ck0001683471-20221231
PROSPECTUS
Horizon Kinetics Inflation Beneficiaries
ETF
(INFL)
Horizon Kinetics Blockchain Development
ETF (
BCDF)
Listed
on NYSE Arca, Inc.
Horizon Kinetics Medical ETF
(MEDX )
Horizon Kinetics SPAC Active ETF
(SPAQ )
Listed
on The Nasdaq Stock Market, LLC
April
30, 2023
The
U.S. Securities and Exchange Commission (the “SEC”) has not approved or
disapproved of these securities or passed upon the accuracy or adequacy of this
Prospectus. Any representation to the contrary is a criminal
offense.
TABLE
OF CONTENTS
Investment Objective
The Horizon
Kinetics Inflation Beneficiaries ETF (the “Inflation Beneficiaries ETF” or the
“Fund”) seeks long-term growth of capital in real
(inflation-adjusted) terms.
Fees and Expenses of the
Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Shareholder
Fees
(fees paid directly from your investment) |
None |
Annual
Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
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Management
Fee |
0.85% |
Distribution
and/or Service (Rule 12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.85% |
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Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. The
Example does not take into account brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1
Year: |
$87 |
3
Years: |
$271 |
5
Years: |
$471 |
10
Years: |
$1,049 |
Portfolio Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in the Total Annual Fund Operating Expenses
or in the Example, affect the Fund’s performance. For the fiscal year ended
December 31, 2022, the Fund’s portfolio turnover rate was 9.24% of the average value of its
portfolio.
Principal Investment Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that seeks to achieve
its investment objective by investing primarily in the equity securities of
domestic and foreign companies that are expected to benefit, either directly or
indirectly, from rising prices (inflation). The Fund’s investments in equity
securities are generally expected to include common stock, ownership units of
publicly traded master limited partnerships (“MLPs”), and units of royalty
trusts. The Fund’s investment in equity interests of MLPs may include both
general partnership interests and limited partnership interests of
MLPs.
Horizon
Kinetics Asset Management LLC (the “Adviser”) is the Fund’s investment adviser.
The Adviser seeks to identify companies that it believes are positioned to
benefit from inflationary pressures, such as companies whose revenues are
expected to increase with rising consumer, producer, raw material or assets
prices without a corresponding increase in expenses. Such companies may include,
for example, exploration and production companies, mining companies,
transportation companies, infrastructure and real estate companies, with an
emphasis on “asset light” businesses with royalty, streaming, rental, brokerage,
management, and leasing exposure. “Asset light” refers to companies with
relatively low working capital requirements and modest financial leverage that
maintain exposure to inflation drivers.
This
may include companies with indirect exposure to inflation drivers, such as
financial exchanges that facilitate transactions in commodity, interest rate and
currency instruments, as well as data providers that specialize in data and
analytics in industries that are sensitive to movements in interest rates and
consumer prices.
The
Fund may invest in the securities of companies that earn revenue from precious
metals or other commodities through active (i.e.,
mining or production) or passive (i.e., owning royalties or production streams)
means. Royalties are the rights of a company to receive a
percentage of the revenues generated from production of a commodity
(e.g.,
from mining precious metals). Production streams are arrangements in which a
company provides an upfront payment in exchange for the right to purchase,
typically at a fixed price determined in advance of production, all or a portion
of certain metals or other commodities produced from a
mine.
In
selecting individual securities for the Fund’s portfolio, the Adviser employs a
value-driven, “bottom-up” or fundamental approach. The Adviser’s research and
analysis leverages insights from diverse sources, including internal research,
to develop and refine its investment themes for the Fund and identify and take
advantage of trends that have ramifications for individual companies or entire
industries. The types of companies the Adviser believes are relevant to this
theme are typically those that can increase revenues without a corresponding
increase in expenses in an inflationary environment. Often such companies own,
or directly or indirectly benefit from exposure to, underlying variables that
are sensitive to inflationary pressures. The Adviser expects to sell portfolio
holdings when it determines they no longer fit the Adviser’s investment thesis
or are no longer attractively valued.
The
Fund’s portfolio generally will include the securities of approximately 20 to 60
issuers that may range from small- to large-capitalization companies. Although
the majority of the Fund’s portfolio securities are expected to be of issuers
that are either domiciled in, or earn a majority of their revenues from
activities within, the United States, the Fund also may have significant
exposure to issuers that are either domiciled in, or earn a majority of their
revenues from activities within, Australia, Canada, and Europe.
The
Fund may also have significant exposure to securities exchange companies.
The Fund is non-diversified and therefore
may invest a larger percentage of its assets in the securities of a single
issuer or lesser number of issuers than diversified funds.
Principal Investment Risks
The
principal risks of investing in the Fund are summarized below. The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with those of other funds. Each risk
summarized below is considered a “principal risk” of investing in the Fund,
regardless of the order in which it appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value (“NAV”),
trading price, yield, total return and/or ability to meet its investment
objective. The following risks could affect the value of your investment in
the Fund:
•Active
Management Risk.
The Fund is actively-managed and may not meet its investment objective based on
the Adviser’s success or failure to implement investment strategies for the
Fund. The Adviser’s evaluations and assumptions regarding investments, interest
rates, inflation, and other factors may not successfully achieve the Fund’s
investment objective given actual market conditions. The Adviser seeks to select
for the Fund equity securities of companies that it expects to benefit, either
directly or indirectly, from rising prices of real assets that are sensitive to
inflationary pressures. To the extent the Adviser’s expectations for increases
in the prices of real assets do not materialize (for example, because inflation
did not materially increase for a period of time), the Fund may underperform
other funds. Similarly, if the Adviser’s judgments about the extent to which a
company will benefit from increases in the prices of real assets prove to be
incorrect, the value of such companies, and consequently the Fund, may
decline.
•Currency
Exchange Rate Risk. The
Fund may invest in investments denominated in non-U.S. currencies or in
securities that provide exposure to such currencies. Changes in currency
exchange rates and the relative value of non-U.S. currencies will affect the
value of the Fund’s investment 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.
•Cybersecurity
Risk.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause the Fund, the Adviser and/or other
service providers (including custodians and financial intermediaries) to suffer
data breaches or data corruption. Additionally, cybersecurity failures or
breaches of the electronic systems of the Fund, the Adviser or the Fund’s other
service providers, market makers, Authorized Participants (“APs”) or the issuers
of securities in which the Fund invests have the ability to cause disruptions
and negatively impact the Fund’s business operations, potentially resulting in
financial losses to the Fund and its shareholders.
•Equity
Market Risk.
The equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, sectors or companies in which the Fund invests.
Common stocks are generally exposed to greater risk than other types of
securities, such as preferred stocks and debt obligations, because common
stockholders generally have inferior rights to receive payment from issuers.
•ETF
Risks.
The Fund is an ETF, and, as a result of its structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. Shares may trade at a material discount to NAV and
possibly face delisting if either: (i) APs exit the business or otherwise
become unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares Risk.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small
investments.
◦Shares
May Trade at Prices Other Than NAV Risk. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant. 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 or discounts greater than those of domestic ETFs.
◦Trading
Risk. Although
Shares are listed for trading on the NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than the Shares.
•Foreign
Securities Risk.
Investments in non-U.S. securities involve certain risks that may not be present
with investments in U.S. securities. For example, investments in non-U.S.
securities may be subject to risk of loss due to foreign currency fluctuations
or to political or economic instability. Investments in non-U.S. 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.
•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.
◦Australia-Specific
Risk.
Because investments in the metals and mining industry may be geographically
concentrated in Australian companies or companies that have a significant
presence in Australia, investment results could be dependent on the financial
condition of the Australian economy. Investments in Australian issuers may
subject the Fund to regulatory, political, currency, security, and economic risk
specific to Australia. The Australian economy is heavily dependent on exports
from the agricultural and mining sectors. This makes the Australian economy
susceptible to fluctuations in the commodity markets. Australia is also
dependent on trading with key trading partners.
◦Canada-Specific
Risk.
The Canadian economy is reliant on the sale of natural resources and
commodities, which can pose risks such as the fluctuation of prices and the
variability of demand for exportation of such products. Changes in spending on
Canadian products by the economies of other countries or changes in any of these
economies may cause a significant impact on the Canadian economy.
◦Europe-Specific
Risk.
The economies and markets of European countries are often closely connected and
interdependent, and events in one country in Europe can have an adverse impact
on other European countries. The Fund makes investments in securities of issuers
that are domiciled in, or have significant operations in, member countries of
the European Union (the “EU”) that are subject to economic and monetary controls
that can adversely affect the Fund’s investments. The European financial markets
have experienced volatility and adverse trends in recent years and these events
have adversely affected the exchange rate of the euro and may continue to
significantly affect other European countries. Decreasing imports or exports,
changes in governmental or EU regulations on trade, changes in the exchange rate
of the euro, the default or threat of default by an EU member country on its
sovereign debt, and/or an economic recession in an EU member country may have a
significant adverse effect on the economies of EU member countries and their
trading partners, including some or all of the European countries in which the
Fund invests.
The
UK formally exited from the EU on January 31, 2020 (known as “Brexit”) and,
following an 11-month transition period, left the EU single market and customs
union under the terms of a new trade agreement on December 31, 2020. The
agreement governs the new relationship between the United Kingdom and EU with
respect to trading goods and services, but critical aspects of the relationship
remain unresolved and subject to further negotiation and agreement. The full
scope and nature of the consequences of the exit are not at this time known, but
may include increased volatility and illiquidity, and potentially lower economic
growth of markets in the UK, Europe and globally, which may adversely affect the
value of the Fund’s investments.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing.
The securities of large-capitalization companies may be relatively mature
compared to smaller companies and therefore subject to slower growth during
times of economic expansion. Large-capitalization companies may also be unable
to respond quickly to new competitive challenges, such as changes in technology
and consumer tastes.
