ck0001540305-20221231
LHA Risk-Managed Income
ETF
(RMIF)
Listed
on Cboe BZX Exchange, Inc.
PROSPECTUS
June 6,
2023
The
U.S. Securities and Exchange Commission (“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.
LHA
Risk-Managed Income ETF
FUND
SUMMARY
Investment Objective
The LHA Risk-Managed Income
ETF (the “Fund”) seeks current income and capital preservation.
Fees and Expenses of the Fund
The
following table describes the fees and expenses 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.
|
|
|
|
| |
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment) |
|
Management
Fees |
1.10% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses1 |
0.00% |
Acquired
Fund Fees and Expenses1 |
0.17% |
Total
Annual Fund Operating Expenses |
1.27% |
1
Estimated for the current
fiscal year.
Expense 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 continue to hold or 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. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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 annual fund operating expenses or in the
Example, affect the Fund’s performance. Because the Fund is newly organized,
portfolio turnover information is not yet available.
Principal Investment Strategies
The
Fund is an actively-managed “fund of funds” and seeks to achieve its investment
objective by investing primarily in other investment companies, including other
actively managed exchange-traded funds (“ETFs”) and index-based ETFs
(collectively, “Underlying Investments”), that provide exposure to a broad range
of fixed income asset classes. The Underlying Investments may invest in
investment-grade U.S. corporate bonds, U.S. Treasury securities, floating rate
debt securities, treasury inflation-protected bonds (“TIPS”), foreign corporate
debt securities (including those of emerging markets), high yield (junk) bonds,
mortgage-backed and asset-backed securities, and preferred stocks. The Fund may
also invest in cash, cash equivalents, or money market funds.
Grimes
& Company, Inc. (“Grimes” or the “Sub-Adviser”) identifies income-producing
Underlying Investments and then uses (a) a proprietary analysis that quantifies
and evaluates each Underlying Investment’s short-term (approximately one
quarter) and long term (approximately one to two years) price change and
volatility trends (the “Price and Volatility Trend Factors”), and (b) with
consideration to the Price and Volatility Trend Factors, a discretionary
approach to selection of Underlying Investments (the “Yield Review”). The
Sub-Adviser ranks Underlying Investments with positive Price and Volatility
Trend Factors by their current yield and generally selects, for inclusion in the
Fund’s portfolio, the Underlying investments with the highest yield in the Yield
Review.
In
seeking to manage risk, during an environment of unfavorable Price and
Volatility Trend Factors, the Fund seeks capital preservation by investing in
Underlying Investments with higher quality and lower income-producing assets
(e.g.,
investment-grade bonds, TIPS, floating rate bonds, or money market instruments),
and cash or cash equivalents. Such
unfavorable
Price and Volatility Trend Factors generally occur in periods of market downturn
(e.g.,
recession, persistent inflation, war).
In
an environment of favorable Price and Volatility Trend Factors, the Fund seeks
to maximize income by investing in Underlying Investments with high
income-producing assets (e.g.,
junk bonds, preferred equities, or emerging market bonds). Such favorable Price
and Volatility Trend Factors generally occur in periods of a rising market
(e.g.,
low interest rates, economic stimulus).
The
Fund’s average weighted portfolio duration and credit quality (through its
Underlying Investments) vary over time, generally between 0-10 years, and rated
AAA-B, respectively. However, there is no limit on the weighted average duration
or the average credit rating of the Fund’s portfolio. Duration is a measure of a
fixed income security’s price sensitivity to changes in interest rates
(e.g.,
higher duration indicates greater sensitivity to interest rate changes). Credit
ratings are issued by independent third parties (e.g.,
Moody’s Investors Service, Inc.).
The
Fund may invest up to 100% of its assets in any fixed income class, or in cash
or cash equivalents, depending upon current fixed income market conditions, as
well as the Price and Volatility Trend Factors observed by the
Sub-Adviser.
Principal Risks of Investing in the Fund
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with 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 per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s Prospectus titled “Additional Information About the
Fund.”
•Active
Management Risk. The
Fund is actively managed and may not meet its investment objective based on the
Sub-Adviser’s success or failure to implement investment strategies for the
Fund.
•Capital
Controls and Sanctions Risk.
Economic conditions, such as volatile currency exchange rates and interest
rates, political events, military action and other conditions may, without prior
warning, lead to foreign government intervention (including intervention by the
U.S. government with respect to foreign governments, economic sectors, foreign
companies and related securities and interests) and the imposition of capital
controls and/or sanctions, which may also include retaliatory actions of one
government against another government, such as seizure of assets. Capital
controls and/or sanctions include the prohibition of, or restrictions on, the
ability to transfer currency, securities or other assets. Capital controls
and/or sanctions may also impact the ability of the Fund to buy, sell or
otherwise transfer securities or currency, negatively impact the value and/or
liquidity of such instruments, adversely affect the trading market and price for
Shares, and cause the Fund to decline in value.
•Cash
and Cash Equivalents Risk.
Holding cash or cash equivalents rather than securities or other instruments in
which the Fund primarily invests, even strategically, may cause the Fund to risk
losing opportunities to participate in market appreciation, and may cause the
Fund to experience potentially lower returns than the Fund’s benchmark or other
funds that remain fully invested. In rising markets, holding cash or cash
equivalents will negatively affect the Fund’s performance relative to its
benchmark.
•Currency
Exchange Rate Risk.
The Fund may invest in Underlying Investments that invest primarily in
securities denominated in non-U.S. currencies. Changes in currency exchange
rates and the relative value of non-U.S. currencies may affect the value of such
investments and the value of your Shares. Currency exchange rates can be very
volatile and can change quickly and unpredictably. As a result, the value of an
investment in the Fund may change quickly and without warning and you may lose
money.
•Emerging
Markets Risk. The
Fund’s Underlying Investments that provide exposure to securities traded in
developing or emerging markets, and individual securities with such exposure,
may involve substantial risk with respect to such securities due to limited
information; different accounting, auditing, and financial reporting standards;
a country’s dependence on revenue from particular commodities or international
aid; and expropriation, nationalization, or other adverse political or economic
developments. Political and economic structures in many emerging market
countries may be undergoing significant evolution and rapid development, and
such countries may lack the social, political and economic stability
characteristics of more developed countries. Some of these countries may have
failed to recognize private property rights in the past and, at times, have
nationalized or expropriated the assets of private companies.
•ETF
Risks.
The
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦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. 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.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant. Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, the Fund is likely to experience
premiums and discounts greater than those of domestic ETFs.
◦Trading. Although
Shares are listed for trading on Cboe BZX Exchange, Inc. (the “Exchange”) and
may be traded on U.S. exchanges other than the Exchange, there can be no
assurance that Shares will trade with any volume, or at all, on any stock
exchange. In stressed market conditions, the liquidity of Shares may begin to
mirror the liquidity of the Fund’s underlying portfolio holdings, which can be
significantly less liquid than Shares, and this could lead to differences
between the market price of the Shares and the underlying value of those Shares.
•Fixed
Income Securities Risk. The
Fund invests in Underlying Investments that invest primarily in fixed income
securities. Fixed income securities, such as bonds and certain asset-backed
securities, involve certain risks, which include:
•Call
Risk. During
periods of falling interest rates, an issuer of a callable bond held by the
Underlying Investment may “call” or repay the security prior to its stated
maturity, and the Underlying Investment may have to reinvest the proceeds at
lower interest rates, resulting in a decline in the Underlying Investment’s
income.
•Credit
Risk. Credit
risk refers to the possibility that the issuer of a security will not be able to
make payments of interest and principal when due. Changes in an issuer’s credit
rating or the market’s perception of an issuer’s creditworthiness may also
affect the value of an investment in that issuer.
•Duration
Risk. Prices
of fixed income securities with longer durations are more sensitive to interest
rate changes than those with shorter durations.
•Event
Risk. Event
risk is the risk that corporate issuers may undergo restructurings, such as
mergers, leveraged buyouts, takeovers, or similar events financed by increased
debt. As a result of the added debt, the credit quality and market value of a
company’s bonds and/or other debt securities may decline
significantly.
•Extension
Risk. When
interest rates rise, certain obligations will be paid off by the obligor more
slowly than anticipated, causing the value of these securities to
fall.
•Interest
Rate Risk. Generally,
the value of fixed income securities will change inversely with changes in
interest rates. As interest rates rise, the market value of fixed income
securities tends to decrease. Conversely, as interest rates fall, the market
value of fixed income securities tends to increase. This risk will be greater
for long-term securities than for short-term securities.
