ck0001683471-20230331
PROSPECTUS
STF Tactical Growth &
Income ETF (TUGN)
STF Tactical Growth
ETF (TUG)
Listed
on The NASDAQ Stock Market LLC
July 31,
2023
The
U.S. Securities and Exchange Commission (the “SEC”) has not approved or
disapproved of these securities or passed upon the accuracy or adequacy of this
Prospectus. Any representation to the contrary is a criminal
offense.
TABLE
OF CONTENTS
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STF
Tactical Growth & Income ETF |
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STF
Tactical Growth ETF |
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Principal
Investment Risks |
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Temporary
Defensive Positions |
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Investments
by Registered Investment Companies |
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Delivery
of Shareholder Documents – Householding |
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Taxes |
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Taxes
on Distributions |
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Taxes
When Shares are Sold on the Exchange |
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Taxes
on Purchases and Redemptions of Creation Units |
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Taxation
of Fund Investments |
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Net
Investment Income Tax |
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Foreign
Investments by a Fund |
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STF
Tactical Growth & Income ETF – Fund
Summary |
Investment
Objective
The
STF Tactical Growth & Income ETF (the “Fund” or “Growth & Income ETF”)
seeks long-term growth of capital and current income.
Fees and Expenses of the
Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Shareholder
Fees (fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
Management
Fee |
0.65% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.65% |
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: |
$66 |
3
Years: |
$208 |
5
Years: |
$362 |
10
Years: |
$810 |
Portfolio
Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Shares are
held in a taxable account. These costs, which are not reflected in the Total
Annual Fund Operating Expenses or in the Example, affect the Fund’s performance.
For the fiscal period May 18, 2022 (commencement of operations) through March
31, 2023, the portfolio turnover rate for the Fund was 429% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that seeks to achieve
its investment objective by allocating its investments among a combination of
(i) U.S. equity securities or ETFs that, in the aggregate, seek to replicate the
Nasdaq-100®
Index (the “Equity Index Allocation”), (ii) directly in, or in ETFs that hold,
long-duration U.S. Treasury securities (the “Fixed Income Allocation”), and
(iii) short-term U.S. Treasury bills, money market funds, and cash and/or
cash equivalents (the “Cash Equivalents”). The Fund also may opportunistically
employ an options spread strategy, as discussed in more detail below.
In
making investment decisions for the Fund, STF Management LP (the “Adviser”), the
Fund’s investment adviser, utilizes a proprietary, tactical unconstrained growth
model (the “TUG Model”). The TUG Model combines both quantitative and
qualitative analysis factors, but is primarily quantitative in nature. The
quantitative factors underlying the TUG model include, but are not limited to,
asset class (i.e.,
equity and fixed income) and market volatility, as well as rates of change in
both asset class price action (i.e.,
the price movement of securities in a particular asset class over time) and
market volatility. The TUG Model is based on signals that are derived from a
proprietary algorithm that tracks market price action across equities, fixed
income, and commodities, to include rates of change in correlation and
volatility. In response to shifts in price action, market volatility, and
correlation of the two primary asset classes based on the TUG Model, the Adviser
will adjust the Fund’s portfolio allocations between the Equity Index Allocation
and the Fixed Income Allocation and thereby seek to proactively adapt to current
market conditions.
The
TUG Model provides the opportunity to take advantage of both equity bull and
bear markets through the use of strategic long equity positions in addition to
long Treasury and money market positions. In seeking to capitalize on the
noncorrelative relationship between equities and fixed income securities, the
TUG Model will assess which asset class provides the best opportunity for growth
in light of prevailing market conditions. For example, when the equity markets
become indecisive, the TUG Model seeks to both protect and benefit the Fund from
the periodic reversals in equities by allocating assets to bond and/or Cash
Equivalents.
The
TUG Model monitors several moving averages of various lengths to measure
underlying trends within the Nasdaq-100®
Index. Multiple buy and sell signals are incorporated into the TUG Model to take
advantage of evolving market conditions. As a result, the TUG Model generates
unique signals in both bullish and bearish markets, as the market tends to
behave differently depending on the trend. A partial allocation to Treasury
bonds may be made when the equity signal is not at full strength.
While
the Fund’s exposure to sectors may change over time, as of March 31, 2023, the
Fund had significant exposure to companies in the Manufacturing Sector.
Options
Spread Strategy
The
Adviser also may opportunistically invest in options to seek to enhance the
Fund’s return. The Fund’s options spread strategy typically consists of two
components: (i) selling call options on the Nasdaq-100®
Index on up to 100% of the value of the equity securities held by the Fund to
generate premium from such options, while (ii) simultaneously reinvesting a
portion of such premium to buy call options on the same reference asset(s).
Short
Call Options.
A written (sold) call option gives the seller the obligation to sell shares of
the reference asset at a specified price (“strike price”) until a specified date
(“expiration date”). The writer (seller) of the call option receives an amount
(premium) for writing (selling) the option. In the event the reference asset
appreciates above the strike price and the holder exercises the call option, the
Fund will have to pay the difference between the value of the reference asset
and the strike price or deliver the reference asset (which loss is offset by the
premium initially received), and in the event the reference asset declines in
value, the call option may end up worthless and the Fund retains the premium.
The call options written by the Fund will be collateralized by the Fund’s equity
holdings at the time the Fund sells the options.
Long
Call Options.
When the Fund purchases a call option, the Fund pays an amount (premium) to
acquire the right to buy shares of a reference asset at a strike price until the
expiration date. In the event the reference asset appreciates in value above the
strike price and the Fund exercises its call option, the Fund will be entitled
to receive the difference between the value of the reference asset and the
strike price (which gain is offset by the premium originally paid by the Fund),
and in the event the reference asset closes below the strike price as of the
expiration date, the call option may end up worthless and the Fund’s loss is
limited to the amount of premium it paid.
The
options purchased or sold by the Fund will typically have an expiration date
approximately one month from the time of purchase or sale. The Fund expects the
total value of the call options and the total value of the call options to each
be up to 100% of the Fund’s net assets. The Fund will use a portion of the
premium received from writing call options to purchase call options. Call
options written by the Fund will typically have a strike price that is at, near,
or higher than the current price of the reference asset, and call options
purchased by the Fund will typically have a strike price that is higher (in some
cases, significantly higher) than the current price of the reference asset. The
call options used by the Fund will be traded on a national securities exchange
and be settled in cash.
The
Fund may engage in active and frequent trading of portfolio securities in
implementing its principal investment strategies.
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.
Principal Investment
Risks
The
principal risks of investing in the Fund are summarized below. The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with those of other funds. Each risk
summarized below is considered a “principal risk” of investing in the Fund,
regardless of the order in which it appears. As with any investment, there is a risk
that you could lose all or a portion of your investment in the
Fund. Some or all of these risks may adversely affect the Fund’s
net asset value (“NAV”), trading price, yield, total return and/or ability to
meet its investment 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, 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, or the Fund’s other
service providers, market makers, Authorized Participants (“APs”), the Fund’s
primary listing exchange, or the issuers of securities in which the Fund invests
have the ability to disrupt and negatively affect the Fund’s business
operations, including the ability to purchase and sell Shares, potentially
resulting in financial losses to the Fund and its shareholders.
•Derivatives
Securities Risk.
The Fund invests in options that derive their performance from the performance
of the Nasdaq-100 Index. Derivatives, such as the options in which the Fund
invests, can be volatile and involve various types and degrees of risks,
depending upon the characteristics of a particular derivative. Derivatives may
entail investment exposures that are greater than their cost would suggest,
meaning that a small investment in a derivative could have a substantial impact
on the performance of the Fund. The Fund could experience a loss if its
derivatives do not perform as anticipated, or are not correlated with the
performance
of their underlying asset or if the Fund is unable to purchase or liquidate a
position because of an illiquid secondary market. The market for many
derivatives is, or suddenly can become, illiquid. Changes in liquidity may
result in significant, rapid, and unpredictable changes in the prices for
derivatives.
