management of the Fund.
Michael
Khouw, Chief Strategist and Chief Investment Officer of the Adviser
Mr.
Khouw is the Chief Strategist and Chief Investment Officer of the Adviser. Mr.
Khouw joined Tradelegs LLC, the parent company of the Adviser, in 2014 as a
member of the founding team. Mr. Khouw is a veteran of the financial services
industry whose derivatives and equity trading experience began in the 1990s as a
member and floor trader in the open-outcry pits of the Philadelphia Stock
Exchange, the American Stock Exchange and the New York Mercantile Exchange.
Since then, Mr. Khouw has had broad experience working as a strategist, analyst,
portfolio manager and proprietary trader of equities, commodities and equity and
index derivatives. Mr. Khouw was previously a Partner at Cantor Fitzgerald and
Head of US Listed Equity Derivatives Sales & Trading, and he served in the
same role as a Principal and Managing Director at CRT Capital. Mr. Khouw also
previously held senior trader positions at Bluefin Trading, where he focused on
energy futures and options trading, and Gateway Partners which focused on
single-stock and equity index volatility arbitrage and correlation trading; both
proprietary trading firms based in New York. Gateway Partners’ trading
operations were acquired by Knight Capital Group in 2001. Mr. Khouw also worked
as an analyst at Ivory Capital, a research-intensive, fundamental value-based
investment firm headquartered in Los Angeles. Mr. Khouw holds a BA from Tufts
University.
Andrew
DeFeo, Strategist and Head Trader of the Adviser.
Mr.
DeFeo is the Head Trader and Strategist of the Adviser. As part of his role as
Strategist, Mr. DeFeo was instrumental in the design and launch of all of the
Adviser’s Adaptive Systematic Strategies. Prior to joining Tradelegs LLC, the
parent company of the Adviser in 2013 as part of the founding team, Mr. DeFeo
was the Chief Risk/Compliance Officer for Pico Quantitative Trading’s low
latency trading systems and analytics. Mr. DeFeo began his career at Goldman
Sachs
Execution
and Clearing. He was appointed Co-Head of Risk for Electronic and Algorithmic
Trading in 2009 and head of Business Development for Canada, Latin America and
Futures Risk in 2012. He also served as Co-Supervisor for Goldman’s Sigma X
Liquidity Pool and Sigma Smart Router for the US. Mr. DeFeo graduated from
Georgetown University with a BA in Government.
The
Fund’s SAI provides additional information about the portfolio manager’s
compensation, other accounts managed by the portfolio manager and the portfolio
manager’s ownership of Fund shares.
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How
to Buy and Sell Shares |
The
Fund issues and redeems its shares only in Creation Units at the NAV per share
next determined after receipt of an order from an AP. Only APs may acquire the
Fund’s 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 an authorized
participant agreement (“Participant Agreement”) that has been agreed to by the
Distributor (defined below), and that has been accepted by the Fund’s transfer
agent, with respect to purchases and redemptions of Creation Units. Once
created, the Fund’s shares trade in the secondary market in quantities less than
a Creation Unit.
Most
investors buy and sell the Fund’s shares in secondary market transactions
through brokers. Individual shares of the Fund 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 the Fund’s shares through a broker, you will pay or receive
the market price. You may incur customary brokerage commissions and charges, and
you may pay some or all of the spread between the bid and the offered 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 the Fund’s 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.
Depository Trust Company (“DTC”) or its nominee is the record owner of all
outstanding shares of the Fund.
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.
For
more information on how to buy and sell shares of the Fund, visit the Fund’s
website at smartsentimentetfs.com or by calling the Fund toll-free at
1-800-617-0004.