•Maturity
Risk. The
value of fixed income investments is also dependent on their maturity.
Generally, the longer the maturity of a fixed income security, the greater its
sensitivity to changes in interest rates.
•Prepayment
Risk. When
interest rates fall, certain obligations will be paid off by the obligor more
quickly than originally anticipated, and the proceeds may have to be invested in
securities with lower yields.
•Variable
and Floating Rate Instrument Risk.
Floating or variable rate securities pay interest at rates that adjust in
response to changes in a specified interest rate or reset at predetermined dates
(such as the end of a calendar quarter). Securities with floating or variable
interest rates are generally less sensitive to interest rate changes than
securities with fixed interest rates, but may decline in value if their interest
rates do not rise as much, or as quickly, as comparable market interest rates.
Although floating or variable rate securities are generally less sensitive to
interest rate risk than fixed rate securities, they are subject to credit,
liquidity and default risk and may be subject to legal or contractual
restrictions on resale, which could impair their value.
•Foreign
Securities Risk. The
Fund may invest in Underlying Investments that invest primarily in foreign
securities. Investments in foreign securities involve certain risks that may not
be present with investments in U.S. securities. For example, investments in
foreign securities may be subject to risk of loss due to foreign currency
fluctuations or to political or economic instability. Investments in foreign
securities also may be subject to withholding or other taxes and may be subject
to additional trading, settlement, custodial, and operational risks. These and
other factors can make investments in the Fund more volatile and potentially
less liquid than other types of investments. These risks may be enhanced for
securities of companies organized in emerging market nations. Foreign debt
obligations are generally determined based on the ultimate parent country of
risk which consists of the following four factors: management location, country
of primary listing, country of revenue and reporting currency of the issuer.
Debt obligations issued by a foreign entity that are subject to a guarantee of a
U.S. corporate parent or other U.S. entity are generally not regarded as foreign
securities.
•Geographic
Investment Risk.
To the extent the Fund invests a significant portion of its assets in the
securities of companies of a single country or region, it is more likely to be
impacted by events or conditions affecting that country or region.
•Government
Obligations Risk. The
Fund may invest in Underlying Investments that primarily invest in securities
issued by the U.S. or other governments. There can be no guarantee that the
United States or another country will be able to meet its payment obligations
with respect to such securities. Additionally, market prices and yields of
securities supported by the full faith and credit of the U.S. government or
other countries may decline or be negative for short or long periods of time.
•Government
Securities Risk.
The Fund may invest in Underlying Investments that invest in U.S. Treasury
obligations and securities issued or guaranteed by the U.S. Treasury. U.S.
government securities are subject to market risk, interest rate risk and credit
risk. Securities, such as those issued or guaranteed the U.S. Treasury, that are
backed by the full faith and credit of the United States are guaranteed only as
to the timely payment of interest and principal when held to maturity and the
market prices for such securities will fluctuate. Notwithstanding that these
securities are backed by the full faith and credit of the United States,
circumstances could arise that would prevent the payment of interest or
principal. This would result in losses to the Fund. Some U.S.
government-sponsored entities (“GSE”) securities may not be backed by the full
faith and credit of the U.S. government, such as those issued by Freddie Mac,
Fannie Mae, FHLBanks, and Farmer Mac. These entities are, however, supported
through federal subsidies, loans or other benefits. The Fund may also invest in
Underlying Investments that invest in GSE securities that are supported by the
full faith and credit of the U.S. Government, such as those issued by the
Government National Mortgage Association (Ginnie Mae).
•High
Portfolio Turnover Risk. The
Fund may frequently buy and sell portfolio securities and other assets to
rebalance the Fund’s exposure to specific securities. Higher portfolio turnover
may result in the Fund paying higher levels of transaction costs and generating
greater tax liabilities for shareholders. Portfolio turnover risk may cause the
Fund’s performance to be less than you expect.
•High
Yield and Unrated Securities Risk. The
Fund may invest in Underlying Investments that primarily invest in high yield
securities and unrated securities of similar credit quality (commonly known as
“junk bonds”). Although high yield securities generally pay higher rates of
interest than investment grade bonds, high yield securities are speculative,
high risk investments that may cause income and principal losses for the Fund or
its Underlying Investments and, consequently, negatively affect the value of the
Fund. High yield securities may be issued by companies that are restructuring,
are smaller and less creditworthy, or are more highly indebted than other
companies. This means that they may have more difficulty making scheduled
payments of principal and interest. Changes in the value of high yield
securities are influenced more by changes in the financial and business position
of the issuing company than by changes in interest rates when compared to
investment grade securities. Successful investment in high yield securities and
unrated
securities
of similar quality involves greater investment risk and is highly dependent on
the applicable investment adviser’s credit analysis. The Fund’s exposure to high
yield securities may subject it to a substantial degree of credit risk.
•Investment
Company Risk. The
risks of investing in other investment companies 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. The Fund may be subject to statutory limits with respect to
the amount it can invest in other ETFs, which may adversely affect the Fund’s
ability to achieve its investment objective. Investments in ETFs are subject to
the “ETF Risks” described above.
•London
Inter-bank Offered Rate (“LIBOR”) Transition Risk. The
Fund may invest in Underlying Investments that hold securities that use LIBOR as
a benchmark or reference rate for interest rate calculations. Most maturities
and currencies of LIBOR were phased out at the end of 2021, with the remaining
ones to be phased out on June 30, 2023. There remains uncertainty regarding the
nature of any replacement rate and the impact of the transition from LIBOR on
the Fund and the financial markets generally. The Secured Overnight Funding Rate
(“SOFR”) has been selected by a committee established by the Board of Governors
of the Federal Reserve System and the Federal Reserve Bank of New York to
replace LIBOR as a reference rate in the United States. Other countries have
undertaken similar initiatives to identify replacement reference rates in their
respective markets. The transition process, or the failure of an industry to
transition, could lead to increased volatility and illiquidity in markets for
instruments that currently rely on LIBOR to determine interest rates, and a
reduction in the values of some LIBOR-based investments, all of which could
impact the Fund.
•Market
Risk.
The
trading prices of Underlying Investments 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. 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.
For example, the global pandemic caused by COVID-19, a novel coronavirus, and
the aggressive responses taken by many governments, including closing borders,
restricting international and domestic travel, and the imposition of prolonged
quarantines or similar restrictions, has had negative impacts, and in many cases
severe impacts, on markets worldwide. The COVID-19 pandemic has caused prolonged
disruptions to the normal business operations of companies around the world and
the impact of such disruptions is hard to predict. Such events may affect
certain geographic regions, countries, sectors and industries more significantly
than others. Such events could adversely affect the prices and liquidity of the
Fund’s portfolio securities or other instruments and could result in disruptions
in the trading markets. As a result, an investor could lose money over short or
long periods of time.
•Mortgage-
and Asset-Backed Securities Risk. The
Fund may invest in Underlying Investments that principally invest in mortgage-
and asset-backed securities. Such securities are subject to credit, interest
rate, prepayment, and extension risks (see “Fixed Income Securities Risk”
above). These securities also are subject to risk of default on the underlying
mortgage or asset, particularly during periods of economic downturn. Small
movements in interest rates may quickly and significantly reduce the value of
certain mortgage-backed securities.
•New
Fund Risk.
The
Fund is a recently organized investment company with no operating history. As a
result, prospective investors have no track record or history on which to base
their investment decision.
•Preferred
Securities Risk.
The Fund may invest in Underlying Investments that invest in preferred stocks.
Preferred stocks are subject to the risks of equity securities generally and
also risks associated with fixed-income securities, such as interest rate risk.
A company’s preferred stock generally pays dividends only after the company
makes required payments to creditors. As a result, the value of a company’s
preferred stock will react more strongly than bonds and other debt to actual or
perceived changes in the company’s financial condition or prospects. Preferred
stock may be less liquid than many other types of securities, such as common
stock, and generally has limited or no voting rights. In addition, preferred
stock is subject to the risks that a company may defer or not pay dividends,
and, in certain situations, may call or redeem its preferred stock or convert it
to common stock.
•Temporary
Investment Risk. The
Fund may hold cash and/or invest all or a portion of its assets in short-term
obligations in response to adverse market, economic or other conditions when the
investment management team believes that it is in the best interest of the Fund
to pursue such a defensive strategy. The Sub-Adviser may, however, choose not to
make such temporary investments even in very volatile or adverse conditions. The
Fund may not achieve its
investment
objective when it holds cash or invests its assets in short-term obligations.