◦Options
Risk.
Selling (writing) and buying options are speculative activities and entail
greater than ordinary investment risks. The Fund’s use of put options can lead
to losses because of adverse movements in the price or value of the underlying
asset, which may be magnified by certain features of the options. When selling a
put option, the Fund will receive a premium; however, this premium may not be
enough to offset a loss incurred by the Fund if the price of the underlying
asset is below the strike price by an amount equal to or greater than the
premium. Purchasing of put options involves the payment of premiums, which may
adversely affect the Fund’s performance. Purchasing a put option gives the
purchaser of the option the right to sell a specified quantity of an underlying
asset at a fixed exercise price over a defined period of time. Purchased put
options may expire worthless resulting in the Fund’s loss of the premium it paid
for the option.
The
value of an option may be adversely affected if the market for the option
becomes less liquid or smaller, and will be affected by changes in the value or
yield of the option’s underlying asset, an increase in interest rates, a change
in the actual or perceived volatility of the stock market or the underlying
asset and the remaining time to expiration. Additionally, the value of an option
does not increase or decrease at the same rate as the underlying asset. The
Fund’s use of options may reduce the Fund’s ability to profit from increases in
the value of the underlying asset. If the price of the underlying asset of an
option is above the strike price of a written put option, the value of the
option, and consequently of the Fund, may decline significantly more than if the
Fund invested directly in the underlying asset instead of using options. While
the Fund will segregate liquid assets at least equal in value to the maximum
potential loss for the Fund, the Fund could still lose a significant amount or
nearly all of its value if the price of an underlying asset changes
significantly enough.
•Equity
Market Risk. The
trading prices of equity securities and other instruments fluctuate in response
to a variety of factors. The Fund’s NAV and market price 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.
•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. Shares may trade at a material discount to NAV and
possibly face delisting if either: (i) APs exit the business or otherwise
become unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Cash
Redemption Risk.
The Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. For example, the Fund
may not be able to redeem in-kind certain securities held by the Fund
(e.g.,
short positions and derivative instruments). In such a case, the Fund may be
required to sell or unwind portfolio investments to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to recognize a capital
gain that it might not have recognized if it had made a redemption in-kind. As a
result, the Fund may pay out higher annual capital gain distributions than if
the in-kind redemption process was used.
◦Costs
of Buying or Selling Shares Risk.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV Risk. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant.
◦Trading
Risk. Although
Shares are listed for trading on The NASDAQ Stock Market LLC (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 the Shares.
•Fixed
Income Risk.
Current market conditions and the actions of governmental authorities and
regulators in response to COVID-19 and its far-reaching effects present
heightened risks to the fixed income market generally. Such risks could be
further heightened if such market conditions become more volatile or the
governmental and regulatory actions are unexpectedly or
suddenly
reversed or are ineffective in achieving their desired outcomes. In addition,
the current environment is exposing fixed-income and debt markets to significant
volatility and reduced liquidity for Fund investments.
◦Call
Risk.
During periods of falling interest rates, an issuer of a callable bond held by
the Fund may “call” or repay the security before its stated maturity, and the
Fund may have to reinvest the proceeds at lower interest rates, resulting in a
decline in the Fund’s income.
◦Credit
Risk.
Debt issuers and other counterparties may not honor their obligations or may
have their debt downgraded by ratings agencies.
◦Extension
Risk.
During periods of rising interest rates, certain debt obligations will be paid
off substantially more slowly than originally anticipated and the value of those
securities may fall sharply, resulting in a decline in the Fund’s income and
potentially in the value of the Fund’s investments.
◦Interest
Rate Risk.
An increase in interest rates may cause the value of fixed-income securities
held by the Fund to decline. The Fund may be subject to a greater risk of rising
interest rates due to the recent historically low rates and the effect of
potential government fiscal policy initiatives and resulting market reaction to
those initiatives.
•Implied
Volatility Risk. 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.
•Limited
Operating History Risk. The
Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•Management
Risk. The
Fund is actively managed and its ability to achieve its investment objective is
dependent on the Adviser’s successful implementation of the Fund’s investment
strategies.
•Manufacturing
Sector Risk.
Companies
in the Manufacturing Sector can be significantly affected by supply and demand
both for their specific product or service and for Manufacturing Sector products
in general; a decline in demand for products due to rapid technological
developments and frequent new product introduction; government regulation, world
events and economic conditions; and the risks associated with potential
environmental damage and product liability claims.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing Risk.
The securities of large-capitalization companies may be relatively mature
compared to smaller companies and, therefore, subject to slower growth during
times of economic expansion. Large-capitalization companies also may be unable
to respond quickly to new competitive challenges, such as changes in technology
and consumer tastes.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
these factors, including the impact of the COVID-19 pandemic and related public
health issues, growth concerns in the U.S. and overseas, uncertainties regarding
interest rates, trade tensions and the threat of tariffs imposed by the U.S. and
other countries. In addition, local, regional or global events such as war,
including Russia’s invasion of Ukraine, acts of terrorism, spread of infectious
diseases or other public health issues, recessions, rising inflation, or other
events could have a significant negative impact on the Fund and its investments.
These developments as well as other events could result in further market
volatility and negatively affect financial asset prices, the liquidity of
certain securities and the normal operations of securities exchanges and other
markets. It is unknown how long circumstances related to the COVID-19 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.
•Models
and Data Risk. When
models and data prove to be incorrect or incomplete, any decisions made in
reliance thereon expose the Fund to potential risks. Because predictive models
are usually constructed based on historical data supplied by third parties, the
success of relying on such models may depend heavily on the accuracy and
reliability of the supplied historical data.
•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.
•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.
•Portfolio
Turnover Risk. Because
the Fund may “turn over” some or all of its portfolio frequently, the Fund may
incur high levels of transaction costs from commissions or mark-ups in the
bid/offer spread. Higher portfolio turnover (e.g.,
in excess of 100% per year) may result in the Fund paying higher levels of
transaction costs and generating greater tax liabilities for shareholders.
•Tax
Risk.
The
writing of options by the Fund may significantly reduce or eliminate its ability
to make distributions eligible to be treated as qualified dividend income.
Options entered into by the Fund 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.
•U.S.
Treasury Obligations Risk. U.S. Treasury obligations may differ from
other fixed income securities in their interest rates, maturities, times of
issuance and other characteristics. Similar to other issuers, changes to the
financial condition or credit rating of the U.S. government may cause the value
of the Fund’s U.S. Treasury obligations to decline.
Performance
Performance information for the Fund is not
included because the Fund did not have a full calendar year of performance prior
to the date of this Prospectus. In the future, performance
information for the Fund will be presented in this section. Updated performance
information is available on the Fund’s website at www.stfm.com.
Management
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Investment
Adviser: |
STF
Management LP |
Portfolio
Managers: |
Jonathan
Molchan and Thomas Campbell have been portfolio managers of the Fund since
its inception in 2022 |
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. The difference in the bid and
ask prices is referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at www.stfm.com.
Tax
Information
The
Fund’s distributions are generally taxable as ordinary income, qualified
dividend income, or capital gains (or a combination), unless your investment is
in an individual retirement account (“IRA”) or other tax-advantaged account.
Distributions on investments made through tax-deferred arrangements may be taxed
later upon withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
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STF
Tactical Growth ETF – Fund Summary |
Investment
Objective
The
STF Tactical Growth ETF (the “Fund” or “Growth ETF”) seeks long-term growth of
capital.
Fees and Expenses of the
Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Shareholder
Fees (fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
Management
Fee |
0.65% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.65% |
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: |
$66 |
3
Years: |
$208 |
5
Years: |
$362 |
10
Years: |
$810 |
Portfolio
Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Shares are
held in a taxable account. These costs, which are not reflected in the Total
Annual Fund Operating Expenses or in the Example, affect the Fund’s performance.