Frequent
Purchases and Redemptions of Shares
Shares
of the Fund are listed for trading on the Exchange, which allows retail
investors to purchase and sell individual shares at market prices throughout the
trading day similar to other publicly traded securities. Because these secondary
market trades do not involve the Fund directly, it is unlikely that secondary
market trading would cause any harmful effects of market timing, such as
dilution, disruption of portfolio management, increases in the Fund’s trading
costs or
realization
of capital gains. The Board has determined not to adopt policies and procedures
designed to prevent or monitor for frequent purchases and redemptions of the
Fund’s shares because the Fund sells and redeems its shares at NAV only in
Creation Units pursuant to the terms of a Participant Agreement between the
Distributor and an AP. The Fund may impose transaction fees on such Creation
Unit transactions that are designed to offset the Fund’s transfer and other
transaction costs associated with the issuance and redemption of the Creation
Unit shares. Direct trading by APs is critical to ensuring that the Fund’s
shares trade at or close to NAV. Although the Fund imposes no restrictions on
the frequency of purchases and redemptions of Creation Units, the Fund and the
Adviser reserve the right to reject or limit purchases at any time as described
in the Fund’s SAI.
Determination
of Net Asset Value
The
Fund’s NAV is calculated as of the scheduled close of regular trading on the
NYSE Arca, Inc. (the “Exchange”), generally 4:00 p.m. Eastern time, each day the
Exchange 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. In particular, the Fund
generally values equity securities traded on any recognized U.S. or non-U.S.
exchange at the last sale price or official closing price on the exchange or
system on which they are principally traded. 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 will be able to obtain the fair value
assigned to the security upon the sale of such security.
Investments
by Other Registered Investment Companies
Section
12(d)(1) of the 1940 Act restricts investments by registered investment
companies in the securities of other investment companies, including shares of
the Fund. Registered investment companies are permitted to invest in the Fund
beyond the limits set forth in section 12(d)(1), subject to certain conditions
set forth in Rule 12d1-4 under the 1940 Act, including that such investment
companies enter into an agreement with the Fund.
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Distribution
of Fund Shares |
Dividends,
Distributions and their Taxation
Rule
12b-1 Distribution Fees
The
Trust has adopted a Rule 12b-1 distribution plan (the “Rule 12b-1 Plan”) under
the 1940 Act. Under the terms of the Rule 12b-1 Plan, the Fund is authorized to
pay an aggregate fee equal 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.
Dividends
and Distributions
The
Fund intends to pay dividends from net investment income annually and to
distribute all net realized capital gains at least annually. The Fund will
declare and pay capital gain distributions in cash. Your broker is responsible
for distributing the income and capital gain distributions to you.
No
dividend reinvestment service is provided by the Trust. Financial intermediaries
may make the DTC book-entry Dividend Reinvestment Service available for use by
beneficial owners of Fund shares for reinvestment of their dividend
distributions. Beneficial owners should contact their financial intermediary to
determine the availability and costs of the service and the details of
participation therein. Financial intermediaries may require beneficial owners to
adhere to specific procedures and timetables. If this service is available and
used, dividend distributions of both income and net realized capital gains will
be automatically reinvested in additional whole shares of the Fund purchased in
the secondary market.
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 advisor
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws.
The
Fund intends to elect and qualify each year for treatment as a regulated
investment company (“RIC”) under 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).
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 received in respect of stock of certain
foreign corporations may be qualified dividend income if that stock is readily
tradable on an established U.S. securities market.
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from the Fund.
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8% tax
on all or a portion of their “net investment income,” which includes interest,
dividends, and certain capital gains (generally including capital gains
distributions and capital gains realized on the sale of Shares). This 3.8% tax
also applies to all or a portion of the undistributed net investment income of
certain shareholders that are estates and trusts.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by 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 the
Fund’s distributions exceed its earnings and profits, all or a portion of the
distributions made for a taxable year may be recharacterized as a return of
capital to shareholders. A return of capital distribution will generally not be
taxable, but will reduce each shareholder’s cost basis in Shares and result in a
higher capital gain or lower capital loss when the Shares are sold. After a
shareholder’s basis in Shares has been reduced to zero, distributions in excess
of earnings and profits in respect of those Shares will be treated as gain from
the sale of the Shares.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
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 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 or redemption proceeds paid to
any shareholder who fails to properly furnish a correct taxpayer identification
number, who has underreported dividend or interest income, or who fails to
certify that he, she or it is not subject to such withholding.