The Fund also may miss investment opportunities and have a lower total return
during these periods.
•TIPS
Risk.
The Fund may invest in Underlying Investments that invest in TIPS. Interest
payments on TIPS are unpredictable and will fluctuate as the principal and
corresponding interest payments are adjusted for inflation. There can be no
assurance that the Consumer Price Index (“CPI”) will accurately measure the real
rate of inflation in the prices of goods and services. In addition, TIPS are
subject to credit risk and interest rate risk.
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 will be available on the Fund’s website at www.lhafunds.com.
Management
Investment
Adviser:
Little Harbor Advisors, LLC
Investment
Sub-Adviser: Grimes
& Company, Inc.
Portfolio
Managers:
Kevin T. Grimes, CFA, CFP and Joseph Benoit, CFA, each a portfolio manager for
the Sub-Adviser, have been the Fund’s portfolio managers since the inception of
the Fund in June 2023.
Purchase
and Sale of Shares
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through brokers at market prices, rather than NAV. Because
Shares trade at market prices rather than NAV, Shares may trade at a price
greater than NAV (premium) or less than NAV (discount).
The
Fund issues and redeems 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.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.lhafunds.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an IRA
or other tax-advantaged account. Distributions on investments made through
tax-deferred arrangements may be taxed later upon withdrawal of assets from
those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
ADDITIONAL
INFORMATION ABOUT THE FUND
Investment
Objective
The
Fund’s investment objective has been adopted as a non-fundamental investment
policy and may be changed without shareholder approval upon written notice to
shareholders.
Principal
Risks of Investing in the Fund
This
section provides additional information regarding the principal risks described
in the Fund Summary. As in the Fund Summary, the principal risks below are
presented in alphabetical order to facilitate finding particular risks and
comparing them with other funds. Each risk described below is considered a
“principal risk” of investing in the Fund, regardless of the order in which it
appears. Each of the factors below could have a negative impact on the Fund’s
performance and trading prices.
•Active
Management Risk.
The Fund is actively managed and may not meet its investment objective based on
the Sub-Adviser’s success or failure to implement investment strategies for the
Fund.
•Capital
Controls and Sanctions Risk. Economic
conditions, such as volatile currency exchange rates and interest rates,
political events, military action and other conditions may, without prior
warning, lead to foreign government intervention (including intervention by the
U.S. government with respect to foreign governments, economic sectors, foreign
companies and related securities and interests) and the imposition of capital
controls and/or sanctions, which may also include retaliatory actions of one
government against another government, such as seizure of assets. Capital
controls and/or sanctions include the prohibition of, or restrictions on, the
ability to transfer currency, securities or other assets. Capital controls
and/or sanctions may also impact the ability of the Fund to buy, sell or
otherwise transfer securities or currency, negatively impact the value and/or
liquidity of such instruments, adversely affect the trading market and price for
Shares, and cause the Fund to decline in value.
•Cash
and Cash Equivalents Risk.
Holding cash or cash equivalents rather than securities or other instruments in
which the Fund primarily invests, even strategically, may cause the Fund to risk
losing opportunities to participate in market appreciation, and may cause the
Fund to experience potentially lower returns than the Fund’s benchmark or other
funds that remain fully invested. In rising markets, holding cash or cash
equivalents will negatively affect the Fund’s performance relative to its
benchmark.
•Currency
Exchange Rate Risk. The
Fund may invest in Underlying Investments that invest primarily in securities
denominated in non-U.S. currencies. Changes in currency exchange rates and the
relative value of non-U.S. currencies will affect the value of the Fund’s
investments and the value of your Shares. Because the Fund’s NAV is determined
on the basis of U.S. dollars, the U.S. dollar value of your investment in the
Fund may go down if the value of the local currency of the non-U.S. markets in
which the Fund invests depreciates against the U.S. dollar. This is true even if
the local currency value of securities in the Fund’s holdings goes up.
Conversely, the dollar value of your investment in the Fund may go up if the
value of the local currency appreciates against the U.S. dollar. The value of
the U.S. dollar measured against other currencies is influenced by a variety of
factors. These factors include: national debt levels and trade deficits, changes
in balances of payments and trade, domestic and foreign interest and inflation
rates, global or regional political, economic or financial events, monetary
policies of governments, actual or potential government intervention, and global
energy prices. Political instability, the possibility of government intervention
and restrictive or opaque business and investment policies may also reduce the
value of a country’s currency. Government monetary policies and the buying or
selling of currency by a country’s government may also influence exchange rates.
Currency exchange rates can be very volatile and can change quickly and
unpredictably. As a result, the value of an investment in the Fund may change
quickly and without warning, and you may lose money.
•Emerging
Markets Risk. The
Fund’s Underlying Investments that provide exposure to securities traded in
developing or emerging markets, and individual securities with such exposure,
may involve substantial risk with respect to such securities due to limited
information; different accounting, auditing, and financial reporting standards;
a country’s dependence on revenue from particular commodities or international
aid; and expropriation, nationalization, or other adverse political or economic
developments. Political and economic structures in many emerging market
countries may be undergoing significant evolution and rapid development, and
such countries may lack the social, political and economic stability
characteristics of more developed countries. Some of these countries may have
failed to recognize private property rights in the past and, at times, have
nationalized or expropriated the assets of private companies.
•ETF
Risks.
The
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦APs,
Market Makers, and Liquidity Providers Concentration Risk.
The Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the business or
significantly reduce their business activities and no other entities step
forward to perform their functions.
◦Cash
Redemption Risk. ETFs
generally are able to make in-kind redemptions and avoid being taxed on gain on
the distributed portfolio securities at the Fund level. Because the Fund may
effect redemptions partly or entirely in cash, rather than in-kind, it may be
required to sell portfolio securities to obtain the cash needed to distribute
redemption proceeds. If the Fund recognizes gain on these sales, this generally
will cause the Fund to recognize gain it might not otherwise have recognized, or
to recognize such gain sooner than would otherwise be required if it were to
distribute portfolio securities in-kind. The Fund generally intends to
distribute these gains to shareholders to avoid being taxed on this gain at the
Fund level and otherwise comply with the special tax rules that apply to it.
This strategy may cause shareholders to be subject to tax on gains they would
not otherwise be subject to, or at an earlier date than, if they had made an
investment in a different ETF. Moreover, cash transactions may have to be
carried out over several days if the securities market is relatively illiquid
and may involve considerable brokerage fees and taxes. These brokerage fees and
taxes, which will be higher than if the Fund sold and redeemed its shares
principally in-kind, could be imposed on the Fund and thus decrease the Fund’s
NAV to the extent they are not offset by the creation and redemption transaction
fees paid by purchasers and redeemers of Creation Units.
◦Costs
of Buying or Selling Shares.
Investors buying or selling Shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers, as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of Shares. In addition, secondary market investors will also incur the cost of
the difference between the price at which an investor is willing to buy Shares
(the “bid” price) and the price at which an investor is willing to sell Shares
(the “ask” price). This difference in bid and ask prices is often referred to as
the “spread” or “bid-ask spread.” The bid-ask spread varies over time for Shares
based on trading volume and market liquidity, and the spread is generally lower
if Shares have more trading volume and market liquidity and higher if Shares
have little trading volume and market liquidity. Further, a relatively small
investor base in the Fund, asset swings in the Fund, and/or increased market
volatility may cause increased bid-ask spreads. Due to the costs of buying or
selling Shares, including bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. Although it is expected that the market price of Shares will
approximate the Fund’s NAV, there may be times when the market price of Shares
is more than the NAV intra-day (premium) or less than the NAV intra-day
(discount) due to supply and demand of Shares or during periods of market
volatility. This risk is heightened in times of market volatility or periods of
steep market declines. The market price of Fund 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 the Fund shares. In times of severe market disruption, the bid-ask spread
can increase significantly. At those times, Fund shares are most likely to be
traded at a discount to NAV, and the discount is likely to be greatest when the
price of Fund shares is falling fastest, which may be the time that you most
want to sell your Fund shares. The Adviser believes that, under normal market
conditions, large market price discounts or premiums to NAV will not be
sustained because of arbitrage opportunities. Because securities held by the
Fund may trade on foreign exchanges that are closed when the Fund’s primary
listing exchange is open, the Fund is likely to experience premiums and
discounts greater than those of domestic ETFs.
◦Trading.