For the fiscal period May 18, 2022 (commencement of operations) through March
31, 2023, the portfolio turnover rate for the Fund was 423% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that seeks to achieve
its investment objective by allocating its investments among a combination of
(i) U.S. equity securities or ETFs that, in the aggregate, seek to replicate the
Nasdaq-100®
Index (the “Equity Index Allocation”), (ii) directly in, or in ETFs that hold,
long-duration U.S. Treasury securities (the “Fixed Income Allocation”), and
(iii) short-term U.S. Treasury bills, money market funds, and cash and/or cash
equivalents (the “Cash Equivalents”).
In
making investment decisions for the Fund, STF Management LP (the “Adviser”), the
Fund’s investment adviser, utilizes a proprietary, tactical unconstrained growth
model (the “TUG Model”). The TUG Model combines both quantitative and
qualitative analysis factors, but is primarily quantitative in nature. The
quantitative factors underlying the TUG model include, but are not limited to,
asset class (i.e.,
equity and fixed income) and market volatility, as well as rates of change in
both asset class price action (i.e.,
the price movement of securities in a particular asset class over time) and
market volatility. The TUG Model is based on signals that are derived from a
proprietary algorithm that tracks market price action across equities, fixed
income, and commodities, to include rates of change in correlation and
volatility. In response to shifts in price action, market volatility, and
correlation of the two primary asset classes based on the TUG Model, the Adviser
will adjust the Fund’s portfolio allocations between the Equity Index Allocation
and the Fixed Income Allocation and thereby seek to proactively adapt to current
market conditions.
The
TUG Model provides the opportunity to take advantage of both equity bull and
bear markets through the use of strategic long equity positions in addition to
long Treasury and money market positions. In seeking to capitalize on the
noncorrelative relationship between equities and fixed income securities, the
TUG Model will assess which asset class provides the best opportunity for growth
in light of prevailing market conditions. For example, when the equity markets
become indecisive, the TUG Model seeks to both protect and benefit the Fund from
the periodic reversals in equities by allocating assets to bond and/or Cash
Equivalents.
The
TUG Model monitors several moving averages of various lengths to measure
underlying trends within the Nasdaq-100®
Index. Multiple buy and sell signals are incorporated into the TUG Model to take
advantage of evolving market conditions. As a result, the
TUG
Model generates unique signals in both bullish and bearish markets, as the
market tends to behave differently depending on the trend. A partial allocation
to Treasury bonds may be made when the equity signal is not at full strength.
The
Fund may engage in active and frequent trading of portfolio securities in
implementing its principal investment strategies.
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. While the Fund’s exposure to sectors may change over time, as
of March 31, 2023, the Fund had significant exposure to companies in the
Manufacturing Sector.
Principal Investment
Risks
The
principal risks of investing in the Fund are summarized below. The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with those of other funds. Each risk
summarized below is considered a “principal risk” of investing in the Fund,
regardless of the order in which it appears. As with any investment, there is a risk
that you could lose all or a portion of your investment in the
Fund. Some or all of these risks may adversely affect the Fund’s
net asset value (“NAV”), trading price, yield, total return and/or ability to
meet its investment 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, 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, or the Fund’s other
service providers, market makers, Authorized Participants (“APs”), the Fund’s
primary listing exchange, or the issuers of securities in which the Fund invests
have the ability to disrupt and negatively affect the Fund’s business
operations, including the ability to purchase and sell Shares, potentially
resulting in financial losses to the Fund and its shareholders.
•Equity
Market Risk. The
trading prices of equity securities and other instruments fluctuate in response
to a variety of factors. The Fund’s NAV and market price 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.
•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. Shares may trade at a material discount to NAV and
possibly face delisting if either: (i) APs exit the business or otherwise
become unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares Risk.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV Risk. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant.
◦Trading
Risk.
Although Shares are listed for trading on The NASDAQ Stock Market LLC (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 the Shares.
•Fixed
Income Risk.
Current market conditions and the actions of governmental authorities and
regulators in response to COVID-19 and its far-reaching effects present
heightened risks to the fixed income market generally. Such risks could be
further heightened if such market conditions become more volatile or the
governmental and regulatory actions are unexpectedly or suddenly reversed or are
ineffective in achieving their desired outcomes. In addition, the current
environment is exposing fixed-income and debt markets to significant volatility
and reduced liquidity for Fund investments.
◦Call
Risk.
During periods of falling interest rates, an issuer of a callable bond held by
the Fund may “call” or repay the security before its stated maturity, and the
Fund may have to reinvest the proceeds at lower interest rates, resulting in a
decline in the Fund’s income.
◦Credit
Risk.
Debt issuers and other counterparties may not honor their obligations or may
have their debt downgraded by ratings agencies.
◦Extension
Risk.
During periods of rising interest rates, certain debt obligations will be paid
off substantially more slowly than originally anticipated and the value of those
securities may fall sharply, resulting in a decline in the Fund’s income and
potentially in the value of the Fund’s investments.
◦Interest
Rate Risk.
An increase in interest rates may cause the value of fixed-income securities
held by the Fund to decline. The Fund may be subject to a greater risk of rising
interest rates due to the recent historically low rates and the effect of
potential government fiscal policy initiatives and resulting market reaction to
those initiatives.
•Limited
Operating History Risk. The
Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•Management
Risk. The
Fund is actively managed and its ability to achieve its investment objective is
dependent on the Adviser’s successful implementation of the Fund’s investment
strategies.
•Manufacturing
Sector Risk.
Companies
in the Manufacturing Sector can be significantly affected by supply and demand
both for their specific product or service and for Manufacturing Sector products
in general; a decline in demand for products due to rapid technological
developments and frequent new product introduction; government regulation, world
events and economic conditions; and the risks associated with potential
environmental damage and product liability claims.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing Risk.
The securities of large-capitalization companies may be relatively mature
compared to smaller companies and, therefore, subject to slower growth during
times of economic expansion. Large-capitalization companies also may be unable
to respond quickly to new competitive challenges, such as changes in technology
and consumer tastes.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
these factors, including the impact of the COVID-19 pandemic and related public
health issues, growth concerns in the U.S. and overseas, uncertainties regarding
interest rates, trade tensions and the threat of tariffs imposed by the U.S. and
other countries. In addition, local, regional or global events such as war,
including Russia’s invasion of Ukraine, acts of terrorism, spread of infectious
diseases or other public health issues, recessions, rising inflation, or other
events could have a significant negative impact on the Fund and its investments.
These developments as well as other events could result in further market
volatility and negatively affect financial asset prices, the liquidity of
certain securities and the normal operations of securities exchanges and other
markets. It is unknown how long circumstances related to the COVID-19 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.
•Models
and Data Risk. When
models and data prove to be incorrect or incomplete, any decisions made in
reliance thereon expose the Fund to potential risks. Because predictive models
are usually constructed based on historical data supplied by third parties, the
success of relying on such models may depend heavily on the accuracy and
reliability of the supplied historical data.
•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.
•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.
•Portfolio
Turnover Risk. Because
the Fund may “turn over” some or all of its portfolio frequently, the Fund may
incur high levels of transaction costs from commissions or mark-ups in the
bid/offer spread. Higher portfolio turnover (e.g.,
in excess of 100% per year) may result in the Fund paying higher levels of
transaction costs and generating greater tax liabilities for shareholders.
•U.S.
Treasury Obligations Risk. U.S. Treasury obligations may differ from
other fixed income securities in their interest rates, maturities, times of
issuance and other characteristics. Similar to other issuers, changes to the
financial condition or credit rating of the U.S. government may cause the value
of the Fund’s U.S. Treasury obligations to decline.