Taxes
When Shares are Sold on the Exchange
Any
capital gain or loss realized upon a sale of Shares generally is treated as a
long-term capital gain or loss if Shares have been held for more than one year
and as a short-term capital gain or loss if Shares have been held for one year
or less. However, any capital loss on a sale of Shares held for six months or
less is treated as long-term capital loss to the extent of Capital Gain
Dividends paid with respect to such Shares. Any loss realized on a sale will be
disallowed to the extent Shares of the Fund are acquired, including through
reinvestment of dividends, within a 61-day period beginning 30 days before and
ending 30 days after the disposition of Shares. The ability to deduct capital
losses may be limited.
The
cost basis of Shares of the Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the 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 advisor with
respect to whether wash sale rules apply and when a loss might be
deductible.
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
Taxes
To
the extent the Fund invests in foreign securities, it may be subject to foreign
withholding taxes with respect to dividends or interest the Fund received from
sources in foreign countries.
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 Fund shares. Consult your personal tax adviser about
the potential tax consequences of an investment in Fund shares under all
applicable tax laws. For more information, please see the section entitled
“Federal Income Taxes” in the SAI.
The
Distributor, Quasar Distributors, LLC, is a broker-dealer registered with the
SEC. The Distributor distributes Creation Units for the Fund on an agency basis
and does not maintain a secondary market in the Fund’s shares. The Distributor
has no role in determining the policies of the Fund or the securities that are
purchased or sold by the Fund. The Distributor’s principal address is
111
East Kilbourn Avenue, Suite 2200, Milwaukee, Wisconsin 53202.
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Premium/Discount
Information |
Each
business day, the following information will be available, free of charge, on
the Fund’s website at smartsentimentetfs.com: (i) information for each portfolio
holding that will form the basis of the next calculation of the Fund’s NAV per
share; (ii) the Fund’s NAV per share, market price, and premium or discount,
each as of the end of the prior business day; (iii) a table showing the number
of days the Fund’s shares traded at a premium or discount during the most
recently completed calendar year and the most recently completed calendar
quarter since that year; (iv) a line graph showing Fund share premiums or
discounts for the most recently completed calendar year and the most recently
completed calendar quarter since that year; (v) the Fund’s median bid-ask spread
over the last thirty calendar days; and (vi) if during the past year the Fund’s
premium or discount was greater than 2% for more than seven consecutive trading
days, a statement that the Fund’s premium or discount, as applicable, was
greater than 2% and a discussion of the factors that are reasonably believed to
have materially contributed to the premium or discount.
Shares
of the Fund 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 of the Fund to be issued, nor in
the determination or calculation of the equation by which shares of the Fund are
redeemable. The Exchange has no obligation or liability to owners of shares of
the Fund in connection with the administration, marketing, or trading of the
shares.
Without
limiting any of the foregoing, in no event shall the Exchange have any liability
for any lost profits or indirect, punitive, special, or consequential damages
even if notified of the possibility thereof.
The
Adviser and the Fund make no representation or warranty, express or implied, to
the owners of shares of the Fund or any member of the public regarding the
advisability of investing in securities generally or in the Fund
particularly.
The
Trust enters into contractual arrangements with various parties, including,
among others, the Fund’s investment adviser, administrator and distributor, who
provide services to the Fund. Shareholders of the Fund are not parties to, or
intended (or “third-party”) beneficiaries of, any of those contractual
arrangements, and those contractual arrangements are not intended to create in
any individual shareholder or group of shareholders any right to enforce such
contractual arrangements against the service providers or to seek any remedy
under such contractual arrangements against the service providers, either
directly or on behalf of the Trust.
This
prospectus provides information concerning the Trust and the Fund that you
should consider in determining whether to purchase shares of the Fund. None of
this prospectus, the SAI or any document filed as an exhibit to the Trust’s
registration
statement, is intended to, nor does it, give rise to an agreement or contract
between the Trust or the Fund and any investor, or give rise to any contract or
other rights in any individual shareholder, group of shareholders or other
person other than any rights conferred explicitly by federal or state securities
laws that may not be waived.
Closing
the Fund.
The Board of Trustees retains the right to close the Fund (or partially close
the Fund) to new purchases if it is determined to be in the best interest of
shareholders. Based on market and Fund conditions, and in consultation with the
Adviser, the Board of Trustees may decide to close the Fund to new investors,
all investors or certain classes of investors (such as fund supermarkets) at any
time. If the Fund is closed to new purchases it will continue to honor
redemption requests, unless the right to redeem shares has been temporarily
suspended as permitted by federal law.