Although Shares are listed for trading on the Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange “circuit breaker”
rules, which temporarily halt trading on the Exchange when a decline in the
S&P 500®
Index during a single day reaches certain thresholds (e.g.,
7%, 13%, and 20%). Additional rules applicable to the Exchange may halt trading
in Shares when extraordinary volatility causes sudden, significant swings in the
market price of Shares. There can be no assurance
that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than Shares, and this could lead to differences between the market price of the
Shares and the underlying value of those Shares.
•Fixed
Income Securities Risk. The
Fund may invest in Underlying Investments that invest primarily in fixed income
securities. Fixed income securities, such as bonds and certain asset-backed
securities, involve certain risks, which include:
•Call
Risk. During
periods of falling interest rates, an issuer of a callable bond held by an
Underlying Investment may “call” or repay the security before its stated
maturity, and the Underlying Investment may have to reinvest the proceeds in
securities with lower yields, which would result in a decline in the Fund’s
income, or in securities with greater risks or with other less favorable
features.
•Credit
Risk. Credit
risk refers to the possibility that the issuer of a security will not be able to
make principal and interest payments when due. Changes in an issuer’s credit
rating or the market’s perception of an issuer’s creditworthiness may also
affect the value of an investment in that issuer or the Underlying Investment’s
investment in that issuer. The degree of credit risk depends on both the
financial condition of the issuer and the terms of the obligation.
•Duration
Risk. Prices
of fixed income securities with longer durations are more sensitive to interest
rate changes than those with shorter durations.
•Event
Risk. Event
risk is the risk that corporate issuers may undergo restructurings, such as
mergers, leveraged buyouts, takeovers, or similar events financed by increased
debt. As a result of the added debt, the credit quality and market value of a
company’s bonds and/or other debt securities may decline
significantly.
•Extension
Risk. When
interest rates rise, certain obligations will be paid off by the obligor more
slowly than anticipated, causing the value of these securities to fall. Rising
interest rates tend to extend the duration of securities, making them more
sensitive to future changes in interest rates. The value of longer-term
securities generally changes more in response to changes in interest rates than
the value of shorter-term securities. As a result, in a period of rising
interest rates, securities may exhibit additional volatility and may lose
value.
•Interest
Rate Risk. Generally,
the value of fixed income securities will change inversely with changes in
interest rates. As interest rates rise, the market value of fixed income
securities tends to decrease. Conversely, as interest rates fall, the market
value of fixed income securities tends to increase. This risk will be greater
for long-term securities than for short-term securities. The Underlying
Investment may take steps to attempt to reduce the exposure of its portfolio to
interest rate changes; however, there can be no guarantee that the Underlying
Investment will take such actions or that the Underlying Investment will be
successful in reducing the impact of interest rate changes on the portfolio.
Changes in government intervention may have adverse effects on investments,
volatility, and illiquidity in debt markets.
•Maturity
Risk. The
value of fixed income investments is also dependent on their maturity.
Generally, the longer the maturity of a fixed income security, the greater its
sensitivity to changes in interest rates.
•Prepayment
Risk. When
interest rates fall, certain obligations will be paid off by the obligor more
quickly than originally anticipated, and the Underlying Investment may have to
invest the proceeds in securities with lower yields. In periods of falling
interest rates, the rate of prepayments tends to increase (as does price
fluctuation) as borrowers are motivated to pay off debt and refinance at new
lower rates. During such periods, reinvestment of the prepayment proceeds by the
management team will generally be at lower rates of return than the return on
the assets that were prepaid. Prepayment reduces the yield to maturity and the
average life of the security.
•Variable
and Floating Rate Instrument Risk. Floating
or variable rate securities pay interest at rates that adjust in response to
changes in a specified interest rate or reset at predetermined dates (such as
the end of a calendar quarter). Securities with floating or variable interest
rates are generally less sensitive to interest rate changes than securities with
fixed interest rates, but may decline in value if their interest rates do not
rise as much, or as quickly, as comparable market interest rates. Conversely,
floating or variable rate securities will not generally increase in value if
interest rates decline. The impact of interest rate changes on floating or
variable rate securities is typically mitigated by the periodic interest rate
reset of the investments. Floating or variable rate securities can be rated
below investment grade or unrated; therefore, the Underlying Investment relies
heavily on the analytical ability of its adviser. Floating or variable rate
securities are often subject to restrictions on resale, which can result in
reduced liquidity.
•Foreign
Securities Risk. The
Fund may invest in Underlying Investments that invest primarily in foreign
securities. Investments in foreign securities involve certain risks that may not
be present with investments in U.S. securities. For example, investments in
foreign securities may be subject to risk of loss due to foreign currency
fluctuations or to political or economic instability. Investments in foreign
securities also may be subject to withholding or other taxes and may be subject
to additional trading, settlement, custodial, and operational risks. These and
other factors can make investments in the Fund more volatile and potentially
less liquid than other types of investments. These risks may be enhanced for
securities of companies organized in emerging market nations. Foreign debt
obligations are generally determined based on the ultimate parent country of
risk which consists of the following four factors: management location, country
of primary listing, country of revenue and reporting currency of the issuer.
Debt obligations issued by a foreign entity that are subject to a guarantee of a
U.S. corporate parent or other U.S. entity are generally not regarded as foreign
securities.
•Geographic
Investment Risk. To
the extent that the Fund invests a significant portion of its assets in the
securities of companies of a single country or region, it is more likely to be
impacted by events or conditions affecting that country or region. For example,
political and economic conditions and changes in regulatory, tax, or economic
policy in a country could significantly affect the market in that country and in
surrounding or related countries and have a negative impact on the Fund’s
performance. Currency developments or restrictions, political and social
instability, and changing economic conditions have resulted in significant
market volatility.
•Government
Obligations Risk.
The
Fund may invest in Underlying Investments that invest in securities issued,
sponsored or guaranteed by the U.S. government, its agencies and
instrumentalities. However, no assurance can be given that the U.S. government
will provide financial support to U.S. government-sponsored agencies or
instrumentalities where it is not obligated to do so by law. For instance,
securities issued by the Government National Mortgage Association (“Ginnie Mae”)
are supported by the full faith and credit of the United States. Securities
issued by Fannie Mae and Freddie Mac have historically been supported only by
the discretionary authority of the U.S. government. While the U.S. government
provides financial support to various U.S. government-sponsored agencies and
instrumentalities, such as those listed above, no assurance can be given that it
will always do so. In September 2008, at the direction of the U.S. Department of
the Treasury, Fannie Mae and Freddie Mac were placed into conservatorship under
the Federal Housing Finance Agency (“FHFA”), an independent regulator, and they
remain in such status as of the date of this Prospectus. The U.S. government
also took steps to provide additional financial support to Fannie Mae and
Freddie Mac.
The
total public debt of the United States as a percentage of gross domestic product
has grown rapidly since the beginning of the 2008–2009 financial downturn.
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 can raise concerns that the
U.S. government will not be able to make principal or interest payments when
they are due. This increase has also necessitated the need for the U.S. Congress
to negotiate adjustments to the statutory debt ceiling to increase the cap on
the amount the U.S. government is permitted to borrow to meet its existing
obligations and finance current budget deficits. In August 2011, S&P lowered
its long-term sovereign credit rating on the U.S. In explaining the downgrade at
that time, S&P cited, among other reasons, controversy over raising the
statutory debt limit and growth in public spending. An increase in national debt
levels may also necessitate the need for the U.S. Congress to negotiate
adjustments to the statutory debt ceiling to increase the cap on the amount the
U.S. Government is permitted to borrow to meet its existing obligations and
finance current budget deficits. Future downgrades could increase volatility in
domestic and foreign financial markets, result in higher interest rates, lower
prices of U.S. Treasury securities and increase the costs of different kinds of
debt. Any controversy or ongoing uncertainty regarding the statutory debt
ceiling negotiations may impact the U.S. long-term sovereign credit rating and
may cause market uncertainty. As a result, market prices and yields of
securities supported by the full faith and credit of the U.S. government may be
adversely affected.
•Government
Securities Risk.