Performance
Performance information for the Fund is not
included because the Fund did not have a full calendar year of performance prior
to the date of this Prospectus. In the future, performance
information for the Fund will be presented in this section. Updated performance
information is available on the Fund’s website at www.stfm.com.
Management
|
|
|
|
| |
Investment
Adviser: |
STF
Management LP |
Portfolio
Managers: |
Jonathan
Molchan and Thomas Campbell have been portfolio managers of the Fund since
its inception in 2022 |
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. The difference in the bid and
ask prices is referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at www.stfm.com.
Tax
Information
The
Fund’s distributions are generally taxable as ordinary income, qualified
dividend income, or capital gains (or a combination), unless your investment is
in an individual retirement account (“IRA”) or other tax-advantaged account.
Distributions on investments made through tax-deferred arrangements may be taxed
later upon withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
ADDITIONAL
INFORMATION ABOUT THE FUNDS
Investment
Objectives
Each
Fund’s investment objective has been adopted as a non-fundamental investment
policy and may be changed by the Board of Trustees (the “Board”) of Listed Funds
Trust (the “Trust”) without shareholder approval upon written notice to
shareholders.
Principal
Investment Risks
An
investment in a Fund entails risks. A Fund could lose money, or its performance
could trail that of other investment alternatives. The following provides
additional information about each Fund’s principal risks. It is important that
investors closely review and understand these risks before making an investment
in a Fund. Each risk applies to each Fund unless otherwise specified. Just as in
each Fund’s summary section above, the principal risks below 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 applicable 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 a Fund) and their service providers may be prone to operational and
information security risks resulting from cyber-attacks and/or technological
malfunctions. In general, cyber-attacks are deliberate, but unintentional events
may have similar effects. Cyber-attacks include, among others, stealing or
corrupting data maintained online or digitally, preventing legitimate users from
accessing information or services on a website, releasing confidential
information without authorization, and causing operational disruption.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause a Fund, the Adviser, and/or other
service providers (including custodians and financial intermediaries) to suffer
data breaches or data corruption. Additionally, cybersecurity failures or
breaches of the electronic systems of a Fund, the Adviser, or the Fund’s other
service providers, market makers, APs, a Fund’s primary listing exchange, or the
issuers of securities in which a Fund invests have the ability to disrupt and
negatively affect the Fund’s business operations, including the ability to
purchase and sell Shares, potentially resulting in financial losses to the Fund
and its shareholders. For instance, cyber-attacks or technical malfunctions may
interfere with the processing of shareholder or other transactions, affect a
Fund’s ability to calculate its NAV, cause the release of private shareholder
information or confidential Fund information, impede trading, cause reputational
damage, and subject the Fund to regulatory fines, penalties or financial losses,
reimbursement or other compensation costs, and additional compliance costs.
Cyber-attacks or technical malfunctions may render records of Fund assets and
transactions, shareholder ownership of Shares, and other data integral to the
functioning of a Fund inaccessible or inaccurate or incomplete. A Fund also may
incur substantial costs for cybersecurity risk management to prevent cyber
incidents in the future. A Fund and its respective shareholders could be
negatively impacted as a result.
•Derivatives
Securities Risk (Growth
& Income ETF only).
The Fund invests in options that derive their performance from the performance
of the Nasdaq-100®
Index. Derivatives, such as the options in which the Fund invests, can be
volatile and involve various types and degrees of risks, depending upon the
characteristics of a particular derivative. Derivatives may entail investment
exposures that are greater than their cost would suggest, meaning that a small
investment in a derivative could have a substantial impact on the performance of
the Fund. The Fund could experience a loss if its derivatives do not perform as
anticipated, or are not correlated with the performance of their underlying
asset or if the Fund is unable to purchase or liquidate a position because of an
illiquid secondary market. The market for many derivatives is, or suddenly can
become, illiquid. Changes in liquidity may result in significant, rapid, and
unpredictable changes in the prices for derivatives.
◦Options
Risk.
Selling (writing) and buying options are speculative activities and entail
greater than ordinary investment risks. The Fund’s use of put options can lead
to losses because of adverse movements in the price or value of the underlying
asset, which may be magnified by certain features of the options. When selling a
put option, the Fund will receive a premium; however, this premium may not be
enough to offset a loss incurred by the Fund if the price of the underlying
asset is below the strike price by an amount equal to or greater than the
premium. Purchasing of put options involves the payment of premiums, which may
adversely affect the Fund’s performance. Purchasing a put option gives the
purchaser of the option the right to sell a specified quantity of an underlying
asset at a fixed exercise price over a defined period of time. Purchased put
options may expire worthless resulting in the Fund’s loss of the premium it paid
for the option.
The
value of an option may be adversely affected if the market for the option
becomes less liquid or smaller, and will be affected by changes in the value or
yield of the option’s underlying asset, an increase in interest rates, a change
in the actual or perceived volatility of the stock market or the underlying
asset and the remaining time to expiration. Additionally, the value of an option
does not increase or decrease at the same rate as the underlying asset. The
Fund’s use of options may reduce the Fund’s ability to profit from increases in
the value of the underlying asset. If the price of the underlying asset of an
option is above the strike price of a written put option, the value of the
option, and consequently of the Fund, may decline significantly more than if the
Fund invested directly in the underlying asset instead of using options. While
the Fund will segregate liquid assets at least equal in value to the maximum
potential loss for the Fund, the Fund could still lose a significant amount or
nearly all of its value if the price of an underlying asset changes
significantly enough.
•Equity
Market Risk.
The
trading prices of equity securities and other instruments fluctuate in response
to a variety of factors. A Fund’s NAV and market price 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.
•ETF
Risks.
Each Fund is an ETF and, as a result of its structure, is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk.
A 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. Shares may trade at a material discount to NAV and
possibly face delisting if either: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Cash
Redemption Risk (Growth & Income ETF only). The
Fund’s investment strategy may at times require it to redeem Shares for cash or
to otherwise include cash as part of its redemption proceeds. For example, the
Fund may not be able to redeem in-kind certain securities held by the Fund
(e.g.,
TBA transactions, short positions, derivative instruments, and bonds that cannot
be broken up beyond certain minimum sizes needed for transfer and settlement).
In such a case, the Fund may be required to sell or unwind portfolio investments
to obtain the cash needed to distribute redemption proceeds. This may cause the
Fund to recognize a capital gain that it might not have recognized if it had
made a redemption in-kind. As a result, the Fund may pay out higher annual
capital gain distributions than if the in-kind redemption process was
used.
◦Costs
of Buying or Selling Shares Risk.
Investors buying or selling Shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers, as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of Shares. In addition, secondary market investors also will 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 a Fund, asset swings in a Fund and/or increased market volatility may cause
increased bid/ask spreads. Due to the costs of buying or selling Shares,
including bid/ask spreads, frequent trading of Shares may significantly reduce
investment results and an investment in Shares may not be advisable for
investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV Risk.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. Although it is expected that the market price of Shares will
approximate a 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
Risk.
Although Shares are listed for trading on the Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange “circuit breaker”
rules, which temporarily halt trading on the Exchange when a decline in the
S&P 500®
Index during a single day reaches certain thresholds (e.g.,
7%, 13%, and 20%). Additional rules applicable to the Exchange may halt trading
in Shares when extraordinary volatility causes sudden, significant swings in the
market price of Shares. There can be no assurance that Shares will trade with
any volume, or at all, on any stock exchange. In stressed market conditions, the
liquidity of Shares may begin to mirror the liquidity of a Fund’s underlying
portfolio holdings, which can be significantly less liquid than
Shares.
•Fixed
Income Risk. Current
market conditions and the actions of governmental authorities and regulators in
response to COVID-19 and its far-reaching effects present heightened risks to
the fixed income market generally. Such risks could be further heightened if
such market conditions become more volatile or the governmental and regulatory
actions are unexpectedly or suddenly reversed or are ineffective in achieving
their desired outcomes. In addition, the current environment is exposing
fixed-income and debt markets to significant volatility and reduced liquidity
for Fund investments.