◦Mid-Capitalization
Investing.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large- or mid-capitalization stocks or the
stock market as a whole. There is typically less publicly available information
concerning small-capitalization companies than for larger, more established
companies.
•Market
Risk.
The trading prices of securities and other instruments fluctuate in response to
a variety of factors. These factors include events impacting the entire market
or specific market segments, such as political, market and economic
developments, as well as events that impact specific issuers. The Fund’s NAV and
market price, like security and commodity prices generally, may fluctuate
significantly in response to these and other factors. As a result, an investor
could lose money over short or long periods of time. U.S. and international
markets have experienced significant periods of volatility in recent years due
to a number of these factors, including the impact of the coronavirus (COVID-19)
pandemic and related public health issues, growth concerns in the U.S. and
overseas, uncertainties regarding interest rates, trade tensions and the threat
of tariffs imposed by the U.S. and other countries. These developments as well
as other events could result in further market volatility and negatively affect
financial asset prices, the liquidity of certain securities and the normal
operations of securities exchanges and other markets. It is unknown how long
circumstances related to the pandemic will persist, whether they will reoccur in
the future, whether efforts to support the economy and financial markets will be
successful, and what additional implications may follow from the pandemic. The
impact of these events and other epidemics or pandemics in the future could
adversely affect Fund performance.
•MLP
Risk.
MLP investment returns are enhanced during periods of declining or low interest
rates and tend to be negatively influenced when interest rates are rising. In
addition, most MLPs are leveraged investments and are subject to interest rate
risk as higher interest rates generally result in increased costs associated
with MLPs’ floating rate debt. As such, a significant upward swing in interest
rates would also drive interest expense higher. Furthermore, most MLPs grow by
acquisitions partly financed by debt, and higher interest rates could make it
more difficult to make acquisitions. MLP investments also entail many of the
general tax risks of investing in a partnership. Limited partners in an MLP
typically have limited control and limited rights to vote on matters affecting
the partnership. Additionally, there is always the risk that an MLP will fail to
qualify for favorable tax treatment.
•Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may
invest a greater percentage of its assets in the securities of a single issuer
or a lesser number of issuers than if it was a diversified fund. As a result, a
decline in the value of an investment in a single issuer or a small number of
issuers could cause the Fund’s overall value to decline to a greater degree than
if the Fund held a more diversified portfolio. This may increase the Fund’s
volatility and cause the performance of a relatively smaller number of issuers
to have a greater impact on the Fund’s performance.
•Real
Assets Risk.
The Fund’s investments in securities linked to real assets involve significant
risks, including financial, operating, and competitive risks. Investments in
securities linked to real assets expose the Fund to adverse macroeconomic
conditions, such as a rise in interest rates or a downturn in the economy in
which the asset is located.
•Royalty
Trusts Risk.
The Fund may invest in publicly traded royalty trusts. Royalty trusts are
special purpose vehicles organized as investment trusts created to make
investments in operating companies or their cash flows. A royalty trust
generally acquires an interest in natural resource companies and distributes the
income it receives to the investors of the royalty trust. A sustained decline in
demand for the royalty trust’s underlying commodity could adversely affect
income and royalty trust revenues and cash flows. Factors that could lead to a
decrease in market demand include a recession or other adverse economic
conditions, an increase in the market price of the underlying commodity, higher
taxes or other regulatory actions that increase costs, or a shift in consumer
demand for such products. A rising interest rate environment could adversely
impact the performance of royalty trusts.
•Sector
Risk.
To the extent the Fund invests more heavily in particular sectors of the
economy, its performance will be especially sensitive to developments that
significantly affect those sectors.
◦Energy
Sector Risk. The
energy sector is comprised of energy, industrial, infrastructure, and logistics
companies, and will therefore be susceptible to adverse economic, environmental,
business, regulatory, or other occurrences affecting that sector. The energy
sector has historically experienced substantial price volatility. At times, the
performance of these investments may lag the performance of other sectors or the
market as a whole. Companies operating in the energy sector are subject to
specific risks, including, among others, fluctuations in commodity prices;
reduced consumer demand for commodities such as oil, natural gas, or petroleum
products; reduced availability of natural gas or other commodities for
transporting, processing, storing, or delivering; slowdowns in new construction;
extreme weather or other natural disasters; and threats of attack by terrorists
on energy assets. Additionally, energy sector companies are subject to
substantial government regulation and changes in the regulatory environment for
energy companies may adversely impact their profitability. Over time, depletion
of natural gas reserves and other energy reserves may also affect the
profitability of energy companies.
•Securities
Exchange Companies Risk.
The Fund’s investments in securities exchange companies subject it to more risks
as compared to a fund that invests in a wider variety of companies. For
instance, various factors may significantly affect securities exchange
companies, including economic, political and geopolitical market conditions;
legislative and regulatory changes; broad trends in the industry and financial
markets; shifts in demand or supply in commodities underlying their products;
and competition.
•Tax
Risk. In order to qualify for the favorable U.S.
federal income tax treatment accorded to a regulated investment company (“RIC”)
the Fund must derive at least 90% of its gross income in each taxable year from
certain categories of income (“qualifying income”) and must satisfy certain
asset diversification requirements. Certain of the Fund’s investments, including
certain investments in royalty trusts, may generate income that is not
qualifying income. The Fund will seek to restrict its income from such
investments that do not generate qualifying income to a maximum of 10% of its
gross income (when combined with its other investments that produce
non-qualifying income) to comply with the qualifying income requirement for the
Fund to qualify as a RIC under Subchapter M of the Internal Revenue Code of
1986, (the “Code”).
Performance
The following
performance information indicates some of the risks of investing in the
Fund. The bar chart shows the Fund’s performance for the most
recent calendar year ended December 31. The table illustrates how the Fund’s
average annual returns for the 1-year and since inception periods compare with
those of a broad measure of market performance. The table also shows how the
Fund’s performance compares to a second index that provides a broad measure of
the performance of the commodities market. The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is available on the
Fund’s website at www.horizonkinetics.com/products/etf
or by calling the Fund toll-free at 1-800-617-0004.
Calendar Year Returns as of December
31
During the period shown in the
bar chart, the best performance for a
quarter was 12.96% (for the quarter ended December 31, 2022) and
the worst performance was
-13.67% (for the quarter ended June 30,
2022).
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Average Annual Total Returns (for the
Periods Ended December 31, 2022) |
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Year |
Since
Inception
1/11/21 |
Return Before
Taxes |
2.57% |
13.93% |
Return After Taxes on
Distributions |
2.14% |
13.56% |
Return After Taxes on Distributions and
Sale of Fund Shares |
1.79% |
10.74% |
MSCI
ACWI All Cap Index (reflects no deductions for
fees, expenses, or taxes) |
-18.44% |
-2.88% |
S&P
GSCI
(reflects
no deductions for fees, expenses, or
taxes) |
25.99% |
30.97% |
After-tax returns are
calculated using the historically highest individual federal marginal income tax
rates and do not reflect the impact of state and local taxes.
Actual after-tax returns
depend on an investor’s tax situation and may differ from those shown, and
after-tax returns are not relevant to investors who hold their Fund shares
through tax-deferred or other tax-advantaged arrangements such as 401(k) plans
or individual retirement accounts
(“IRAs”).
Portfolio
Management
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Adviser |
Horizon
Kinetics Asset Management LLC |
Portfolio
Managers |
Steven
Bregman, President, Peter B. Doyle, Managing Director, and James Davolos,
Portfolio Manager, have been the portfolio managers of the Fund since its
inception in January 2021 |
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. The difference in the bid and
ask prices is referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at www.horizonkinetics.com/products/etf/infl.
Tax
Information
The
Fund’s distributions are generally taxable as ordinary income, qualified
dividend income, or capital gains (or a combination), unless your investment is
in an individual retirement account (“IRA”) or other tax-advantaged account.
Distributions on investments made through tax-deferred arrangements may be taxed
later upon withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
Investment Objective
The Horizon Kinetics
Blockchain Development ETF (the “Blockchain Development ETF” or the “Fund”)
seeks long-term growth of capital.
Fees and Expenses of the Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Shareholder
Fees (fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment) |
Management
Fee |
0.85% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses* |
0.00% |
Total
Annual Fund Operating Expenses |
0.85% |
* Estimated for the current fiscal
year.
Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. The
Example does not take into account brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1
Year: |
$87 |
3
Years: |
$271 |
Portfolio Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in the Total Annual Fund Operating Expenses
or in the Example, affect the Fund’s performance. For the fiscal period August
1, 2022 (commencement of operations) through December 31, 2022, the Fund’s
portfolio turnover rate was 5.12% of the average value of its
portfolio.
Principal Investment Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that will invest
primarily in equity securities of listed domestic and foreign Blockchain
Development Companies (as the term is defined below), American Depository
Receipts (“ADRs”) and Global Depository Receipts (“GDRs”), that Horizon Kinetics
Asset Management LLC, the Fund’s investment adviser (the “Adviser”), expects to
benefit, either directly or indirectly, from the use of blockchain technology in
connection with the issuance, facilitation, custody, trading and administration
of digital assets, including cryptocurrencies. A blockchain is a peer-to-peer
ledger of immutable transactions consolidated into digital “blocks” of data; the
“blocks” are cryptographically linked consecutively into a chronological
“chain,” meaning that each new block references the transactions in the previous
block of data. The Fund defines “digital assets” as digital (i.e.,
non-tangible) representations of various assets (e.g.,
goods, resources, objects) and defines “cryptocurrency” (also referred to as
“virtual currency” and “digital currency”) as digital assets designed to act as
a medium of exchange. The
Fund does not invest directly in cryptocurrencies or initial coin offerings and
as a result, its performance does not seek to, and should not be expected to,
correspond to the performance of any particular cryptocurrency.