The Fund may invest in Underlying Investments that invest in U.S. Treasury
obligations and securities issued or guaranteed by the U.S. Treasury. U.S.
government securities are subject to market risk, interest rate risk and credit
risk. Securities, such as those issued or guaranteed the U.S. Treasury, that are
backed by the full faith and credit of the United States are guaranteed only as
to the timely payment of interest and principal when held to maturity and the
market prices for such securities will fluctuate. Notwithstanding that these
securities are backed by the full faith and credit of the United States,
circumstances could arise that would prevent the payment of interest or
principal. This would result in losses to the Fund. Some U.S.
government-sponsored entities (“GSE”) securities may not be backed by the full
faith and credit of the U.S. government, such as those issued by Freddie Mac,
Fannie Mae, FHLBanks, and Farmer Mac. These entities are, however, supported
through federal subsidies, loans or other benefits.
The
Fund may also invest in Underlying Investments that invest in GSE securities
that are supported by the full faith and credit of the U.S. Government, such as
those issued by the Government National Mortgage Association (Ginnie
Mae).
•High
Portfolio Turnover Risk. The
Fund may frequently buy and sell portfolio securities and other assets to
rebalance the Fund’s exposure to specific securities. Higher portfolio turnover
may result in the Fund paying higher levels of transaction costs and generating
greater tax liabilities for shareholders. Portfolio turnover risk may cause the
Fund’s performance to be less than you expect.
•High
Yield and Unrated Securities Risk. Although
high yield securities generally pay higher rates of interest than investment
grade bonds, high yield securities are speculative, high risk investments that
may cause income and principal losses for the Fund or its Underlying Investments
and, consequently, negatively affect the value of the Fund. High yield
securities may be issued by companies that are restructuring, are smaller and
less creditworthy, or are more highly indebted than other companies. This means
that they may have more difficulty making scheduled payments of principal and
interest. Changes in the value of high yield securities are influenced more by
changes in the financial and business position of the issuing company than by
changes in interest rates when compared to investment grade securities.
Successful investment in high yield securities and unrated securities of similar
quality involves greater investment risk and is highly dependent on the
applicable investment adviser’s credit analysis. The Fund’s exposure to high
yield securities may subject it to a substantial degree of credit
risk.
Lower
grade instruments, though higher yielding, are characterized by higher risk.
They may be subject to certain risks with respect to the issuing entity and to
greater market fluctuations than certain lower yielding, higher rated
instruments. The retail secondary market for lower grade instruments may be less
liquid than that for higher rated instruments. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may also decrease the
value and liquidity of these high-yield securities. Adverse conditions could
make it difficult at times for the Fund to sell certain instruments or could
result in lower prices than those used in calculating the Fund’s NAV. Because of
the substantial risks associated with investments in lower grade instruments,
investors could lose money on their investment in the Fund, both in the
short-term and the long-term.
The
Fund’s investments in distressed and defaulted securities may be considered
speculative and involve substantial risks in addition to the risks of investing
in junk bonds. The Fund will generally not receive interest payments on the
distressed securities and the principal may also be at risk. These securities
may present a substantial risk of default or may be in default at the time of
investment, requiring the Fund to incur additional costs.
•Investment
Company Risk. The
Fund may invest in shares of investment companies, such as ETFs, that invest in
a wide range of instruments designed to track the performance of a particular
securities market index (or sector of an index) or that are actively managed.
The risks of investment in these securities typically reflect the risks of the
types of instruments in which the investment company invests. When the Fund
invests in investment company securities, shareholders of the Fund bear
indirectly their proportionate share of their fees and expenses, as well as
their share of the Fund’s fees and expenses. As a result, an investment by the
Fund in an investment company will cause the Fund’s operating expenses (taking
into account indirect expenses such as the fees and expenses of the investment
company) to be higher and, in turn, performance to be lower than if it were to
invest directly in the instruments underlying the investment company.
Additionally, there may not be an active trading market available for shares of
some ETFs. Shares of an ETF may also trade in the market at a premium or
discount to their NAV.
•LIBOR
Transition Risk. The
Fund may invest in Underlying Investments that hold securities that use LIBOR as
a benchmark or reference rate for interest rate calculations. Most maturities
and currencies of LIBOR were phased out at the end of 2021, with the remaining
ones to be phased out on June 30, 2023. There remains uncertainty regarding the
nature of any replacement rate and the impact of the transition from LIBOR on
the Fund and the financial markets generally. The Secured Overnight Funding Rate
(“SOFR”) has been selected by a committee established by the Board of Governors
of the Federal Reserve System and the Federal Reserve Bank of New York to
replace LIBOR as a reference rate in the United States. Other countries have
undertaken similar initiatives to identify replacement reference rates in their
respective markets. The transition process, or the failure of an industry to
transition, could lead to increased volatility and illiquidity in markets for
instruments that currently rely on LIBOR to determine interest rates, and a
reduction in the values of some LIBOR-based investments, all of which could
impact the Fund.
•Market
Risk. The
trading prices of the securities held by Underlying Investments 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. 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. For
example, the global pandemic caused by COVID-19, a novel coronavirus, and the
aggressive responses taken by many governments, including closing borders,
restricting international and domestic travel, and the imposition of prolonged
quarantines or similar restrictions, has had negative impacts, and in many cases
severe impacts, on markets worldwide. The COVID-19 pandemic has caused prolonged
disruptions to the normal business operations of companies around the world and
the impact of such disruptions is hard to predict. Such events may affect
certain geographic regions, countries, sectors and industries more significantly
than others. Such events could adversely affect the prices and liquidity of the
Fund’s portfolio securities or other instruments and could result in disruptions
in the trading markets. As a result, an investor could lose money over short or
long periods of time.
Beginning
in the first quarter of 2020, financial markets in the United States and around
the world experienced extreme and, in many cases, unprecedented volatility and
severe losses due to the global pandemic caused by COVID-19, a novel
coronavirus. The pandemic 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, and supply chain disruptions affecting the United
States and many other countries. Some sectors of the economy and individual
issuers have experienced particularly large losses as a result of these
disruptions, and such disruptions may continue for an extended period of time or
reoccur in the future to a similar or greater extent. In response, the U.S.
government and the Federal Reserve have taken extraordinary actions to support
the domestic economy and financial markets. Many countries, including the U.S.,
are subject to few restrictions related to the spread of COVID-19. It is unknown
how long circumstances related to the pandemic will persist, whether they will
reoccur in the future, whether efforts to support the economy and financial
markets will be successful, and what additional implications may follow from the
pandemic. The impact of these events and other epidemics or pandemics in the
future could adversely affect Fund performance.
•Mortgage-
and Asset-Backed Securities Risk. The
Fund may invest in Underlying Investments that principally invest in mortgage-
and asset-backed securities. Such securities are subject to credit, interest
rate, prepayment, and extension risks (see “Fixed Income Securities Risk”
above). These securities also are subject to risk of default on the underlying
mortgage or asset, particularly during periods of economic downturn. Small
movements in interest rates may quickly and significantly reduce the value of
certain mortgage-backed securities.
•New
Fund Risk.
The
Fund is a recently organized investment company with no operating history. As a
result, prospective investors have no track record or history on which to base
their investment decision.
•Preferred
Securities Risk. The
Fund may invest in Underlying Investments that invest in preferred stocks.
Preferred stocks are subject to the risks of equity securities generally and
also risks associated with fixed-income securities, such as interest rate risk.
A company’s preferred stock generally pays dividends only after the company
makes required payments to creditors. As a result, the value of a company’s
preferred stock will react more strongly than bonds and other debt to actual or
perceived changes in the company’s financial condition or prospects. Preferred
stock may be less liquid than many other types of securities, such as common
stock, and generally has limited or no voting rights. In addition, preferred
stock is subject to the risks that a company may defer or not pay dividends,
and, in certain situations, may call or redeem its preferred stock or convert it
to common stock. To the extent that an Underlying Investment invests a
substantial portion of its assets in convertible preferred stocks, declining
common stock values may also cause the value of the Fund’s investments to
decline.
•Temporary
Investment Risk.
The Fund may hold cash and/or invest all or a portion of its assets in
short-term obligations in response to adverse market, economic or other
conditions when the investment management team believes that it is in the best
interest of the Fund to pursue such a defensive strategy. The Sub-Adviser may,
however, choose not to make such temporary investments even in very volatile or
adverse conditions. The Fund may not achieve its investment objective when it
holds cash or invests its assets in short-term obligations. The Fund also may
miss investment opportunities and have a lower total return during these
periods.
•TIPS
Risk. The
Fund may invest in Underlying Investments that invest in TIPS. Interest payments
on TIPS are unpredictable and will fluctuate as the principal and corresponding
interest payments are adjusted for inflation. There can be no assurance that the
Consumer Price Index (“CPI”) will accurately measure the real rate of inflation
in the prices of goods and services. In addition, TIPS are subject to credit
risk and interest rate risk.