◦Call
Risk.
During periods of falling interest rates, an issuer of a callable bond held by a
Fund may “call” or repay the security before its stated maturity, and the Fund
may have to reinvest the proceeds at lower interest rates, resulting in a
decline in such Fund’s income.
◦Credit
Risk.
Debt issuers and other counterparties may not honor their obligations or may
have their debt downgraded by ratings agencies.
◦Extension
Risk.
During periods of rising interest rates, certain debt obligations will be paid
off substantially more slowly than originally anticipated and the value of those
securities may fall sharply, resulting in a decline in a Fund’s income and
potentially in the value of the Fund’s investments.
◦Interest
Rate Risk.
An increase in interest rates may cause the value of fixed-income securities
held by a Fund to decline. A Fund may be subject to a greater risk of rising
interest rates due to the recent period of historically low rates and the effect
of potential government fiscal policy initiatives and resulting market reaction
to those initiatives. Variable and floating rate securities may increase or
decrease in value in response to changes in interest rates, although generally
to a lesser degree than fixed-income securities.
•Implied
Volatility Risk (Growth
& Income ETF only).
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.
•Limited
Operating History Risk. 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. Each
Fund is actively managed and its ability to achieve its investment objective is
dependent on the Adviser’s successful implementation of the Fund’s investment
strategies. The Adviser’s evaluations and assumptions regarding issuers,
securities, and other factors may not successfully achieve a Fund’s investment
objective given actual market conditions.
•Manufacturing
Sector Risk.
Companies
in the Manufacturing Sector can be significantly affected by supply and demand
both for their specific product or service and for Manufacturing Sector products
in general; a decline in demand for products due to rapid technological
developments and frequent new product introduction; government regulation, world
events and economic conditions; and the risks associated with potential
environmental damage and product liability claims.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing Risk.
The
securities of large-capitalization companies may be relatively mature compared
to smaller companies and, therefore, subject to slower growth during times of
economic expansion. Large-capitalization companies also may be unable to respond
quickly to new competitive challenges, such as changes in technology and
consumer tastes.
•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. A Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
economic, political and global macro factors, including public health issues,
growth concerns in the U.S. and overseas, uncertainties regarding interest
rates, trade tensions and the threat of tariffs imposed by the U.S. and other
countries. In addition, local, regional or global events such as war, including
Russia’s invasion of Ukraine, acts of terrorism, spread of infectious diseases
or other public health issues, recessions, rising inflation, or other events
could have a significant negative impact on the performance of the Fund and its
investments. These developments as well as other events could result in further
market volatility and negatively affect financial asset prices, the liquidity of
certain securities and the normal operations of securities exchanges and other
markets, which could have an adverse effect on a Fund.
The
COVID-19 pandemic has significantly impacted 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. It is unknown how long circumstances related to the COVID-19
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.
•Models
and Data Risk.
To the extent a model does not perform as designed or as intended, a Fund’s
strategy may not be successfully implemented and a Fund may lose value. If the
model or data are incorrect or incomplete, any decisions made in reliance
thereon may lead to the inclusion or exclusion of securities that would have
been excluded or included had the model or data been correct and complete. The
use of predictive models has inherent risks. For example, such models may
incorrectly forecast future behavior, leading to potential losses. In addition,
in unforeseen or certain low-probability scenarios (often involving a market
disruption of some kind), such models may produce unexpected results, which can
result in losses for a Fund. Furthermore, because predictive models are usually
constructed based on historical data supplied by third parties, the success of
relying on such models may depend heavily on the accuracy and reliability of the
supplied historical data.
•Non-Diversification
Risk.
Because each Fund is “non-diversified,” it may invest a greater percentage of
its assets in the securities of a single issuer or a lesser number of issuers
than if it was a diversified fund. As a result, a 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
a Fund’s volatility and cause the performance of a relatively small number of
issuers to have a greater impact on such Fund’s performance.
•Other
Investment Companies Risk.
A 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 a Fund invests in
investment company securities, shareholders of such Fund bear indirectly their
proportionate share of their fees and expenses, as well as their share of such
Fund’s fees and expenses. As a result, an investment by a Fund in an investment
company could cause such 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.
•Portfolio
Turnover Risk.
Higher
portfolio turnover may result in a Fund paying higher levels of transaction
costs and generating greater tax liabilities for shareholders. Portfolio
turnover risk may cause a Fund’s performance to be less than you expect.
•Tax
Risk (Growth
& Income ETF only).
The writing of options by the Fund may significantly reduce or eliminate its
ability to make distributions eligible to be treated as qualified dividend
income. Options entered into by the Fund may also be subject to the federal tax
rules applicable to straddles under the Code. If positions held by a Fund were
treated as “straddles” for federal income tax purposes, or a 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 a 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 a Fund has
unrealized gains with respect to the other position in such straddle; (2) a
Fund’s holding period in straddle positions be suspended while the straddle
exists (possibly resulting in a gain being treated as short-term capital gain
rather than long-term capital gain); (3) the losses recognized with respect to
certain straddle positions that are part of a mixed straddle and that are not
subject to Section 1256 of the Code be treated as 60% long-term and 40%
short-term capital loss; (4) losses recognized with respect to certain straddle
positions that would otherwise constitute short-term capital losses be treated
as long-term capital losses; and (5) the deduction of interest and carrying
charges attributable to certain straddle positions may be deferred.
•U.S.
Treasury Obligations Risk.
U.S. Treasury obligations may differ from other fixed income securities in their
interest rates, maturities, times of issuance and other characteristics. Similar
to other issuers, changes to the financial condition or credit rating of the
U.S. government may cause the value of a Fund’s U.S. Treasury obligations to
decline. The total public debt of the United States as a percentage of gross
domestic product has grown rapidly since the beginning of the 2008 financial
downturn and is expected to rise even further as the U.S. government implements
crisis-fighting efforts in response to the COVID-19 outbreak. Although high debt
levels do not necessarily indicate or cause economic problems, they may create
certain systemic risks if sound debt management practices are not implemented. A
high national debt level may increase market pressures to meet government
funding needs, which may drive debt cost higher and cause a country to sell
additional debt, thereby increasing refinancing risk. A high national debt also
raises concerns that a government will not be able to make principal or interest
payments when they are due. In the worst case, unsustainable debt levels can
cause a decline in the value of the dollar (which may lead to inflation), and
can prevent the U.S. government from implementing effective counter-cyclical
fiscal policy in economic downturns. U.S. Treasury securities are currently
given the top rating by all major ratings agencies except Standard & Poor’s
Ratings Services, which rates them AA+, one grade below their top rating. Since
downgrading U.S. Treasury securities from AAA to AA+ in 2011,
Standard
& Poor’s Ratings Services has affirmed its rating. A downgrade of the
ratings of U.S. government debt obligations, such as U.S. Treasury obligations,
which are often used as a benchmark for other borrowing arrangements, could
result in higher interest rates for individual and corporate borrowers, cause
disruptions in the international bond markets and have a substantial negative
effect on the U.S. economy. A downgrade of U.S. Treasury securities from another
ratings agency or a further downgrade below AA+ rating by Standard & Poor’s
Ratings Services may cause the value of a Fund’s U.S. Treasury obligations to
decline.