Blockchain
Development Companies may include companies that (i) verify and add digital
asset transactions to a blockchain ledger (i.e.,
digital asset mining), or that produce technology used in digital asset mining,
(ii) operate trading platforms/exchanges, asset managers, custodians, wallets,
and/or payment gateways or processors for digital assets issued on a blockchain,
(iii) develop and distribute applications and software services related to
blockchain technology and digital assets issued on a blockchain, including smart
contracts, (iv) manufacture and distribute infrastructure and/or hardware used
for blockchain activities and digital assets issued on a blockchain, or (v)
provide engineering and consulting services for the adoption and utilization of
blockchain technology and digital assets issued on a blockchain.
In
selecting individual securities for the Fund’s portfolio, the Adviser employs a
value-driven, “bottom-up” or fundamental approach. The Adviser’s research and
analysis leverages insights from diverse sources, including internal research,
to develop and refine its investment themes for the Fund and identify and take
advantage of trends that are expected to benefit individual companies or broader
sub-industries.
The Adviser expects to sell portfolio holdings when it determines that they no
longer fit the Adviser’s investment thesis and/or are no longer attractively
valued.
The
Fund’s portfolio generally will include the securities of approximately 20 to 50
issuers, and those issuers may represent any combination of small-, mid-, or
large-capitalization companies at any point in time. The Fund may invest in
issuers in developed, emerging markets, and frontier markets. Frontier markets
and emerging market countries are those countries with low- and middle-income
economies, respectively, as classified by the World Bank, or included in any of
the Morgan Stanley Capital International (MSCI) frontier markets or emerging
markets indices.
Under normal circumstances, the Fund
invests at least 80% of its net assets, plus borrowings for investment purposes,
in Blockchain Development Companies. A Blockchain Development
Company means a company that has (i) publicly disclosed its commitment to the
development and use of blockchain technologies, (ii) organized a separate
identifiable business line or legal entity for the purpose of developing and
using blockchain technologies, or (iii) been defined by one or more published
indices or classified by one or more industry classification schemes as a
blockchain company.
The
Fund also may invest in the securities of issuers the Adviser believes are
actively engaged in the development and use of blockchain technologies, but
which do not meet the criteria specified above in the Fund’s definition of
Blockchain Development Companies, and anticipates investing in cash and cash
equivalents on a day-to-day basis.
The
Fund is non-diversified and therefore may invest a larger percentage of its
assets in the securities of a single issuer or smaller number of issuers than
diversified funds. The Fund expects to concentrate its investments in issuers in
the Capital Markets Industry within the Financials Sector, as classified by the
Global Industry Classification Standard (GICS®).
Principal Investment
Risks
The
principal risks of investing in the Fund are summarized below. The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with those of other funds. Each risk
summarized below is considered a “principal risk” of investing in the Fund,
regardless of the order in which it appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value (“NAV”),
trading price, yield, total return and/or ability to meet its investment
objective. The following risks could affect the value of your investment in
the Fund:
•Associated
Risk of Investing in Blockchain Development Companies. The
Fund will invest in Blockchain Development Companies. At times, Blockchain
Development Companies may be out of favor and underperform other industries or
groups of industries or the market as a whole. In such event, the value of the
Shares may rise and fall more than the value of shares of a fund that invests in
securities of companies in a broader range of industries. An investment in a
Blockchain Development Company may be subject to the following
risks:
◦Risk
that Blockchain Technology is New and Many of its Uses May be
Untested.
The mechanics of using blockchain technology to transact in digital or other
types of assets, such as securities or derivatives, is relatively new and
untested. There is no assurance that widespread adoption will occur. A lack of
expansion in the usage of blockchain technology could adversely affect
Blockchain Development Companies.
◦Theft,
Loss or Destruction Risk.
Transacting on a blockchain depends in part specifically on the use of
cryptographic keys that are required to access a user’s account (or “wallet”).
The theft, loss, or destruction of these keys could adversely affect a user’s
ownership claims over an asset or a company’s business or operations if it was
dependent on the blockchain.
◦Competing
Platforms, Technologies, and Patents Risk.
The development and acceptance of competing platforms or technologies may cause
consumers or investors to use an alternative to blockchains. Further, if one or
more other persons, companies or organizations has or obtains a valid patent
covering technology critical to the operation of one or more of a Blockchain
Development Company’s business lines, there can be no guarantee that such an
entity would be willing to license such technology at acceptable prices or at
all, which could have a material adverse effect on the Blockchain Development
Company’s business, financial condition and results of operations.
◦Cybersecurity
Incidents Risk.
Cybersecurity incidents may compromise an issuer, its operations, or its
business. Cybersecurity incidents may also specifically target a user’s
transaction history, digital assets, or identity, thereby leading to privacy
concerns. In addition, certain features of blockchain technology, such as
decentralization, open source protocol, and reliance on peer-to-peer
connectivity, may increase the risk of fraud or cyber-attack by potentially
reducing the likelihood of a coordinated response. Additionally, blockchain
functionality relies on the Internet. A significant disruption of Internet
connectivity affecting large numbers of users or geographic areas could impede
the functionality of blockchain technologies.
◦Emerging
Technologies Investment Risk.
The Fund invests primarily to gain exposure to the emerging technologies and
related activities in the blockchain and digital assets ecosystems. Companies
across a wide variety of industries, primarily in the technology, finance, and
entertainment sectors, are exploring the possible applications of these
technologies. Blockchain technology may never develop an optimization process
that may lead to increased economic returns from which the Fund seeks to
benefit. The extent of such technologies’ versatility has not yet been fully
explored. Consequently, the Fund’s
holdings
may include equity securities of operating companies that have exposure to a
wide variety of industries, and the economic fortunes of certain companies held
by the Fund may be significantly tied to such industries. Currently, there are
few public companies for which these emerging technologies represent an
attributable and significant revenue or profit stream, and such technologies may
not ultimately have a material effect on the economic returns of companies in
which the Fund invests.
◦Financial
Technology Risk.
Companies that are developing financial technologies that seek to disrupt or
displace established financial institutions generally face competition from much
larger and more established firms. Such companies may not be able to capitalize
on their disruptive technologies if they face political and/or legal attacks
from competitors, industry groups or local and national governments. Laws
generally vary by country, creating some challenges to achieving scale. A
financial technology company may not currently derive any revenue, and there is
no assurance that such company will derive any revenue from innovative
technologies in the future. Additionally, financial technology companies may be
adversely impacted by potential rapid product obsolescence, cybersecurity
attacks, increased regulatory oversight and disruptions in the technology they
depend on.
◦Key
Personnel Risk.
Blockchain Development Companies rely on highly skilled financial service
professionals and software engineers. Because of competition from other firms,
Blockchain Development Companies may face difficulties in recruiting and
retaining professionals of a caliber consistent with their business strategy in
the future. The inability to successfully identify and retain qualified
professionals could materially and adversely affect the growth, operations, or
financial condition of the company.
◦Lack
of Liquid Markets, and Possible Manipulation of Blockchain-Based Assets Risk.
Digital
assets that are represented and trade on a blockchain may not necessarily
benefit from viable trading markets. Stock exchanges have listing requirements
and vet issuers, and perhaps users. These conditions may not necessarily be
replicated on a blockchain, depending on the platform’s controls and other
policies. The more lenient a blockchain is about vetting issuers of digital
assets or users that transact on the platform, the higher the potential risk for
fraud or the manipulation of digital assets. These factors may decrease
liquidity or volume, or increase volatility of digital securities or other
assets trading on a blockchain.
◦Lack
of Regulation Risk.
Digital assets and their associated platforms are largely unregulated, and the
regulatory environment is rapidly evolving. Because blockchain technology works
by having every transaction build on every other transaction, participants can
self-police any corruption, which can mitigate the need to depend on the current
level of legal or government safeguards to monitor and control the flow of
business transactions. As a result, companies engaged in such blockchain
activities may be exposed to adverse regulatory action, fraudulent activity, or
even failure. There can be no guarantee that future regulation of blockchain
technology will not have a negative impact on the value of such technologies and
of the companies in the which the Fund invests.
◦Network
Amendment Risk.
Significant contributors to any cryptocurrency network could propose amendments
to the respective network’s protocols and software that, if accepted and
authorized by such network, could adversely affect a Blockchain Development
Company. For example, with respect to the bitcoin network, a small group of
individuals contribute to the bitcoin network’s source code. Those individuals
can propose refinements or improvements to the bitcoin network’s source code
through one or more software upgrades that alter the protocols and software that
govern the bitcoin network and the properties of bitcoin, including the
irreversibility of transactions and limitations on the mining of new bitcoin. To
the extent that a significant majority of the users and miners on the bitcoin
network install such software upgrade(s), the bitcoin network would be subject
to new protocols and software that may adversely affect Blockchain Development
Companies.
◦Non-Fungible
Tokens Ecosystem Company Risk.
Non-fungible tokens (“NFTs”) act like a certificate of authenticity for a
digital record. NFTs may be purchased, sold, or held as an original digital
collectible for items such as digital art, music, videos, or other electronic
content. The value of a NFT may decline for short or long periods of time and
may be volatile due to factors such as the desirability of the particular NFT,
the availability of other similar NFTs, the accessibility of the blockchain used
by the NFT, and general risks applicable to Blockchain Development Companies.
Volatility in the value of NFTs may have a material adverse effect on a
Blockchain Development Company’s business, financial condition, and results of
operation. The NFT ecosystem includes those companies that either (i) currently
operate services for the issuance, creation, and commercialization of NFTs
and/or (ii) invest in or fund, or will invest in or fund, internal or external
projects targeting the issuance, creation, and commercialization of NFTs that
are of material importance to such company.
◦Third
Party Product Defects or Vulnerabilities Risk.
Where blockchain systems are built using third party products, those products
may contain technical defects or vulnerabilities beyond a company’s control.
Open-source technologies that are used to build a blockchain application may
also introduce defects and vulnerabilities.