TEMPORARY
DEFENSIVE POSITIONS
From
time to time, the Fund may take temporary defensive positions that are
inconsistent with its principal investment strategies in attempting to respond
to adverse market, economic, political, or other conditions. In such
instances, the Fund may hold up to 100% of its assets in cash; short-term U.S.
government securities and government agency securities;
investment
grade money market instruments; money market mutual funds; investment grade
fixed-income securities; repurchase agreements; commercial paper; cash
equivalents; and ETFs that principally invest in the foregoing
instruments. As a result of engaging in these temporary measures, the Fund
may not achieve its investment objective.
PORTFOLIO
HOLDINGS INFORMATION
Information
about the Fund’s daily portfolio holdings is available at www.lhafunds.com. A
complete description of the Fund’s policies and procedures with respect to the
disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI.
MANAGEMENT
Investment
Adviser
Little
Harbor Advisors, LLC serves as the Fund’s investment adviser and has overall
responsibility for the general management and administration of the Fund. The
Adviser also arranges for sub-advisory, transfer agency, custody, fund
administration, and all other related services necessary for the Fund to
operate. The Adviser is located at 30 Doaks Lane, Marblehead, Massachusetts
01945, and is an SEC-registered investment adviser. The Adviser was founded in
2012 and provides discretionary investment services to a private collective
investment fund and ETFs, including the Fund.
The
Adviser provides oversight of the Fund’s Sub-Adviser, monitoring of the
Sub-Adviser’s buying and selling of securities for the Fund, and review of the
Sub-Adviser’s performance.
For
the services it provides to the Fund, the Fund pays the Adviser a unified
management fee, which is calculated daily and paid monthly, at an annual rate of
1.10% of the Fund’s average daily net assets. Under the Investment Advisory
Agreement, the Adviser has agreed to pay all expenses incurred by the Fund
except for interest charges on any borrowings, dividends and other expenses on
securities sold short, taxes, brokerage commissions and other expenses incurred
in placing orders for the purchase and sale of securities and other investment
instruments, acquired fund fees and expenses, accrued deferred tax liability,
extraordinary expenses, distribution fees and expenses paid by the Fund under
any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act, and the
unified management fee payable to the Adviser.
The
Adviser shall not be liable to the Trust or any shareholder for anything done or
omitted by it, except acts or omissions involving willful misfeasance, bad
faith, negligence or reckless disregard of the duties imposed upon it by its
agreement with the Trust or for any losses that may be sustained in the
purchase, holding, or sale of any security.
The
basis for the Board of Trustees’ approval of the Fund’s Investment Advisory
Agreement will be available in the Fund’s first Annual or Semi-Annual Report to
Shareholders.
Sub-Adviser
The
Adviser and the Fund have retained Grimes & Company, Inc. (the
“Sub-Adviser”) to serve as sub-adviser for the Fund. The Sub-Adviser is
responsible for the day-to-day management of the Fund, including the general
management of the investment and reinvestment of the assets of the Fund and
selecting broker-dealers to execute purchase and sale transactions, subject to
the supervision of the Adviser and the Fund’s Board of Trustees. The Sub-Adviser
is located at 110 Turnpike Road, Suite 100, Westborough, Massachusetts, 01581,
and is an SEC-registered investment adviser. The Sub-Adviser was founded in 1985
and provides investment advisory services to individuals, high net worth
individuals, businesses and other institutions or entities, including the
Fund.
For
its services, the Sub-Adviser is paid a fee by the Adviser, which is calculated
daily and paid monthly, at an annual rate, based on the Fund’s average daily net
assets of 0.50%.
The
basis for the Board of Trustees’ approval of the Fund’s Investment Sub-Advisory
Agreement will be available in the Fund’s first Annual or Semi-Annual Report to
Shareholders.
Portfolio
Managers
Kevin
T. Grimes, CFA, CFP, and Joseph Benoit, CFA, (together, the “Portfolio
Managers”), have joint and primary responsibility for the day-to-day management
of the Fund.
Kevin
T. Grimes, CFA, CFP, is the President and Chief Investment Officer for the
Sub-Adviser, which he joined in 1998. Prior to joining the Sub-Adviser, Mr.
Grimes was an equity trader at a large independent brokerage firm in Boston. Mr.
Grimes holds the Chartered Financial Analyst® and Certified Financial Planner™
designations. Mr. Grimes obtained a degree in Finance from Babson College, where
he mentors students and sits on the school’s endowment fund investment
committee. He also sits on Fidelity Investments’ RIA Leaders Committee as well
as the Advisory Panel for Charles Schwab Institutional.
Joseph
Benoit, CFA, specializes in bond and tactical equity investment strategies for
the Sub-Adviser, which he joined in 2006. Mr. Benoit holds the Chartered
Financial Analyst® designation and obtained a degree in Finance from the Mario
J. Gabelli School of Business at Roger Williams University. Mr. Benoit is an
active member of the CFA Society Boston.
The
Fund’s SAI provides additional information about each Portfolio Manager’s
compensation structure, other accounts that the Portfolio Managers manage, and
their ownership of Shares.
The
Sub-Adviser’s Prior Performance
The
performance information shown below represents the prior performance of the
Fund’s strategy as managed by the Portfolio Managers in separately managed
accounts with substantially the same investment objectives, policies, and
investment strategies as the Fund. The Portfolio Managers have been jointly and
primarily responsible for the management of such accounts on behalf of the
Sub-Adviser continuously since January 1, 2012 with the same degree of
discretion as they have with respect to the Fund. The performance below reflects
the asset-weighted composite of time-weighted returns for all such accounts for
which daily performance information is available (collectively, the “Risk
Managed Income Composite”).
All
returns of the Risk Managed Income Composite are presented after the deduction
of the composite fees and expenses, including investment advisory fees,
brokerage commissions, fees and expenses of underlying investments, and
execution costs paid by the composite accounts without provision for federal or
state income taxes. The performance for the Risk Managed Income Composite does
not reflect any sales loads or placement fees, as no such sales loads or
placement fees applied to the Risk Managed Income Composite accounts.
The
fees and expenses for substantially all of the separately managed accounts
included in the Risk Managed Income Composite were lower than what is estimated
for the Fund; therefore, if the composite accounts had the Fund’s estimated
expense structure, the performance results of the Risk Managed Income Composite
during that time period would have been lower.
The
separately managed accounts included in the Risk Managed Income Composite are
not registered mutual funds in the U.S. and are not subject to the same types of
expenses as the Fund or to the diversification requirements, specific tax
restrictions, and investment limitations imposed on the Fund by the 1940 Act, or
the Code, which, if applicable, may have adversely affected the performance
results of the Risk Managed Income Composite.
Investors
should be aware that the use of a methodology different from that used to
calculate the Fund’s performance could result in different performance data. The
methodology used to calculate the Risk Managed Income Composite’s performance
information differs from the SEC required methodology for the Fund. The
performance returns are calculated by the Sub-Adviser, which is qualified under
the Global Investment Performance Standard (“GIPS”), and has been verified as
such by an independent third party through December 31, 2022.
Prior
performance of the Risk Managed Income Composite is not indicative of the Fund’s
future performance.
The
performance data below is for the Risk
Managed Income Composite
and is not the performance results of the Fund.