The
Fund reserves the right to cease operations and liquidate at any time. See
“Liquidation of the Fund” in the SAI for additional information.
Because
the Fund has recently commenced operations, there are no financial highlights
available at this time.
INVESTMENT
ADVISER:
Optimize
Advisors LLC
112
West 34th Street, 18th Floor
New
York, New York 10120
DISTRIBUTOR:
Quasar
Distributors, LLC
111
East Kilbourn Avenue, Suite 2200
Milwaukee,
Wisconsin 53202
CUSTODIAN:
U.S.
Bank N.A.
1555
North Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212
ADMINISTRATOR,
FUND ACCOUNTANT
AND TRANSFER AGENT:
U.S.
Bancorp Fund Services, LLC
615
East Michigan Street
Milwaukee,
Wisconsin 53202
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM:
Cohen
& Company, Ltd.
342
North Water Street, Suite 830
Milwaukee,
WI 53202
LEGAL
COUNSEL:
Goodwin
Procter LLP
1900
N Street, NW
Washington,
DC 20036
The
Fund collects non-public information about you that the law allows or requires
it to have in order to conduct its business and properly service you. The Fund
collects financial and personal information about you (“Personal Information”)
directly (e.g., information on account applications and other forms, such as
your name, address, and social security number, and information provided to
access account information or conduct account transactions online, such as
password, account number, e-mail address, and alternate telephone number), and
indirectly (e.g., information about your transactions with us, such as
transaction amounts, account balance and account holdings).
The
Fund does not disclose any non-public personal information about its
shareholders or former shareholders other than for everyday business purposes
such as to process a transaction, service an account, respond to court orders
and legal investigations or as otherwise permitted by law. Third parties that
may receive this information include companies that provide transfer agency,
technology and administrative services to the Fund, as well as the Fund’s
investment adviser who is an affiliate of the Fund. If you maintain a
retirement/educational custodial account directly with the Fund, we may also
disclose your Personal Information to the custodian for that account for
shareholder servicing purposes. The Fund limits access to your Personal
Information provided to unaffiliated third parties to information necessary to
carry out their assigned responsibilities to the Fund. All shareholder records
will be disposed of in accordance with applicable law. The Fund maintains
physical, electronic and procedural safeguards to protect your Personal
Information and requires its third-party service providers with access to such
information to treat your Personal Information with the same high degree of
confidentiality.
In
the event that you hold shares of the Fund through a financial intermediary,
including, but not limited to, a broker-dealer, bank, or trust company, the
privacy policy of your financial intermediary would govern how your non-public
personal information would be shared with unaffiliated third
parties.
Optimize
AI Smart Sentiment Event-Driven ETF
A
series of Series Portfolios Trust
FOR
MORE INFORMATION
You
can find more information about the Fund in the following
documents:
Statement
of Additional Information
The
SAI provides additional details about the investments and techniques of the Fund
and certain other additional information. A current SAI is on file with the SEC
and is incorporated into this Prospectus by reference. This means that the SAI
is legally considered a part of this Prospectus even though it is not physically
within this Prospectus.
Annual
and Semi-Annual Reports
The
Fund’s annual and semi-annual reports (collectively, the “Shareholder Reports”),
when available, will provide the most recent financial reports and portfolio
holdings. The annual report, when available, will contain a discussion of the
market conditions and investment strategies that affected the Fund’s performance
during the Fund’s prior fiscal period.
The
SAI and the Shareholder Reports, when available, are available free of charge on
the Fund’s website at smartsentimentetfs.com. You can obtain a free copy of the
SAI and Shareholder Reports, request other information, or make general
inquiries about the Fund by calling the Fund (toll-free) at 1-800-617-0004 or by
writing to:
Optimize
AI Smart Sentiment Event-Driven ETF
c/o
U.S. Bank Global Fund Services
P.O.
Box 701
Milwaukee,
Wisconsin 53201-0701
1-800-617-0004
Reports
and other information about the Fund are also available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s Internet website at
http://www.sec.gov; or
•For
a fee, by electronic request at the following e-mail address:
[email protected].
(The
Trust’s SEC Investment Company Act of 1940 file number is
811-23084)