◦Reliance
on Cryptocurrency Risk.
Certain Blockchain Development Companies may rely on the success of the digital
currency industry, the development and acceptance of which is subject to a
variety of factors that are difficult to evaluate. Though there are many
applications of blockchain technology outside of the digital currency industry,
digital currencies remain a key driver of interest in blockchain technology.
Cryptocurrency is an emerging asset class. There are thousands of
cryptocurrencies, the most well-known of which is bitcoin. Cryptocurrency
generally operates without a central authority
(such
as a bank) and is not backed by any government. Cryptocurrency is not legal
tender. Federal, state and/or foreign governments may restrict the use and
exchange of cryptocurrency, and regulation in the United States is still
developing. The market price of bitcoin has been subject to extreme
fluctuations. Similar to fiat currencies (i.e.,
a currency that is backed by a central bank or a national, supra-national or
quasi-national organization), cryptocurrencies are susceptible to theft, loss,
and destruction. Cryptocurrency exchanges and other trading venues on which
cryptocurrencies trade are relatively new and, in most cases, largely
unregulated and may therefore be more exposed to fraud and failure than
established, regulated exchanges for securities, derivatives and other
currencies. Cryptocurrency exchanges may stop operating or permanently shut down
due to fraud, technical glitches, hackers, or malware, which may also affect
volatility.
◦Exposure
to Cryptocurrency Risk.
The Fund may have exposure to cryptocurrencies indirectly through investment in
individual Blockchain Development Companies that have either direct or indirect
exposure to cryptocurrencies, including cryptocurrencies other than bitcoin. To
date, cryptocurrency markets have experienced extreme fluctuations and generally
are characterized by significant volatility. The prices of cryptocurrencies
could fall sharply (potentially to zero) for various reasons, including, but not
limited to, regulatory changes, issues impacting the distributed ledger
networks, events involving entities that facilitate transactions in
cryptocurrency, or changes in user preferences in favor of alternative
cryptocurrencies. Cryptocurrency exchanges and other trading venues on which
cryptocurrencies trade are relatively new and, in most cases, largely
unregulated. As a result, the prices of cryptocurrencies on exchanges may be
subject to greater volatility than traditional assets traded on regulated
exchanges. Cryptocurrency exchanges and other trading venues also may be more
vulnerable to fraud and failure, including financial failure due to extreme
market volatility, than established, regulated exchanges for securities,
derivatives and other currencies. The Fund’s investments in Blockchain
Development Companies with significant direct and indirect exposure to
cryptocurrencies expose the Fund to all of the risks related to cryptocurrencies
described above in addition to the risks related to the Blockchain Development
Companies. Cryptocurrency volatility may have a material adverse effect on a
Blockchain Development Company’s business, financial condition, and results of
operation.
◦Line
of Business Risk.
Some Blockchain Development Companies are engaged in other lines of business
unrelated to blockchain and these lines of business could adversely affect their
operating results. The operating results of these companies may fluctuate as a
result of these additional risks and events in the other lines of business. In
addition, a company’s ability to engage in new activities may expose it to
business risks with which it has less experience than it has with the business
risks associated with its traditional businesses. Despite a company’s possible
success in activities linked to its use of blockchain, there can be no assurance
that the other lines of business in which these companies are engaged will not
have an adverse effect on a company’s business or financial
condition.
•Concentration
Risk.
The Fund expects to have concentrated (i.e.,
invest more than 25% of its net assets) investment exposure to companies in the
Capital Markets Industry, an industry within the Financials Sector. As a result,
the Fund is more vulnerable to adverse market, economic, regulatory, political
or other developments affecting the Capital Markets Industry than a fund that
invests its assets in a more diversified manner.
Global
financial markets and economic conditions have been, and may continue to be,
volatile due to a variety of factors, including significant write-offs in the
Financials Sector. In particular, concerns about the general stability of
financial markets and specifically the solvency of lending counterparties, may
impact the cost of raising capital from the credit markets through increased
interest rates, tighter lending standards, difficulties in refinancing debt on
existing terms or at all and reduced, or in some cases ceasing to provide,
funding to borrowers.
•Currency
Exchange Rate Risk.
The Fund may invest a relatively large percentage of its assets in investments
denominated in non-U.S. currencies or in securities that provide exposure to
such currencies. Changes in currency exchange rates and the relative value of
non-U.S. currencies will affect the value of the Fund’s investment 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.
•Cybersecurity
Risk.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause the Fund, the Adviser, the
Sub-Adviser and/or other service providers (including custodians and financial
intermediaries) to suffer data breaches or data corruption. Additionally,
cybersecurity failures or breaches of the electronic systems of the Fund, the
Adviser, the Sub-Adviser or the Fund’s other service providers, market makers,
Authorized Participants (“APs”), the Fund’s primary listing exchange, or the
issuers of securities in which the Fund invests have the ability to disrupt and
negatively affect the Fund’s business operations, including the ability to
purchase and sell Shares, potentially resulting in financial losses to the Fund
and its shareholders.
•Depositary
Receipt Risk. Depositary
Receipts involve risks similar to those associated with investments in foreign
securities, such as changes in political or economic conditions of other
countries and changes in the exchange rates of foreign currencies. Depositary
Receipts listed on U.S. exchanges are issued by banks or trust companies and
entitle the holder to all dividends and capital gains that are paid out on the
underlying foreign shares (“Underlying Shares”). When the Fund invests in
Depositary Receipts as a substitute for an investment directly in the Underlying
Shares, the Fund is exposed to the risk that the Depositary Receipts may not
provide a return that corresponds precisely with that of the Underlying Shares.
•Emerging
Markets Risk.
The Fund may invest in companies organized in emerging market nations.
Investments in securities and instruments traded in developing or emerging
markets, or that provide exposure to such securities or markets, can involve
additional risks relating to political, economic, or regulatory conditions not
associated with investments in U.S. securities and instruments or investments in
more developed international markets. Such conditions may impact the ability of
the Fund to buy, sell or otherwise transfer securities, adversely affect the
trading market and price for Shares and cause the Fund to decline in value.
•Equity
Market Risk. The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, sectors or companies in which the Fund invests.
Common stocks are generally exposed to greater risk than other types of
securities, such as preferred stocks and debt obligations, because common
stockholders generally have inferior rights to receive payment from issuers.
•ETF
Risks.
The Fund is an ETF and, as a result of its structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. Shares may trade at a material discount to NAV and
possibly face delisting if either: (i) APs exit the business or otherwise
become unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares Risk.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV Risk. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant. 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 or discounts greater than those of domestic ETFs.
◦Trading
Risk. Although
Shares are listed for trading on the NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than the Shares.
•Foreign
Securities Risk.
Investments in non-U.S. securities involve certain risks that may not be present
with investments in U.S. securities. For example, investments in non-U.S.
securities may be subject to risk of loss due to foreign currency fluctuations
or to political or economic instability. There may be less information publicly
available about a non-U.S. issuer than a U.S. issuer. Non-U.S. issuers may be
subject to different accounting, auditing, financial reporting and investor
protection standards than U.S. issuers. Investments in non-U.S. securities may
be subject to withholding or other taxes and may be subject to additional
trading, settlement, custodial, and operational risks. With respect to certain
countries, there is the possibility of government intervention and expropriation
or nationalization of assets. Because legal systems differ, there is also the
possibility that it will be difficult to obtain or enforce legal judgments in
certain countries. Since foreign exchanges may be open on days when the Fund
does not price its Shares, the value of the securities in the Fund’s portfolio
may change on days when shareholders will not be able to purchase or sell the
Shares. Conversely, Shares may trade on days when foreign exchanges are closed.
Each of these factors can make investments in the Fund more volatile and
potentially less liquid than other types of investments.
•Frontier
Markets Risk. Certain
foreign markets are only in the earliest stages of development and may be
considered “frontier markets.” Frontier financial markets generally are less
liquid and more volatile than other markets, including markets in developing and
emerging economies. Securities may have limited marketability and be subject to
erratic price movements. Frontier markets may be impacted by political
instability, war, terrorist activities and religious, ethnic and/or
socioeconomic unrest. These and other factors make investing in frontier market
countries significantly riskier than investing in developed market or emerging
market countries.
•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.
◦Risks
of Investing in Canada.
The Fund may have significant exposure to issuers operating and/or organized in
Canada, and, as a result, investment results could be dependent on the financial
condition of the Canadian economy. The Canadian economy is reliant on the sale
of natural resources and commodities, which can pose risks such as the
fluctuation of prices and the variability of demand for exportation of such
products. Changes in spending on Canadian products by the economies of other
countries or changes in any of these economies may cause a significant impact on
the Canadian economy.
•Limited
Operating History Risk. The
Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•Management
Risk. The
Fund is actively managed and its ability to achieve its investment objective is
dependent on the Adviser’s successful implementation of the Fund’s investment
strategies. The Adviser’s evaluations and assumptions regarding issuers,
securities, and other factors may not successfully achieve the Fund’s investment
objective given actual market conditions.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
these factors, including the impact of the COVID-19 pandemic and related public
health issues, growth concerns in the U.S. and overseas, uncertainties regarding
interest rates, trade tensions and the threat of tariffs imposed by the U.S. and
other countries. In addition, local, regional or global events such as war,
including Russia’s invasion of Ukraine, acts of terrorism, spread of infectious
diseases or other public health issues, recessions, rising inflation, or other
events could have a significant negative impact on the Fund and its investments.
These developments as well as other events could result in further market
volatility and negatively affect financial asset prices, the liquidity of
certain securities and the normal operations of securities exchanges and other
markets. It is unknown how long circumstances related to the COVID-19 pandemic
will persist, whether they will reoccur in the future, whether efforts to
support the economy and financial markets will be successful, and what
additional implications may follow from the pandemic. The impact of these events
and other epidemics or pandemics in the future could adversely affect Fund
performance.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing Risk.