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| Net
Monthly Total Returns of the Risk Managed Income Composite |
Annual/Period
Total Returns |
| Jan |
Feb |
Mar |
Apr |
May |
Jun |
Jul |
Aug |
Sep |
Oct |
Nov |
Dec |
Risk
Managed Income Composite |
Bond
Index(1) |
2022 |
-0.67% |
-0.35% |
-0.12% |
-0.34% |
-1.03% |
0.02% |
0.04% |
-1.84% |
-1.76% |
-0.01% |
0.29% |
0.30% |
-5.36% |
-13.01% |
2021 |
0.28% |
0.59% |
0.14% |
1.00% |
0.71% |
0.90% |
-0.10% |
0.41% |
0.12% |
-0.47% |
-0.63% |
1.00% |
4.02% |
-1.54% |
2020 |
0.74% |
-0.73% |
-0.87% |
1.40% |
1.28% |
1.20% |
3.23% |
0.76% |
-0.44% |
-0.14% |
3.49% |
1.90% |
12.36% |
7.51% |
2019 |
0.90% |
0.70% |
1.26% |
0.92% |
-0.51% |
2.13% |
0.39% |
1.24% |
0.19% |
0.11% |
0.22% |
1.55% |
9.45% |
8.71% |
2018 |
0.37% |
-0.68% |
0.30% |
0.06% |
0.01% |
-0.01% |
0.51% |
-0.28% |
0.62% |
-0.65% |
-0.50% |
-0.24% |
-0.49% |
0.01% |
2017 |
0.69% |
0.91% |
-0.08% |
0.39% |
0.65% |
-0.07% |
0.62% |
-0.13% |
0.57% |
0.08% |
-0.46% |
0.14% |
3.36% |
3.54% |
2016 |
-0.86% |
0.04% |
2.11% |
1.29% |
-0.02% |
1.31% |
1.44% |
1.65% |
0.46% |
-0.06% |
-1.17% |
1.30% |
7.70% |
2.64% |
2015 |
1.84% |
-0.05% |
-0.04% |
0.18% |
-0.12% |
-1.54% |
-0.36% |
-0.38% |
-1.59% |
1.10% |
-0.80% |
-1.40% |
-3.16% |
0.54% |
2014 |
0.43% |
1.94% |
0.25% |
0.32% |
1.01% |
0.86% |
-1.11% |
-0.04% |
-0.92% |
0.55% |
0.07% |
-1.02% |
2.33% |
5.96% |
2013 |
1.31% |
0.61% |
0.82% |
1.41% |
0.13% |
-0.81% |
-0.62% |
-0.51% |
1.08% |
1.85% |
0.39% |
0.58% |
6.39% |
-2.02% |
2012 |
2.25% |
2.02% |
0.00% |
0.68% |
-1.35% |
0.23% |
1.12% |
1.33% |
1.50% |
0.88% |
0.87% |
1.48% |
11.53% |
4.21% |
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(1) Bloomberg
U.S. Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes).
Average
Annual Total Returns
For
the Periods Ended December 31, 2022
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| 1
Year |
| 5
Year |
| 10
Year |
| Since
Inception (January 1, 2012) |
Risk
Managed Income Composite |
-5.36% |
| 3.80% |
| 3.52% |
| 4.22% |
Bloomberg
U.S. Aggregate Bond Index (reflects no deduction for fees, expenses,
or taxes) |
-13.01% |
| 0.02% |
| 1.06% |
| 1.34% |
HOW
TO BUY AND SELL SHARES
The
Fund issues and redeems Shares at NAV only in Creation Units. Only APs may
acquire Shares directly from the Fund, and only APs may tender their Shares for
redemption directly to the Fund, at NAV. APs must be a member or participant of
a clearing agency registered with the SEC and must execute a Participant
Agreement that has been agreed to by the Distributor (defined below), and that
has been accepted by the Fund’s transfer agent, with respect to purchases and
redemptions of Creation Units. Once created, Shares trade in the secondary
market in quantities less than a Creation Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Shares are listed for trading on the secondary market on the Exchange and can be
bought and sold throughout the trading day like other publicly traded
securities.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the spread between the
bid and the offer price in the secondary market on each leg of a round trip
(purchase and sale) transaction. In addition, because secondary market
transactions occur at market prices, you may pay more than NAV when you buy
Shares and receive less than NAV when you sell those Shares.
Book
Entry
Shares
are held in book-entry form, which means that no stock certificates are issued.
The Depository Trust Company (“DTC”) or its nominee is the record owner of all
outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a
beneficial
owner of Shares, you are not entitled to receive physical delivery of stock
certificates or to have Shares registered in your name, and you are not
considered a registered owner of Shares. Therefore, to exercise any right as an
owner of Shares, you must rely upon the procedures of DTC and its participants.
These procedures are the same as those that apply to any other securities that
you hold in book entry or “street name” through your brokerage account.
Frequent
Purchases and Redemptions of Shares
The
Fund imposes no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly with the Fund, are an essential part of the ETF process and help
keep Share trading prices in line with NAV. As such, the Fund accommodates
frequent purchases and redemptions by APs. However, the Board has also
determined that frequent purchases and redemptions for cash may increase
tracking error and portfolio transaction costs and may lead to the realization
of capital gains. To minimize these potential consequences of frequent purchases
and redemptions, the Fund employs fair value pricing and may impose transaction
fees on purchases and redemptions of Creation Units to cover the custodial and
other costs incurred by the Fund in effecting trades. In addition, the Fund and
the Adviser reserve the right to reject any purchase order at any
time.
Determination
of NAV
The
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (“NYSE”), generally 4:00 p.m. Eastern time, each day
the NYSE is open for business. The NAV is calculated by dividing the Fund’s net
assets by its Shares outstanding.
In
calculating its NAV, the Fund generally values its assets on the basis of market
quotations, last sale prices, or estimates of value furnished by a pricing
service or brokers who make markets in such instruments. Debt obligations with
maturities of 60 days or less are valued at amortized cost. The values of
non-U.S. dollar denominated securities are converted to U.S. dollars using
foreign currency exchange rates generally determined as of 4:00 p.m., London
time. If the foregoing information is not available for a security held by the
Fund or is determined to be unreliable, the security will be valued by the
Adviser at fair value pursuant to procedures established by the Adviser.
Fair
Value Pricing
The
Adviser has been designated by the Board as the valuation designee for the Fund
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
securities whose market prices are not “readily available” or are deemed to be
unreliable. For example, such circumstances may arise when: (i) a security has
been de-listed or has had its trading halted or suspended; (ii) a security’s
primary pricing source is unable or unwilling to provide a price; (iii) a
security’s primary trading market is closed during regular market hours; or (iv)
a security’s value is materially affected by events occurring after the close of
the security’s primary trading market. The Board has appointed the Adviser as
the Fund’s valuation designee to perform all fair valuations of the Fund’s
portfolio investments, subject to the Board’s oversight. Accordingly, the
Adviser has established procedures for its fair valuation of the Fund’s
portfolio investments. Generally, when fair valuing a security held by the 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 security, general and/or specific
market conditions and the specific facts giving rise to the need to fair value
the security. Fair value determinations are made in good faith and in accordance
with the fair value methodologies 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 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, the
Fund may not be able to obtain the fair value assigned to the security upon the
sale of such security.
Investments
by Registered Investment Companies
Section 12(d)(1)
of the 1940 Act restricts investments by registered investment companies in the
securities of other investment companies, including Shares. Although the SEC has
adopted Rule 12d1-4 under the 1940 Act permitting registered investment
companies that enter into an agreement with the Trust (“Investing Funds”) to
invest in series of the Trust beyond the limits of Section 12(d)(1) subject to
certain terms and conditions, such regulatory relief is not applicable to the
Fund. Accordingly, Investing Funds must adhere to the limits set forth in
Section 12(d)(1) when investing in the Fund.
Delivery
of Shareholder Documents – Householding
Householding
is an option available to certain investors of the Fund. 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 Fund 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
Fund intends to pay out dividends, if any, and distribute any net realized
capital gains to its shareholders at least annually. The Fund will declare and
pay capital gain distributions, if any, in cash. Distributions in cash may be
reinvested automatically in additional whole Shares only if the broker through
whom you purchased Shares makes such option available. Your broker is
responsible for distributing the income and capital gain distributions to
you.
Taxes
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax advisor
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws. This summary does not apply
to Shares held in an IRA or other tax-qualified plans, which are generally not
subject to current tax. Transactions relating to Shares held in such accounts
may, however, be taxable at some time in the future. This summary is based on
current tax laws, which may change.
The
Fund intends to elect and qualify each year for treatment as a regulated
investment company (“RIC”) under the Code. If it meets certain minimum
distribution requirements, a RIC is not subject to tax at the fund level on
income and gains from investments that are timely distributed to shareholders.
However, the Fund’s failure to qualify as a RIC or to meet minimum distribution
requirements would result (if certain relief provisions were not available) in
fund-level taxation and, consequently, a reduction in income available for
distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA, you need to be aware of the possible tax consequences
when the Fund makes distributions, when you sell your Shares listed on the
Exchange, and when you purchase or redeem Creation Units (APs only).
Taxes
on Distributions
The
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long the Fund owned the investments that generated them,
rather than how long a shareholder has owned his or her Shares. Sales of assets
held by the Fund for more than one year generally result in long-term capital
gains and losses, and sales of assets held by the Fund for one year or less
generally result in short-term capital gains and losses. Distributions of the
Fund’s net capital gain (the excess of net long-term capital gains over net
short-term capital losses) that are reported by the Fund as capital gain
dividends (“Capital Gain Dividends”) will be taxable as long-term capital gains,
which for non-corporate shareholders are subject to tax at reduced rates of up
to 20% (lower rates apply to individuals in lower tax brackets). Distributions
of short-term capital gain will generally be taxable as ordinary income.