In
response to the outbreak of COVID-19, as with other serious economic
disruptions, governmental authorities and regulators are enacting significant
fiscal and monetary policy changes, including providing direct capital infusions
into companies, creating new monetary programs and lowering interest rates
considerably. These actions present heightened risks to fixed-income and debt
instruments, and such risks could be even further heightened if these actions
are unexpectedly or suddenly reversed or are ineffective in achieving their
desired outcomes. In light of these actions and current conditions, interest
rates and bond yields in the United States and many other countries are at or
near historic lows, and in some cases, such rates and yields are negative,
magnifying interest rate risk and diminishing yield and performance. The current
environment has also caused volatility and illiquidity in the markets. In
particular, in March 2020, the COVID-19 crisis triggered a short period of heavy
investor demand for trading in U.S. Treasury obligations, leading to reduced
liquidity in the Treasuries market during that period.
Temporary
Defensive Positions
To
respond to adverse market, economic, political, or other conditions, each Fund
may invest up to 100% of its assets in a temporary defensive manner by holding
all or a substantial portion of its assets in cash, cash equivalents, or other
high quality short-term investments. Temporary defensive investments generally
may include short-term U.S. government securities, commercial paper, bank
obligations, repurchase agreements, money market fund shares, other money market
instruments, and ETFs that invest in the foregoing instruments. The Adviser also
may invest in these types of securities or hold cash while looking for suitable
investment opportunities or to maintain liquidity. In these circumstances, each
Fund may be unable to achieve its investment objective.
PORTFOLIO
HOLDINGS INFORMATION
Information
about each Fund’s daily portfolio holdings is available at www.stfm.com. A
complete description of the Funds’ policies and procedures with respect to the
disclosure of the Funds’ portfolio holdings is available in the Funds’ Statement
of Additional Information (the “SAI”).
MANAGEMENT
Investment
Adviser
STF
Management LP, a Texas limited partnership located at 6136 Frisco Square
Boulevard, Suite 400, Frisco, Texas 75034, serves as the investment adviser for
each Fund. The Adviser provides an investment management program for each Fund
and manages the day-to-day operations of the Funds, subject to the general
supervision and oversight of the Board. The Adviser also arranges for transfer
agency, custody, fund administration, distribution and all other services
necessary for each Fund to operate. The Adviser is an SEC-registered investment
adviser.
For
the services it provides to the Funds, the Adviser is entitled to a unified
management fee, which is calculated daily and paid monthly, at an annual rate
based on each Fund’s average daily net assets as set forth in the table below.
|
|
|
|
| |
Fund |
Management
Fee |
STF
Tactical Growth & Income ETF |
0.65% |
STF
Tactical Growth ETF |
0.65% |
Pursuant
to an investment advisory agreement between the Trust, on behalf of each Fund,
and the Adviser (the “Advisory Agreement”), the Adviser has agreed to pay all
expenses of the Funds except 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 fees and expenses paid by the Trust
under the distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act
(if any).
Portfolio
Managers
The
individuals identified below are jointly and primarily responsible for the day
to day management of each Fund’s portfolio.
Jonathan
Molchan.
Mr. Molchan has been Co-Chief Executive Officer and a Portfolio Manager for the
Adviser since February 2022. Prior to joining the Adviser, he was a Portfolio
Manager with Cowen Prime Advisors LLC. From 2019 until 2021, Mr. Molchan was a
Managing
Director and Portfolio Manager at Harvest Volatility Management, LLC
(“Harvest”), where he focused on the management and creation of new investment
solutions. Prior to joining Harvest in 2019, Mr. Molchan was Portfolio Manager
and Head of Product Development at Horizon ETFs Management U.S., where he
managed the firm’s options-based ETFs and helped lead all aspects of strategy
development. He also held roles in portfolio management, risk, trading, and
research at Recon Capital Partners and Millennium Management. He started his
career as an analyst in 2006 at SAC Capital Advisors, where he focused on
various quantitative volatility strategies in addition to global long/short
equity. He holds a B.S. in Finance from Sacred Heart University.
Thomas
Campbell.
Mr. Campbell has more than 30 years of investment industry experience and
founded the Adviser in 2015. As the Manager of the Adviser, he is responsible
for the distribution and marketing support of investment research reports to
third-party money managers. Mr. Campbell began his career at Transamerica
Financial Advisors, Inc. in 1995 before leaving as Branch Office Manager to
establish the Adviser. He holds a B.B.A. from McMurry University.
Other
Service Providers
Foreside
Fund Services, LLC, a wholly-owned subsidiary of Foreside Financial Group, LLC
(doing business as ACA Group), (the “Distributor”) serves as the principal
underwriter and distributor of each 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 Funds or the securities that are
purchased or sold by a Fund and is not affiliated with the Adviser or any of its
affiliates.
U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services,
located at 615 East Michigan Street, Milwaukee, Wisconsin 53202, serves as the
administrator and transfer agent for the Funds.
U.S.
Bank National Association, located at 1555 North Rivercenter Drive, Suite 302,
Milwaukee, Wisconsin 53212, serves as the custodian for the Funds.
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 Funds’ independent registered public accounting firm. The
independent registered public accounting firm is responsible for auditing the
annual financial statements of the Funds.
HOW
TO BUY AND SELL SHARES
Each
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 a Fund, and only APs may tender their Shares for redemption
directly to a Fund, at NAV. APs must be a member or participant of a clearing
agency registered with the SEC and must execute a Participant Agreement that has
been agreed to by the Distributor, and that has been accepted by the Funds’
transfer agent, with respect to purchases and redemptions of Creation Units.
Once created, Shares trade in the secondary market in quantities less than a
Creation Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Individual Shares are listed for trading on the secondary market on the Exchange
and can be bought and sold throughout the trading day like other publicly traded
securities.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the spread between the
bid and the offer price in the secondary market on each leg of a round trip
(purchase and sale) transaction. In addition, because secondary market
transactions occur at market prices, you may pay more than NAV when you buy
Shares and receive less than NAV when you sell those Shares.
Book
Entry
Shares
are held in book-entry form, which means that no stock certificates are issued.
The Depository Trust Company (the “DTC”) or its nominee is the record owner of
all outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial owner of Shares, you
are not entitled to receive physical delivery of stock certificates or to have
Shares registered in your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other securities that you hold in book entry or
“street name” through your brokerage account.
Frequent
Purchases and Redemptions of Shares
The
Funds impose no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly from the Funds, are an essential part of the ETF process and
help keep Share trading prices in line with NAV. As such, the Funds accommodate
frequent purchases and redemptions by APs. However, frequent purchases and
redemptions for cash may increase tracking error and portfolio transaction costs
and lead to the realization of capital gains. The Funds’ fair valuation of their
holdings consistent with the 1940 Act and Rule 2a-5 thereunder and their ability
to impose transaction fees on purchases and redemptions of Creation Units to
cover the custodial and other costs incurred by the Funds in effecting trades
help to minimize the potential adverse consequences of frequent purchases and
redemptions.
Determination
of Net Asset Value
Each
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 for a Fund is calculated by dividing the
applicable Fund’s net assets by its Shares outstanding.
In
calculating its NAV, each Fund generally values its assets on the basis of
market quotations, last sale prices, or estimates of value furnished by a
pricing service or brokers who make markets in such instruments. For example, a
Fund generally values equity securities at their readily available market
quotations. If such information is not available for an investment held by a
Fund or is determined to be unreliable, the investment will be valued by the
Adviser at fair value pursuant to procedures established by the Adviser and
approved by the Board (as described below).
Fair
Value Pricing
The
Adviser has been designated by the Board as the valuation designee for the Funds
pursuant to Rule 2a-5 under the 1940 Act. In its capacity as valuation designee,
the Adviser has adopted procedures and methodologies to fair value Fund
investments whose market prices are not “readily available” or are deemed to be
unreliable. For example, such circumstances may arise when: (i) an investment
has been de-listed or has had its trading halted or suspended; (ii) an
investment’s primary pricing source is unable or unwilling to provide a price;
(iii) an investment’s primary trading market is closed during regular market
hours; or (iv) an investment’s value is materially affected by events occurring
after the close of the investment’s primary trading market. Generally, when fair
valuing an investment held by a Fund, the Adviser 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
investment, general and/or specific market conditions and the specific facts
giving rise to the need to fair value the investment. Fair value determinations
are made in good faith and in accordance with the fair value methodologies
established by the Adviser. Due to the subjective and variable nature of
determining the fair value of a security or other investment, there can be no
assurance that the Adviser’s determined fair value will match or closely
correlate to any market quotation that subsequently becomes available or the
price quoted or published by other sources. In addition, a Fund may not be able
to obtain the fair value assigned to an investment if the Fund were to sell such
investment at or near the time its fair value is determined.