The securities of large-capitalization companies may be relatively mature
compared to smaller companies and, therefore, subject to slower growth during
times of economic expansion. Large-capitalization companies also may be unable
to respond quickly to new competitive challenges, such as changes in technology
and consumer tastes.
◦Mid-Capitalization
Investing Risk.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large-capitalization stocks or the stock market
as a whole.
◦Small-Capitalization
Investing Risk.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large- or mid-capitalization stocks or the
stock market as a whole. There is typically less publicly available information
concerning smaller-capitalization companies than for larger, more established
companies.
•Non-Diversification
Risk. The Fund is considered to be non-diversified,
which means that it may invest more of its assets in the securities of a single
issuer or a smaller number of issuers than if it were a diversified fund. As a
result, the Fund may be more exposed to the risks associated with and
developments affecting an individual issuer or a smaller number of issuers than
a fund that invests more widely. This may increase the Fund’s volatility and
cause the performance of a relatively smaller number of issuers to have a
greater impact on the Fund’s performance.
•Sector
Risk. To
the extent the Fund invests more heavily in particular sectors of the economy,
its performance will be especially sensitive to developments that significantly
affect those sectors. The Fund may invest a significant portion of its assets in
the following sectors and, therefore, the performance of the Fund could be
negatively impacted by events affecting each of these sectors.
◦Communication
Services Sector Risk. Market
or economic factors impacting communication services companies and companies
that rely heavily on technological advances could have a major effect on the
value of the Fund’s investments. The value of stocks of communication services
companies and companies that rely heavily on technology is particularly
vulnerable to research and development costs, substantial capital requirements,
product and services obsolescence,
government
regulation, and domestic and international competition, including competition
from foreign competitors with lower production costs. Stocks of communication
services companies and companies that rely heavily on technology, especially
those of smaller, less-seasoned companies, tend to be more volatile than the
overall market. Additionally, companies in the communication services sector may
face dramatic and often unpredictable changes in growth rates and competition
for the services of qualified personnel. While all companies may be susceptible
to network security breaches, certain companies in the communication services
sector may be particular targets of hacking and potential theft of proprietary
or consumer information or disruptions in service, which could have a material
adverse effect on their businesses.
◦Financials
Sector Risk.
Performance of companies in the Financials Sector may be adversely impacted by
many factors, including, among others, government regulations, economic
conditions, credit rating downgrades, changes in interest rates, and decreased
liquidity in credit markets. This sector has experienced significant losses in
the recent past, and the impact of more stringent capital requirements and of
recent or future regulation on any individual financial company or on the sector
as a whole cannot be predicted.
◦Information
Technology Sector Risk. Market
or economic factors impacting information technology companies and companies
that rely heavily on technological advances could have a significant effect on
the value of the Fund’s investments. The value of stocks of information
technology companies and companies that rely heavily on technology is
particularly vulnerable to rapid changes in technology product cycles, rapid
product obsolescence, government regulation and competition, both domestically
and internationally, including competition from foreign competitors with lower
production costs. Stocks of information technology companies and companies that
rely heavily on technology, especially those of smaller, less-seasoned
companies, tend to be more volatile than the overall market. Information
technology companies are heavily dependent on patent and intellectual property
rights, the loss or impairment of which may adversely affect
profitability.
Performance
Performance information for the Fund is not
included because the Fund did not have a full calendar year of performance prior
to the date of this Prospectus. In the future, performance
information for the Fund will be presented in this section. Updated performance
information is available on the Fund’s website at www.horizonkinetics.com/products/etf/BCDF.
Portfolio
Management
|
|
|
|
| |
Adviser |
Horizon
Kinetics Asset Management LLC |
Portfolio
Managers |
Murray
Stahl, Chairman and Chief Investment Strategist, Steven Bregman,
President, Peter B. Doyle, Managing Director, James Davolos, Portfolio
Manager, and Brandon Colavita, Vice President, have been the portfolio
managers of the Fund since its inception in August,
2022 |
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. The difference in the bid and
ask prices is referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at www.horizonkinetics.com/products/etf/BCDF.
Tax
Information
The
Fund’s distributions are generally taxable as ordinary income, qualified
dividend income, or capital gains (or a combination), unless your investment is
in an individual retirement account (“IRA”) or other tax-advantaged account.
Distributions on investments made through tax-deferred arrangements may be taxed
later upon withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest
by influencing the Intermediary and your salesperson to recommend the Fund over
another investment. Any such arrangements do not result in increased Fund
expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
Investment Objective
Horizon Kinetics Medical ETF
(“Medical ETF” or the “Fund”) seeks to provide long-term growth of
capital.
Fees and Expenses of the Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
|
|
|
|
| |
|
Shareholder
Fees
(fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
Management
Fee |
0.85% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses* |
0.85% |
|
*
Restated to reflect the
Fund’s current unified management fee as if it had been in effect during the
previous fiscal year.
Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. The
Example does not take into account brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1
Year: |
$87 |
3
Years: |
$271 |
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Portfolio Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in the Total Annual Fund Operating Expenses
or in the Example, affect the Fund’s performance. For the fiscal year ended
December 31, 2022, the Predecessor Fund’s (defined below) portfolio turnover
rate was 1% of the average value of its
portfolio.
Principal Investment Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that pursues its
investment objective by investing, under normal circumstances, at least 80% of
its net assets plus any borrowings for investment purposes in common stocks,
convertible securities, warrants and other equity securities having the
characteristics of common stocks (such as American Depositary Receipts (“ADRs”),
Global Depositary Receipts (“GDRs”) and International Depositary Receipts
(“IDRs”)) of U.S. and foreign companies engaged in medical research,
pharmaceutical and medical technology industries and related technology
industries, generally, with an emphasis toward companies engaged in cancer
research and drug development, such as pharmaceutical development companies,
surgical and medical instrument manufacturers and developers, pharmaceutical
manufacturers, and biotech and medical research companies. These types of
companies derive at least 50% of their revenue from such activities. The Fund
also may invest in other ETFs and purchase and write options for hedging
purposes and/or direct investment.
The
Fund may invest up to 20% of its total assets in convertible and non-convertible
debt securities rated below investment grade, also known as junk bonds, or
unrated securities that Horizon Kinetics Asset Management LLC, the Fund’s
investment adviser (the “Adviser”), has determined to be of comparable quality.
The
Adviser selects portfolio securities by evaluating a company’s positioning and
the resources that it currently expends on research and development, looking for
a significant percentage, or large amount, of capital invested into research and
treatment of cancer and other diseases. The Adviser also considers a company’s
fundamentals by reviewing its balance sheets, corporate revenues, earnings and
dividends. The Adviser also considers at the amount of capital a company spends
on research and development because the Adviser believes that such expenditures
frequently have significant bearing on future growth. The Fund may invest in
companies of any size, including small and medium-size companies. Additionally,
the Fund may participate in securities lending arrangements up to 33 1/3% of the
securities in its portfolio with brokers, dealers, and financial institutions
(but not individuals) to seek to increase the return on its
portfolio.
Decisions
to sell the Fund’s portfolio holdings are generally triggered by either adequate
value being achieved, as determined by the Adviser, or an adverse change in a
company’s operating performance or a deterioration of the company’s business
model. A sell trigger also may occur if the Adviser discovers a new investment
opportunity that it believes is more compelling and represents a greater risk
reward profile than other investment(s) held by the Fund.
The
Fund may maintain during a temporary period, which could be for a short period
or a longer period lasting several years or more, of abnormal conditions, a
significant portion of its total assets in cash and securities, generally
considered to be cash and cash equivalents, including, but not limited to: high
quality, U.S. short-term debt securities and money market instruments. The
Adviser will invest in such short-term cash positions to the extent the Adviser
is unable to find sufficient investments meeting its criteria and when the
Adviser believes the purchase of additional equity securities would not further
the investment objective of the Fund during such periods of time. Additionally,
to respond to adverse market, economic, political or other conditions, which may
persist for short or long periods of time, the Fund may invest up to 100% of its
assets in the types of high quality, U.S. short-term debt securities and money
market instruments described above.
If
the market advances during periods when the Fund is holding a large cash
position, the Fund may not participate in the positive performance as much as it
would have if it had been more fully invested in securities. In the
aforementioned temporary defensive periods, the Adviser believes that an
additional amount of liquidity in the Fund is desirable both to meet operating
requirements and to take advantage of new investment opportunities. When the
Fund holds a significant portion of assets in cash and cash equivalents, it may
not meet its investment objective.
The
Fund will concentrate its investments (i.e., hold more than 25% of its total assets)
in companies engaged in the medical research, pharmaceutical and technology
industries and related medical technology industries, generally, with an
emphasis toward companies engaged in cancer research and drug
development.
The Fund is classified as a
“non-diversified” investment company under the Investment Company Act of 1940
(the “1940 Act”).
Principal Investment Risks
The
principal risks of investing in the Fund are summarized below. The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with those of other funds. Each risk
summarized below is considered a “principal risk” of investing in the Fund,
regardless of the order in which it appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value (“NAV”),
trading price, yield, total return and/or ability to meet its investment
objective. The following risks could affect the value of your investment in
the Fund:
•Associated
Risks of Investing in the Medical Industry.
Medical and pharmaceutical-related companies in general are subject to the rate
of change in technology, which is generally higher than that of other
industries. Similarly, cancer research-related industries use many products and
services of companies engaged in medical and pharmaceutical-related activities
and are also subject to relatively high risks of rapid obsolescence caused by
progressive scientific and technological advances. Additionally, it is possible
that a medical device or product may fail after its research period; such
research period may involve substantial research, testing and development time
and the development company may incur significant costs. Further, the medical
research and development industry is subject to strict regulatory scrutiny and
ongoing legislative action.