Dividends and distributions are generally taxable to you whether you receive
them in cash or reinvest them in additional Shares.
Distributions
reported by the Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided holding period and other requirements are met. “Qualified dividend
income” generally is income derived from dividends paid by U.S. corporations or
certain foreign corporations that are either incorporated in a U.S. possession
or eligible for tax benefits under certain U.S. income tax treaties. In
addition, dividends that the Fund received in respect of stock of certain
foreign corporations may be qualified dividend income if that stock is readily
tradable on an established U.S. securities market. Dividends received by the
Fund from an ETF or an underlying fund taxable as a RIC may be treated as
qualified dividend income generally only to the extent so reported by such ETF
or underlying fund. Corporate shareholders may be entitled to a dividends
received deduction for the portion of dividends they receive from the Fund that
are attributable to dividends received by the Fund from U.S. corporations,
subject to certain limitations.
Dividends
received by the Fund from an ETF or underlying fund taxable as a RIC may be
treated as qualified dividend income generally only to the extent so reported by
such ETF or underlying fund.
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from the Fund.
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8% tax
on all or a portion of their “net investment income,” which includes interest,
dividends, and certain capital gains (generally including capital gains
distributions and capital gains realized on the sale of Shares). This 3.8% tax
also applies to all or a portion of the undistributed net investment income of
certain shareholders that are estates and trusts.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by the Fund before
your investment (and thus were included in the Shares’ NAV when you purchased
your Shares).
You
may wish to avoid investing in the Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your
investment.
If
the Fund’s distributions exceed its earnings and profits, all or a portion of
the distributions made for a taxable year may be recharacterized as a return of
capital to shareholders. A return of capital distribution will generally not be
taxable, but will reduce each shareholder’s cost basis in Shares and result in a
higher capital gain or lower capital loss when the Shares are sold. After a
shareholder’s basis in Shares has been reduced to zero, distributions in excess
of earnings and profits in respect of those Shares will be treated as gain from
the sale of the Shares.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
the Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
Shares by non-U.S. shareholders generally are not subject to U.S. taxation,
unless you are a nonresident alien individual who is physically present in the
U.S. for 183 days or more per year. The Fund may, under certain circumstances,
report all or a portion of a dividend as an “interest-related dividend” or a
“short-term capital gain dividend,” which would generally be exempt from this
30% U.S. withholding tax, provided certain other requirements are met.
Different tax consequences may result if you are a foreign shareholder engaged
in a trade or business within the United States or if a tax treaty applies.
The
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage (currently 24%) of the taxable distributions and sale proceeds paid
to any shareholder who fails to properly furnish a correct taxpayer
identification number, who has underreported dividend or interest income, or who
fails to certify that the shareholder is not subject to such withholding.
Taxes
When Shares are Sold on the Exchange
Provided
that a shareholder holds Shares as capital assets, any capital gain or loss
realized upon a sale of Shares generally is treated as a long-term capital gain
or loss if Shares have been held for more than one year and as a short-term
capital gain or loss if Shares have been held for one year or less. However, any
capital loss on a sale of Shares held for six months or less is treated as
long-term capital loss to the extent of Capital Gain Dividends paid with respect
to such Shares. Any loss realized on a sale will be disallowed to the extent
Shares of the Fund are acquired, including through reinvestment of dividends,
within a 61-day period beginning 30 days before and ending 30 days after the
disposition of Shares. The ability to deduct capital losses may be limited.
The
cost basis of Shares of the Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Code. The difference between the
selling price and the cost basis of Shares generally determines the amount of
the capital gain or loss realized on the sale or exchange of Shares. Contact the
broker through whom you purchased your Shares to obtain information with respect
to the available cost basis reporting methods and elections for your account.
Taxes
on Purchases and Redemptions of Creation Units
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered, plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The
Internal Revenue Service may assert, however, that a loss that is realized upon
an exchange of securities for Creation Units may not be currently deducted under
the rules governing “wash sales” (for an AP who does not mark-to-market its
holdings), or on the basis that there has been no significant change in economic
position. APs exchanging securities should consult their own tax advisor with
respect to whether the wash sales rule applies and when a loss might be
deductible.
The
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. The Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in-kind. As a result, the Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
Foreign
Investments by the Fund
To
the extent the Fund invests in foreign securities, it may be subject to foreign
withholding taxes with respect to dividends or interest such Fund received from
sources in foreign countries.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in the Fund. It is not a substitute for
personal tax advice. You also may be subject to state and local tax on Fund
distributions and sales of 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
The
Distributor, Quasar Distributors, LLC, a wholly-owned subsidiary of Foreside
Financial Group, LLC (d/b/a ACA Group), is a broker-dealer registered with the
SEC. The Distributor distributes Creation Units for the Fund on an agency basis
and does not maintain a secondary market in Shares. The Distributor has no role
in determining the policies of the Fund or the securities that are purchased or
sold by the Fund. The Distributor’s principal address is 111 East Kilbourn
Avenue, Suite 2200, Milwaukee, Wisconsin 53202.
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, the Fund is authorized to
pay an amount up to 0.25% of its average daily net assets each year for certain
distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Fund, and there are no plans to impose
these fees. However, in the event Rule 12b-1 fees are charged in the future,
because the fees are paid out of the Fund’s 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
When
available, information regarding how often Shares traded on the Exchange at a
price above (i.e., at
a premium) or below (i.e.,
at a discount) the NAV of the Fund will be available on the Fund’s website at
www.lhafunds.com.
ADDITIONAL
NOTICES
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange makes no
representation or warranty, express or implied, to the owners of Shares or any
member of the public regarding the ability of the Fund to achieve its objective.
The Exchange is not responsible for, nor has it participated in the
determination of, the timing, prices, or quantities of Shares to be issued, nor
in the determination or calculation of the equation by which Shares are
redeemable. The Exchange has no obligation or liability to owners of Shares in
connection with the administration, marketing, or trading of
Shares.
Without
limiting any of the foregoing, in no event shall the Exchange have any liability
for any lost profits or indirect, punitive, special, or consequential damages
even if notified of the possibility thereof.
The
Adviser, the Sub-Adviser, and the Fund make no representation or warranty,
express or implied, to the owners of Shares or any member of the public
regarding the advisability of investing in securities generally or in the Fund
particularly.
FINANCIAL
HIGHLIGHTS
The
Fund has not commenced operations prior to the date of this Prospectus and
therefore does not have financial information.
LHA
Risk-Managed Income ETF
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Adviser |
Little
Harbor Advisors, LLC
30
Doaks Lane
Marblehead,
Massachusetts 01945 |
Transfer
Agent, Fund Accountant and Fund Administrator |
U.S.
Bancorp Fund Services, LLC
d/b/a
U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Sub-Adviser |
Grimes
& Company, Inc.
110
Turnpike Road, Suite 100 Westborough, Massachusetts, 01581 |
Distributor |
Quasar
Distributors, LLC
111
East Kilbourn Avenue, Suite 2200
Milwaukee,
Wisconsin 53202 |
Custodian |
U.S.
Bank National Association
1555
N. Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212 |
Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
342
North Water Street, Suite 830
Milwaukee,
Wisconsin 53202
|
Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue, NW
Washington,
D.C. 20004-2541 |
| |
Investors
may find more information about the Fund in the following documents:
Statement
of Additional Information: The
Fund’s SAI provides additional details about the investments and techniques of
the Fund and certain other additional information. A current SAI dated June 6,
2023 is on file with the SEC and is herein incorporated by reference into this
Prospectus. It is legally considered a part of this Prospectus.
Annual/Semi-Annual
Reports: Additional
information about the Fund’s investments will be available in the Fund’s annual
and semi-annual reports to shareholders. In the annual report you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund’s performance after the first fiscal year the Fund is in
operation.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Fund by contacting the Fund at LHA Risk-Managed
Income ETF, c/o U.S. Bank Global Fund Services, P.O. Box 701, Milwaukee,
Wisconsin 53201-0701 or calling 1-800-617-0004.
Shareholder
reports and other information about the Fund are also available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
•Free
of charge from the Fund’s Internet website at www.lhafunds.com; or
(SEC
Investment Company Act File No. 811-22668