Investments
by Registered Investment Companies
Section
12(d)(1) of the 1940 Act and the rules thereunder restrict investments by
registered investment companies in the securities of other investment companies.
Registered investment companies are permitted to invest in a Fund beyond the
limits set forth in section 12(d)(1), subject to certain terms and conditions,
including that such investment companies enter into an agreement with such
Fund.
Delivery
of Shareholder Documents – Householding
Householding
is an option available to certain investors of the Funds. Householding is a
method of delivery, based on the preference of the individual investor, in which
a single copy of certain shareholder documents can be delivered to investors who
share the same address, even if their accounts are registered under different
names. Householding for the Funds is available through certain broker-dealers.
If you are interested in enrolling in householding and receiving a single copy
of prospectuses and other shareholder documents, please contact your
broker-dealer. If you are currently enrolled in householding and wish to change
your householding status, please contact your broker-dealer.
DIVIDENDS,
DISTRIBUTIONS, AND TAXES
Dividends
and Distributions
The
Growth & Income ETF expects to pay out dividends, if any, on a monthly
basis. The Growth ETF expects to pay out dividends, if any, at least annually.
Each Fund expects to distribute any net realized capital gains to its
shareholders at least annually. Each Fund will declare and pay capital gain
distributions, if any, in cash. Distributions in cash may be reinvested
automatically in additional whole Shares only if the broker through whom you
purchased Shares makes such option available. Your broker is responsible for
distributing the income and capital gain distributions to you.
Taxes
The
following discussion is a summary of certain important U.S. federal income tax
considerations generally applicable to investments in the Funds. Your investment
in a Fund may have other tax implications. Please consult your tax advisor about
the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws. This summary does not apply
to Shares held in an IRA or other tax-qualified plans, which are generally not
subject to current tax. Transactions relating to Shares held in such accounts
may, however, be taxable at some time in the future. This summary is based on
current tax laws, which may change.
Each
Fund intends to elect and qualify each year for treatment as a regulated
investment company (a “RIC”). If it meets certain minimum distribution
requirements, a RIC is not subject to tax at the fund level on income and gains
from investments that are timely distributed to shareholders. However, a Fund’s
failure to qualify as a RIC or to meet minimum distribution requirements would
result (if certain relief provisions were not available) in fund-level taxation
and, consequently, a reduction in income available for distribution to
shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA, you need to be aware of the possible tax consequences
when a Fund makes distributions, when you sell your Shares listed on the
Exchange, and when you purchase or redeem Creation Units (APs only).
Taxes
on Distributions
Each
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long a Fund owned the investments that generated them, rather
than how long a shareholder has owned his or her Shares. Sales of assets held by
a Fund for more than one year generally result in long-term capital gains and
losses, and sales of assets held by a Fund for one year or less generally result
in short-term capital gains and losses. Distributions of a Fund’s net capital
gain (the excess of net long-term capital gains over net short-term capital
losses) that are reported by such Fund as capital gain dividends (“Capital Gain
Dividends”) will be taxable as long-term capital gains, which for non-corporate
shareholders are subject to tax at reduced rates of up to 20% (lower rates apply
to individuals in lower tax brackets). Distributions of short-term capital gain
will generally be taxable as ordinary income. Dividends and distributions are
generally taxable to you whether you receive them in cash or reinvest them in
additional Shares.
Distributions
reported by a Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided holding period and other requirements are met. “Qualified dividend
income” generally is income derived from dividends paid by U.S. corporations or
certain foreign corporations that are either incorporated in a U.S. possession
or eligible for tax benefits under certain U.S. income tax treaties. In
addition, dividends that 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. Certain of the Funds’
investment strategies may limit their ability to make distributions eligible for
treatment as qualified dividend income.
Corporate
shareholders may be entitled to a dividends received deduction for the portion
of dividends they receive from a Fund that are attributable to dividends
received by the Fund from U.S. corporations, subject to certain limitations.
Certain of a Fund’s investment strategies may limit their ability to distribute
dividends eligible for the dividends received deduction for
corporations.
A
RIC that receives business interest income may pass through its net business
interest income for purposes of the tax rules applicable to the interest expense
limitations under Section 163(j) of the Code. A RIC’s total “Section 163(j)
Interest Dividend” for a tax year is limited to the excess of the RIC’s business
interest income over the sum of its business interest expense and its other
deductions properly allocable to its business interest income. A RIC may, in its
discretion, designate all or a portion of ordinary dividends as Section 163(j)
Interest Dividends, which would allow the recipient shareholder to treat the
designated portion of such dividends as interest income for purposes of
determining such shareholder’s interest expense deduction limitation under
Section 163(j). This can potentially increase the amount of a shareholder’s
interest expense deductible under Section 163(j). In general, to be eligible to
treat a Section 163(j) Interest Dividend as interest income, you must have held
your shares in a Fund for more than 180 days during the 361-day period beginning
on the date that is 180 days before the date on which the share becomes
ex-dividend with respect to such dividend. Section 163(j) Interest Dividends, if
so designated by a Fund, will be reported to your financial intermediary or
otherwise in accordance with the requirements specified by the Internal Revenue
Service.
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from a 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 a Fund before your
investment (and thus were included in the Shares’ NAV when you purchased your
Shares).
You
may wish to avoid investing in a Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your
investment.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
a Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
your Shares 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. A Fund may, under certain
circumstances, report all or a portion of a dividend as an “interest-related
dividend” or a “short-term capital gain dividend,” which would generally be
exempt from this 30% U.S. withholding tax, provided certain other requirements
are met. Different tax consequences may result if you are a foreign shareholder
engaged in a trade or business within the United States or if a tax treaty
applies.
Under
legislation generally known as “FATCA” (the Foreign Account Tax Compliance Act),
a Fund is required to withhold 30% of certain U.S. source income it pays to
shareholders that are foreign entities and that fail to meet prescribed
information reporting or certification requirements.
Each
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage of the taxable distributions and sale or redemption proceeds paid to
any shareholder who fails to properly furnish a correct taxpayer identification
number, who has underreported dividend or interest income, or who fails to
certify that he, she or it is not subject to such withholding.
Taxes
When Shares are Sold on the Exchange
Provided
that a shareholder holds Shares as capital assets, any capital gain or loss
realized upon a sale or exchange of Shares generally is treated as a long-term
capital gain or loss if Shares have been held for more than one year and as a
short-term capital gain or loss if Shares have been held for one year or less.
However, any capital loss on a sale of Shares held for six months or less is
treated as long-term capital loss to the extent of Capital Gain Dividends paid
with respect to such Shares. Any loss realized on a sale will be disallowed to
the extent Shares of a Fund are acquired, including through reinvestment of
dividends, within a 61-day period beginning 30 days before and ending 30 days
after the disposition of Shares. The ability to deduct capital losses may be
limited.
The
cost basis of Shares of a Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Code. The difference between the
selling price and the cost basis of Shares generally determines the amount of
the capital gain or loss realized on the sale or exchange of Shares. Contact the
broker through whom you purchased your Shares to obtain information with respect
to the available cost basis reporting methods and elections for your
account.
Taxes
on Purchases and Redemptions of Creation Units
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The
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 their
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 the wash sales rule applies and when a loss might be
deductible.
A
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. A Fund may sell
portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause a 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, a Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
Taxation
of Fund Investments
If
positions held by a 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 a 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.