•Below
Investment Grade Bonds Risk. The
Fund’s investments in below investment grade bonds are subject to a greater risk
of loss of income and principal than higher grade debt securities. The Fund’s
investments in below investment grade bonds also subject the Fund to greater
levels of interest rate, credit and liquidity risk than funds that do not invest
in such securities. Issuers of below investment grade bonds are often highly
leveraged and are more vulnerable to changes in the economy. These securities
are considered predominately speculative with respect to the issuer’s continuing
ability to make principal and interest payments.
•Concentration
Risk.
The Fund expects to have concentrated (i.e.,
invest more than 25% of its net assets) investment exposure to companies in the
medical research, pharmaceutical and technology industries. As a result, it is
more vulnerable to adverse market, economic, regulatory, political or other
developments affecting the medical research, pharmaceutical and technology
industries than a fund that invests its assets in a more diversified manner.
Companies in the medical research, pharmaceutical and technology industries, as
traditionally defined, spend heavily on research and development, and their
products or services may not prove commercially successful or may become
obsolete quickly. These industries are subject to a significant amount of
governmental regulation, and changes in governmental policies and the need for
regulatory approvals may have a material adverse effect on these industries.
This regulation requires significant investments in time and funds to maintain
compliance. The process of obtaining government approvals can be long and
costly, and the process is accompanied by significant uncertainty. Companies in
which the Fund may invest in may not currently have any marketed or approved
products and may never have marketed or approved products; companies may not be
able to maintain any regulatory approvals that they obtain for their products or
their products may not be accepted by patients or providers. In addition,
unanticipated problems often arise in connection with the development and
marketing of new products, and many such efforts are ultimately unsuccessful.
Companies in these sectors may not be able to obtain adequate pricing and
reimbursement levels for any marketed products, impeding their ability to
generate a profit. Companies may also have difficulty manufacturing, marketing,
and distributing their products, or may have regulatory authority-imposed
restrictions on their ability to do so. Companies may further face product
liability and other actions should their
products
be less safe or efficacious than believed, should they be deemed to have engaged
in misleading practices, or should a person that received their product
otherwise experience harm or injury. Moreover, companies in the pharmaceutical
industries are subject to competitive forces that may make it difficult to raise
prices and, in fact, may result in price discounting and rebating. The
profitability of some companies in these industries may be dependent on a
relatively limited number of products. In addition, their products can become
obsolete due to industry innovation, changes in technologies, or other market
developments. Pharmaceutical products are subject to government approvals,
regulation, and reimbursement rates.
•Convertible
Securities Risk.
Convertible securities are subject to the risks affecting both equity and fixed
income securities, including market, credit, liquidity and interest rate
risk.
•Currency
Exchange Rate Risk. The
Fund may invest in investments denominated in non-U.S. currencies or in
securities that provide exposure to such currencies. Changes in currency
exchange rates and the relative value of non-U.S. currencies will affect the
value of the Fund’s investment 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.
•Cybersecurity
Risk.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause the Fund, the Adviser, and/or other
service providers (including custodians and financial intermediaries) to suffer
data breaches or data corruption. Additionally, cybersecurity failures or
breaches of the electronic systems of the Fund, the Adviser, or the Fund’s other
service providers, market makers, Authorized Participants (“APs”), the Fund’s
primary listing exchange, or the issuers of securities in which the Fund invests
have the ability to disrupt and negatively affect the Fund’s business
operations, including the ability to purchase and sell Shares, potentially
resulting in financial losses to the Fund and its shareholders.
•Depositary
Receipt Risk.
Depositary receipts, including ADRs, GDRs, and IDRs, involve risks similar to
those associated with investments in foreign securities, such as changes in
political or economic conditions of other countries and changes in the exchange
rates of foreign currencies. Depositary receipts listed on U.S. exchanges are
issued by banks or trust companies, and entitle the holder to all dividends and
capital gains that are paid out on the underlying foreign shares (“Underlying
Shares”). When the Fund invests in depositary receipts as a substitute for an
investment directly in the Underlying Shares, the Fund is exposed to the risk
that the depositary receipts may not provide a return that corresponds precisely
with that of the Underlying Shares. Because the Underlying Shares trade on
foreign exchanges that may be closed when the Fund’s primary listing exchange is
open, the Fund may experience premiums and discounts greater than those of funds
without exposure to such Underlying Shares.
•Derivatives
Risk. Put
and call options are referred to as “derivative” instruments since their values
are based on, or derived from, an underlying reference asset, such as an index.
Derivatives can be volatile, and a small investment in a derivative can have a
large impact on the performance of the Fund as derivatives can result in losses
in excess of the amount invested. The return on a derivative instrument may not
correlate with the return of its underlying reference asset. Derivative
instruments may be difficult to value and may be subject to wide swings in
valuations caused by changes in the value of the underlying instrument. Other
risks of investments in derivatives include risks that the transactions may
result in losses that partially or completely offset gains in portfolio
positions, risks associated with leverage, and risks that the derivative
transaction may not be liquid.
•Equity
Market Risk. The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, sectors or companies in which the Fund invests.
Common stocks are generally exposed to greater risk than other types of
securities, such as preferred stocks and debt obligations, because common
stockholders generally have inferior rights to receive payment from issuers.
•ETF
Risks.
The Fund is an ETF and, as a result of its structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. Shares may trade at a material discount to NAV and
possibly face delisting if either: (i) APs exit the business or otherwise
become unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares Risk.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV Risk. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market,
in which case such premiums or discounts may be significant. 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 or
discounts greater than those of domestic ETFs.
◦Trading
Risk. Although
Shares are listed for trading on The Nasdaq Stock Market, LLC (the “Exchange”)
and may be traded on U.S. exchanges other than the Exchange, there can be no
assurance that Shares will trade with any volume, or at all, on any stock
exchange. In stressed market conditions, the liquidity of Shares may begin to
mirror the liquidity of the Fund’s underlying portfolio holdings, which can be
significantly less liquid than the Shares.
•Fixed
Income Risk.
Current market conditions and the actions of governmental authorities and
regulators in response to COVID-19 and its far-reaching effects present
heightened risks to the fixed income market generally. Such risks could be
further heightened if such market conditions become more volatile or the
governmental and regulatory actions are unexpectedly or suddenly reversed or are
ineffective in achieving their desired outcomes. In addition, the current
environment is exposing fixed-income and debt markets to significant volatility
and reduced liquidity for Fund investments.
◦Call
Risk.
During periods of falling interest rates, an issuer of a callable bond held by
the Fund may “call” or repay the security before its stated maturity, and the
Fund may have to reinvest the proceeds at lower interest rates, resulting in a
decline in the Fund’s income.
◦Credit
Risk.
Debt issuers and other counterparties may not honor their obligations or may
have their debt downgraded by ratings agencies.
◦Extension
Risk.
During periods of rising interest rates, certain debt obligations will be paid
off substantially more slowly than originally anticipated and the value of those
securities may fall sharply, resulting in a decline in the Fund’s income and
potentially in the value of the Fund’s investments.
◦Interest
Rate Risk.
An increase in interest rates may cause the value of fixed-income securities
held by the Fund to decline. The Fund may be subject to a greater risk of rising
interest rates due to the recent historically low rates and the effect of
potential government fiscal policy initiatives and resulting market reaction to
those initiatives.
◦Income
Risk. The
Fund’s income may decline if interest rates fall. This decline in income can
occur because most of the debt instruments held by the Fund will have floating
or variable interest rates.
•Foreign
Securities Risk. Investments
in non-U.S. securities involve certain risks that may not be present with
investments in U.S. securities. For example, investments in non-U.S. securities
may be subject to risk of loss due to foreign currency fluctuations or to
political or economic instability. There may be less information publicly
available about a non-U.S. issuer than a U.S. issuer. Non-U.S. issuers may be
subject to different accounting, auditing, financial reporting and investor
protection standards than U.S. issuers. Investments in non-U.S. securities also
may be subject to withholding or other taxes and may be subject to additional
trading, settlement, custodial, and operational risks. With respect to certain
countries, there is the possibility of government intervention and expropriation
or nationalization of assets. Because legal systems differ, there also is the
possibility that it will be difficult to obtain or enforce legal judgments in
certain countries. Since foreign exchanges may be open on days when the Fund
does not price its shares, the value of the securities in the Fund’s portfolio
may change on days when shareholders will not be able to purchase or sell the
Fund’s shares. Conversely, Shares may trade on days when foreign exchanges are
closed. Each of these factors can make investments in the Fund more volatile and
potentially less liquid than other types of investments.
•Liquidity
Risk. Liquidity
risk refers to the possibility that the Fund may not be able to sell or buy a
security or close out an investment contract at a favorable price or time.
Consequently, the Fund may have to accept a lower price to sell a security, sell
other securities to raise cash, or give up an investment opportunity, any of
which could have a negative effect on the Fund’s performance. Infrequent trading
of securities also may lead to an increase in their price volatility.
•Management
Risk. The
Fund is actively managed and its ability to achieve its investment objective is
dependent on the Adviser’s successful implementation of the Fund’s investment
strategies.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
these factors, including the impact of the COVID-19 pandemic and related public
health issues, growth concerns in the U.S. and overseas, uncertainties regarding
interest rates, trade tensions and the threat of tariffs imposed by the U.S. and
other countries. In addition, local, regional or global events such as war,
including Russia’s invasion of Ukraine, acts of terrorism, spread of infectious
diseases or other public health issues, recessions, rising inflation, or other
events could have a significant negative impact on the Fund and its investments.
These developments as well as other events could result in further market
volatility and negatively affect financial asset prices, the liquidity of
certain securities and the normal operations of securities exchanges and other
markets. It is unknown how long circumstances related to the COVID-19 pandemic
will persist, whether they will reoccur in
the
future, whether efforts to support the economy and financial markets will be
successful, and what additional implications may follow from the pandemic. The
impact of these events and other epidemics or pandemics in the future could
adversely affect Fund performance.
•Market
Capitalization Risk.
◦Mid-Capitalization
Investing Risk.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large-capitalization stocks or the stock market
as a whole.
◦Small-Capitalization
Investing Risk.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large- or mid-capitalization stocks or the
stock market as a whole. There is typically less publicly available information
concerning smaller-capitalization companies than for larger, more established
companies.
•Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may
invest a greater percentage of its assets in the securities of a single issuer
or a lesser number of issuers than if it was a diversified fund. As a result,
the Fund may be more exposed to the risks associated with and developments
affecting an individual issuer or a lesser number of issuers than a fund that
invests more widely. This may increase the Fund’s volatility and cause the
performance of a relatively small number of issuers to have a greater impact on
the Fund’s performance.
•Options
Risk. The
prices of options may change rapidly over time and do not necessarily move in
tandem with the price of the underlying securities. Selling call options reduces
the Fund’s ability to profit from increases in the value of the Fund’s equity
portfolio, and purchasing put options may result in the Fund’s loss of premiums
paid in the event that the put options expire unexercised. To the extent that
the Fund reduces its put option holdings relative to the number of call options
sold by the Fund, the Fund’s ability to mitigate losses in the event of a market
decline will be reduced. When the Fund sells an option, it gains the amount of
the premium it receives, but also incurs a liability representing the value of
the option it has sold until the option is either exercised and finishes “in the
money,” meaning it has value and can be sold, or the option expires worthless,
or the expiration of the option is “rolled,” or extended forward. The value of
the options in which the Fund invests is based partly on the volatility used by
market participants to price such options (i.e.,
implied volatility). Accordingly, increases in the implied volatility of such
options will cause the value of such options to increase (even if the prices of
the options’ underlying stocks do not change), which will result in a
corresponding increase in the liabilities of the Fund under such options and
thus decrease the Fund’s NAV.
•Other
Investment Company Risk.
The risks of investment in other investment companies, including ETFs, typically
reflect the risks of the types of instruments in which the investment companies
invest. By investing in another investment company, the Fund becomes a
shareholder of that investment company and bears its proportionate share of the
fees and expenses of the other investment company. Investments in ETFs are also
subject to the “ETF Risks” described above.
•Sector
Risk.
To the extent the Fund invests more heavily in particular sectors of the
economy, its performance will be especially sensitive to developments that
significantly affect those sectors. The Fund may invest a significant portion of
its assets in the following sectors and, therefore, the performance of the Fund
could be negatively impacted by events affecting each of these sectors.
◦Manufacturing
Sector. Companies
in the Manufacturing Sector can be significantly affected by supply and demand
both for their specific product or service and for Manufacturing Sector products
in general; a decline in demand for products due to rapid technological
developments and frequent new product introduction; government regulation, world
events and economic conditions; and the risks associated with potential
environmental damage and product liability claims.
•Tax
Risk.
The
use of derivatives strategies, such as writing (selling) and purchasing options,
involves complex rules that will determine for income tax purposes the amount,
character and timing of recognition of the gains and losses the Fund realizes in
connection therewith. The Fund expects to generate premiums from its sale of
options. These premiums typically will result in short-term capital gains for
federal income tax purposes. In addition, equity securities that are hedged with
put options may not be eligible for long-term capital gains tax treatment, as
qualified dividend income for individual shareholders or eligible for the
dividends received deduction applicable to corporate shareholders.
•Temporary
Defensive Position Risk.
If the Fund takes a temporary defensive position, it may invest all or a large
portion of its assets in cash and/or cash equivalents. If the Fund takes a
temporary defensive position, it may not achieve its investment
objective.
Performance
The following
performance information indicates some of the risks of investing in the
Fund. The Fund commenced operations
after the assets of another investment company advised by the Adviser, the
Kinetics Medical Fund (the “Predecessor Fund”), were transferred
to the Fund in a tax-free reorganization as
of the close of business on January 27, 2023. The Fund has the
same investment objective and substantially similar investment strategies as
those of the Predecessor Fund. The bar chart shows the Predecessor Fund’s
performance (represented by the performance of the Predecessor Fund’s No Load
Class of Shares) for calendar years ended December 31. The table shows the
Predecessor Fund’s average annual total returns (represented by the average
annual total returns of the Predecessor Fund’s No Load Class of Shares) for the
1-year, 5-year, 10-year and since inception periods compared with those of a
broad measure of market performance. The table also shows how the Fund’s
performance compares to a second index that provides a broad measure of market
performance. Performance for the Fund has not been adjusted to reflect the
Fund’s lower expense ratios. Had the Predecessor Fund been structured as an ETF,
its performance may have differed. Performance for the Predecessor Fund is based
on the NAV per share of the Predecessor Fund shares rather than on
market-determined prices. The Predecessor Fund’s past
performance, before and after taxes, does not necessarily indicate how it will
perform in the future. Updated performance information is
available on the Fund’s website at www.horizonkinetics.com.
Calendar Years Total
Returns
During the period of time shown
in the bar chart, the highest quarterly return
was 20.54% for the quarter ended March 31, 2013, and the
lowest quarterly return was
-12.31% for the quarter ended March 31,
2016.
Average
Annual Total Returns
(for
periods ended December 31, 2022)
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Horizon
Kinetics Medical ETF |
1-Year |
5-Years |
10-Years |
Since
Inception* |
Return Before
Taxes |
4.21% |
8.19% |
10.83% |
8.96% |
Return After Taxes on
Distributions |
3.80% |
7.32% |
9.63% |
8.18% |
Return After Taxes on Distributions and
Sale of Shares |
2.78% |
6.30% |
8.67% |
7.61% |
S&P
500®
Index
(reflects no deduction for
fees, expenses, or taxes) |
-18.11% |
9.42% |
12.56% |
6.83% |
NASDAQ
Composite Index
(reflects
no deduction for fees, expenses, or taxes) |
-33.10% |
8.68% |
13.24% |
5.92% |
*
The Predecessor Fund
commenced operations on September 30,
1999.
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns
depend on an investor’s tax situation and may differ from those shown. After-tax
returns shown are not relevant to investors who hold their shares through
tax-deferred arrangements such as an individual retirement account (“IRA”) or
other tax-advantaged accounts.
Portfolio
Management
|
|
|
|
| |
Adviser |
Horizon
Kinetics Asset Management LLC |
Portfolio
Managers |
B.
Paul Abel, Portfolio Manager of the Adviser, and Peter B. Doyle, Managing
Director of the Adviser, have been portfolio managers of the Fund since
its inception in January 2023 |
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. The difference in the bid and
ask prices is referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at www.horizonkinetics.com.
Tax
Information
The
Fund’s distributions are generally taxable as ordinary income, qualified
dividend income, or capital gains (or a combination), unless your investment is
in an individual retirement account (“IRA”) or other tax-advantaged account.
Distributions on investments made through tax-deferred arrangements may be taxed
later upon withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
Investment Objective
Horizon Kinetics SPAC Active
ETF (“SPAC ETF” or the “Fund”) seeks to generate realized capital gains in
excess of short-term interest rates on a risk adjusted
basis.
Fees and Expenses of the Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
|
|
|
|
| |
|
Shareholder
Fees
(fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
Management
Fee |
0.85% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses* |
0.85% |
|
*
Restated to reflect the
Fund’s current unified management fee as if it had been in effect during the
previous fiscal year.
Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. The
Example does not take into account brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
1
Year: |
$87 |
3
Years: |
$271 |
|
|
| |
Portfolio Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in the Total Annual Fund Operating Expenses
or in the Example, affect the Fund’s performance. Because the Fund reorganized
following the most recent fiscal year end, portfolio turnover information has
been omitted.
Principal Investment
Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that pursues its
investment objective primarily by investing, under normal circumstances, in
special purpose acquisition companies (“SPACs”) that Ryan Heritage, LLP, the
Fund’s investment sub-adviser (the “Sub-Adviser”), believes will generate net
realized capital gains in excess of the income derived from bank certificates of
deposit with similar maturities.
A
SPAC (also known as a “blank check” company) is an investment vehicle with no
commercial operations that is designed to raise capital via an initial public
offering (“IPO”) for the purpose of engaging in a merger, acquisition,
reorganization, or similar business combination (a “Combination”) with one or
more operating companies to be identified subsequent to the SPAC’s IPO. SPACs
are often used as a vehicle to transition a company from private to publicly
traded as an alternative to a more traditional direct IPO by a private company.
Unless and until Combination is completed, a SPAC generally places a minimum of
the total amount of cash raised in the IPO in a trust account that invests such
cash in U.S. government securities or money market funds. A SPAC sponsor
generally has 24 months (or less) to find an acquisition target, secure
shareholder approval, and complete the Combination. Prior to consummation of a
Combination, the SPAC’s shares trade in the market at prices that may be below
or above the per share value of the trust account. If a Combination is not
consummated within the allowed time span, the SPAC is automatically liquidated
and the cash value, after any applicable taxes, fees, and administrative
expenses, of the SPAC trust is distributed to shareholders. If a Combination is
proposed, shareholders can (1) continue to hold onto their shares (which then
bear the risks associated with all equity securities) or (2) redeem their shares
for the pro rata value of the cash value of the trust. The Sub-Adviser believes
SPACs offer upside potential when sold after an attractive Combination
announcement, coupled with one or more redemption options, such as when the Fund
is permitted to exit a SPAC prior to the completion of a Combination without
loss of the principal it invested in the SPAC, thus providing a true asymmetric
risk/reward profile for investors. Under normal circumstances, at least
80% of the Fund’s net assets, plus borrowings for investment purposes, will be
invested in Pre-Combination SPACs, together with the warrants or rights issued
in connection with the IPO of Pre-Combination SPACs. A warrant
or right is a security that allows its holder to purchase a specified amount of
common stock at a specified price for a specified time.