Net
Investment Income Tax
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8% tax
on all or a portion of their “net investment income,” which includes interest,
dividends, and certain capital gains (generally including capital gains
distributions and capital gains realized on the sale of Shares). This 3.8% tax
also applies to all or a portion of the undistributed net investment income of
certain shareholders that are estates and trusts.
Foreign
Investments by a Fund
Interest
and other income received by a Fund with respect to foreign securities may give
rise to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in each Fund. It is not a substitute for
personal tax advice. You also may be subject to state and local tax on Fund
distributions and sales of Shares. Consult your personal tax advisor about the
potential tax consequences of an investment in Shares
under
all applicable tax laws. For more information, please see the section entitled
“Federal Income Taxes” in the SAI.
DISTRIBUTION
PLAN
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, each Fund is authorized
to pay an amount up to 0.25% of its average daily net assets each year for
certain distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Funds, and there are no plans to
impose these fees. However, in the event Rule 12b-1 fees are charged in the
future, because the fees are paid out of Fund assets, over time these fees will
increase the cost of your investment and may cost you more than certain other
types of sales charges.
PREMIUM/DISCOUNT
INFORMATION
Information
regarding how often each Fund’s Shares traded on the Exchange at a price above
(i.e.,
at a premium) or below (i.e.,
at a discount) its NAV is available on the Funds’ website at www.stfm.com.
ADDITIONAL
NOTICES
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange is not
responsible for, nor has it participated in the determination of, the timing,
prices, or quantities of a Fund’s 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 a Fund’s Shares in connection with the
administration, marketing, or trading of the Fund’s Shares.
Without
limiting any of the foregoing, in no event shall the Exchange have any liability
for any lost profits or indirect, punitive, special, or consequential damages
even if notified of the possibility thereof.
The
Adviser and the Funds make no representation or warranty, express or implied, to
the owners of a Fund’s Shares or any member of the public regarding the
advisability of investing in securities generally or in a Fund’s Shares
particularly.
FINANCIAL
HIGHLIGHTS
The
financial highlights table below shows the financial performance information for
each Fund’s five most recent fiscal years (or the life of a Fund, if shorter).
Certain information reflects financial results for a single share of a Fund. The
total returns in the table represent the rate that you would have earned or lost
on an investment in a Fund (assuming you reinvested all distributions). This
information has been audited by Cohen & Company, Ltd., the independent
registered public accounting firm of the Funds, whose report, along with each
Fund’s financial statements, is included in the Funds’ Annual
Report,
which is available upon request.
STF
Tactical Growth & Income ETF
For
a Share Outstanding Throughout the Period
|
|
|
|
|
|
|
| |
|
Period
Ended March 31, 2023(1) |
|
Net
Asset Value, Beginning of Period |
$ |
25.00 |
| |
|
| |
Income
(Loss) from Investment operations: |
| |
Net
investment income (loss) (2) |
0.34 |
| |
Net
realized and unrealized gain (loss) |
(2.59) |
| |
Total
from investment operations |
(2.25) |
| |
|
| |
Less
distributions paid: |
| |
From
net investment income |
(0.46) |
| |
From
return of capital |
(1.57) |
| |
Total
distributions paid |
(2.03) |
| |
|
| |
Capital
share transactions: |
| |
Transaction
fees |
0.00 |
|
(7) |
|
| |
Net
Asset Value, End of Period |
$ |
20.72 |
| |
|
| |
Total
return, at NAV (3)(4) |
-8.66 |
% |
|
Total
return, at Market (3)(4) |
-8.57 |
% |
|
|
| |
Supplemental
Data and Ratios: |
| |
Net
assets, end of period (000’s) |
$ |
20,199 |
| |
|
| |
Ratio
of expenses to average net assets(5) |
0.65 |
% |
|
Ratio
of net investment income (loss) to average net assets(5) |
1.86 |
% |
|
Portfolio
turnover rate (4)(6) |
429 |
% |
|
(1)
The Fund commenced operations on May 18, 2022.
(2)
Per share net investment income (loss) was calculated using average shares
outstanding.
(3)
Total return in the table represents the rate that the investor would have
earned or lost on an investment in the Fund, assuming reinvestment of
dividends.
(4)
Not annualized for periods less than one year.
(5)
Annualized for periods less than one year.
(6)
Excludes in-kind transactions associated with creations and redemptions of the
Fund.
(7)
Less than $0.005.
STF
Tactical Growth ETF
For
a Share Outstanding Throughout the Period
|
|
|
|
|
|
|
| |
|
Period
Ended March 31, 2023(1) |
|
Net
Asset Value, Beginning of Period |
$ |
25.00 |
| |
|
| |
Income
(Loss) from Investment operations: |
| |
Net
investment income (loss) (2) |
0.34 |
| |
Net
realized and unrealized gain (loss) |
(0.26) |
| |
Total
from investment operations |
0.08 |
| |
|
| |
Less
distributions paid: |
| |
From
net investment income |
(0.34) |
| |
Total
distributions paid |
(0.34) |
| |
|
| |
Capital
share transactions: |
| |
Transaction
fees |
0.00 |
|
(7) |
|
| |
Net
Asset Value, End of Period |
$ |
24.74 |
| |
|
| |
Total
return, at NAV (3)(4) |
0.43 |
% |
|
Total
return, at Market (3)(4) |
0.20 |
% |
|
|
| |
Supplemental
Data and Ratios: |
| |
Net
assets, end of period (000’s) |
$ |
128,627 |
| |
|
| |
Ratio
of expenses to average net assets(5) |
0.65 |
% |
|
Ratio
of net investment income (loss) to average net assets(5) |
1.66 |
% |
|
Portfolio
turnover rate (4)(6) |
423 |
% |
|
(1)
The Fund commenced operations on May 18, 2022.
(2)
Per share net investment income (loss) was calculated using average shares
outstanding.
(3)
Total return in the table represents the rate that the investor would have
earned or lost on an investment in the Fund, assuming reinvestment of
dividends.
(4)
Not annualized for periods less than one year.
(5)
Annualized for periods less than one year.
(6)
Excludes in-kind transactions associated with creations and redemptions of the
Fund.
(7)
Less than $0.005.
STF
Tactical Growth & Income ETF
STF
Tactical Growth ETF
|
|
|
|
|
|
|
|
|
|
| |
Adviser |
STF
Management LP
6136
Frisco Square Boulevard, Suite 400
Frisco,
Texas 75034 |
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 |
Custodian |
U.S.
Bank National Association
1555
North Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212 |
Distributor |
Foreside
Fund Services, LLC
Three
Canal Plaza, Suite 100
Portland,
Maine 04101 |
Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
1350
Euclid Avenue, Suite 800
Cleveland,
Ohio 44115 |
Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue, NW
Washington,
DC 20004-2541 |
Investors
may find more information about the Funds in the following
documents:
Statement
of Additional Information: The
Funds’ SAI provides additional details about the investments of each Fund and
certain other additional information. The SAI is on file with the SEC and is
incorporated herein by reference into this Prospectus. It is legally considered
a part of this Prospectus.
Annual/Semi-Annual
Reports: Additional
information about each Fund’s investments is available in the Funds’ annual and
semi-annual reports to shareholders. In the annual
report,
you will find a discussion of the market conditions and investment strategies
that significantly affected each Fund’s performance.
You
can obtain free copies of these documents, request other information or make
general inquiries about a Fund by contacting the Funds at c/o U.S. Bank Global
Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701 or by calling
1-866-590-9112.
Shareholder
reports and other information about a Fund are also available:
◦Free
of charge from the SEC’s EDGAR database on the SEC’s website at www.sec.gov;
or
◦Free
of charge from the Fund’s Internet web site at www.stfm.com; or
(SEC
Investment Company Act File No. 811-23226)