The
Fund may maintain during a temporary period, which could be for a short period
or a longer period lasting several years or more, of abnormal conditions, a
significant portion of its total assets in cash and securities, generally
considered to be cash and cash equivalents, including, but not limited to, high
quality, U.S. short-term debt securities and money market instruments. The
Sub-Adviser will invest in such short-term cash positions to the extent the
Sub-Adviser is unable to find sufficient investments meeting its criteria and
when the Sub-Adviser believes the purchase of additional equity securities would
not further the investment objective of the Fund during such periods of time.
The criteria for temporarily investing in cash equivalents is a lack of current
investments that the Sub-Adviser believes will generate net realized capital
gains in excess of the income derived from bank certificates of deposit with
similar maturities. Additionally, to respond to adverse market, economic,
political or other conditions, which may persist for short or long periods of
time, the Fund may invest up to 100% of its assets in the types of high quality,
U.S. short-term debt securities and money market instruments described above.
If
the market advances during periods when the Fund is holding a large cash
position, the Fund may not participate in the positive performance as much as it
would have if it had been more fully invested in securities. In the
aforementioned temporary defensive periods, the Sub-Adviser believes that an
additional amount of liquidity in the Fund is desirable both to meet operating
requirements and to take advantage of new investment opportunities. When the
Fund holds a significant portion of assets in cash and cash equivalents, it may
not meet its investment objective.
The Fund is classified as a
“non-diversified” investment company under the Investment Company Act of 1940
(the “1940 Act”).
Principal Investment
Risks
The
principal risks of investing in the Fund are summarized below. The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with those of other funds. Each risk
summarized below is considered a “principal risk” of investing in the Fund,
regardless of the order in which it appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value (“NAV”),
trading price, yield, total return and/or ability to meet its investment
objective. The following risks could affect the value of your investment in
the Fund:
•Associated
Risks of Pre-Combination SPACs.
“Pre-Combination” SPACs are SPACs that are either seeking a target for a
Combination or have not yet completed a Combination with an identified target.
Pre-Combination SPACs often have predetermined time frames to consummate a
Combination (typically, two years) or the SPAC will liquidate. A Pre-Combination
SPAC may extend the time to consummate a Combination. The Fund invests in equity
securities including common stock, rights and warrants of SPACs, which raise
cash to seek potential Combination opportunities. Unless and until a Combination
is completed, substantially all of the cash raised by a SPAC is deposited in a
trust account that generally invests its assets in U.S. government securities,
money market securities, and cash. Because SPACs have no operating history or
ongoing business other than seeking Combinations, the value of their securities
is particularly dependent on the ability of the entity’s management to identify
and complete a Combination that investors find attractive. There is no guarantee
that the SPACs in which the Fund invests will complete a Combination or that any
Combination that is completed will be attractive to investors. Some SPACs may
pursue Combinations only within certain industries or regions, which may affect
the volatility of their prices. A SPAC may restrict holders from redeeming more
than a certain percentage of the outstanding public shares to discourage holders
from accumulating large blocks of shares. While the terms of warrants issued by
SPACs will vary, to the extent warrants are exercisable prior to a business
combination, the holders of a SPAC’s common stock may be subject to dilution
which could reduce the holder’s proportional ownership in the SPAC.
•Cybersecurity
Risk.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause the Fund, the Adviser, the
Sub-Adviser and/or other service providers (including custodians and financial
intermediaries) to suffer data breaches or data corruption. Additionally,
cybersecurity failures or breaches of the electronic systems of the Fund, the
Adviser, the Sub-Adviser or the Fund’s other service providers, market makers,
Authorized Participants (“APs”), the Fund’s primary listing exchange, or the
issuers of securities in which the Fund invests have the ability to disrupt and
negatively affect the Fund’s business operations, including the ability to
purchase and sell Shares, potentially resulting in financial losses to the Fund
and its shareholders.
•Equity
Market Risk. The
trading prices of equity securities and other instruments fluctuate in response
to a variety of factors. The Fund’s NAV and market price may fluctuate
significantly in response to these and other factors. As a result, an investor
could lose money over short or long periods of time.
•ETF
Risks.
The Fund is an ETF and, as a result of its structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. Shares may trade at a material discount to NAV and
possibly face delisting if either: (i) APs exit the business or otherwise
become unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares Risk.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV Risk. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant. 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 or discounts greater than those of domestic ETFs.
◦Trading
Risk. Although
Shares are listed for trading on The Nasdaq Stock Market, LLC (the “Exchange”)
and may be traded on U.S. exchanges other than the Exchange, there can be no
assurance that Shares will trade with any volume, or at all, on any stock
exchange. In stressed market conditions, the liquidity of Shares may begin to
mirror the liquidity of the Fund’s underlying portfolio holdings, which can be
significantly less liquid than the Shares.
•Liquidity
Risk. Liquidity
risk refers to the possibility that a Fund may not be able to sell or buy a
security or close out an investment contract at a favorable price or time.
Consequently, a Fund may have to accept a lesser price to sell a security, sell
other securities to raise cash, or give up an investment opportunity, any of
which could have a negative effect on a Fund’s performance. Infrequent trading
of securities also may lead to an increase in their price
volatility.
•Management
Risk. The
Fund is actively managed and its ability to achieve its investment objective is
dependent on the Sub-Adviser’s successful implementation of the Fund’s
investment strategies.
•Market
Capitalization Risk.
◦Mid-Capitalization
Investing Risk.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large-capitalization stocks or the stock market
as a whole.
◦Small-Capitalization
Investing Risk.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large- or mid-capitalization stocks or the
stock market as a whole. There is typically less publicly available information
concerning smaller-capitalization companies than for larger, more established
companies.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
these factors, including the impact of the COVID-19 pandemic and related public
health issues, growth concerns in the U.S. and overseas, uncertainties regarding
interest rates, trade tensions and the threat of tariffs imposed by the U.S. and
other countries. In addition, local, regional or global events such as war,
including Russia’s invasion of Ukraine, acts of terrorism, spread of infectious
diseases or other public health issues, recessions, rising inflation, or other
events could have a significant negative impact on the Fund and its investments.
These developments as well as other events could result in further market
volatility and negatively affect financial asset prices, the liquidity of
certain securities and the normal operations of securities exchanges and other
markets. It is unknown how long circumstances related to the COVID-19 pandemic
will persist, whether they will reoccur in the future, whether efforts to
support the economy and financial markets will be successful, and what
additional implications may follow from the pandemic. The impact of these events
and other epidemics or pandemics in the future could adversely affect Fund
performance.
•New
Strategy Risk. The
Fund may not be successful in implementing its new investment strategy, and its
investment strategy may not be successful under all future market conditions,
either of which could result in the Fund being liquidated at some future time
without shareholder approval and/or at a time that may not be favorable for
certain shareholders. New strategies may not attract sufficient assets to
achieve investment, trading or other efficiencies.
•Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may
invest a greater percentage of its assets in the securities of a single issuer
or a lesser number of issuers than if it was a diversified fund. As a result,
the Fund may be more exposed to the risks associated with and developments
affecting an individual issuer or a lesser number of issuers than a fund that
invests more widely. This may increase the Fund’s volatility and cause the
performance of a relatively small number of issuers to have a greater impact on
the Fund’s performance.
•Portfolio
Turnover Risk. Because
the Fund may “turn over” some or all of its portfolio frequently, the Fund may
incur high levels of transaction costs from commissions or mark-ups in the
bid/offer spread. Higher portfolio turnover (e.g.,
in excess of 100% per year) may result in the Fund paying higher levels of
transaction costs and generating greater tax liabilities for shareholders.
•Temporary
Defensive Position Risk.
If the Fund takes a temporary defensive position, it may invest all or a large
portion of its assets in cash and/or cash equivalents. If the Fund takes a
temporary defensive position, it may not achieve its investment
objective.
•Warrants
and Rights Risk.
The Fund may receive warrants or rights in connection with purchasing equity
securities, specifically SPAC Units. Investments in warrants or rights are pure
speculation in that they have no voting rights, pay no dividends and have no
rights with respect to the assets of the corporation issuing them. They do not
represent ownership of the securities, but only the right to buy them. Warrants
and rights also are complex financial instruments. Their prices do not
necessarily move parallel to the prices of underlying securities and their
accounting treatment and valuation is subject to special considerations making
them more prone to errors than less complex financial instruments. For example,
determining whether warrants should be treated as equity or an asset or
liability of the SPAC entity depends not only on the specific terms of the
warrant contract, but also on the SPAC entity’s specific facts and
circumstances. Warrants and rights are also subject to the risk that the Fund
could lose the purchase value of the warrant if the warrant is not exercised or
sold prior to its expiration. They also involve the risk that the effective
price paid for the warrant or right added to the subscription price of the
related security may be greater than the value of the subscribed security’s
market price. If the Fund holds warrants or rights associated with a SPAC that
does not complete a business combination within the designated time period, the
warrants or rights held by the Fund will expire and lose all
value.
Performance
The Fund is new
and therefore does not have a performance history for a full calendar
year. In the future, performance information for the Fund will
be presented in this section. Updated performance information is available on
the Fund’s website at www.horizonkinetics.com.
Portfolio
Management
|
|
|
|
| |
Adviser |
Horizon
Kinetics Asset Management LLC (the “Adviser”) |
Sub-Adviser |
Ryan
Heritage, LLP |
Portfolio
Managers |
Philip
Goldstein, Partner of the Sub-Adviser, Andrew Dakos, Partner of the
Sub-Adviser, and Rajeev Das, Principal of the Sub-Adviser, have been the
portfolio managers of the Fund since its inception in January,
2023 |
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. The difference in the bid and
ask prices is referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at www.horizonkinetics.com.
Tax
Information
The
Fund’s distributions are generally taxable as ordinary income, qualified
dividend income, or capital gains (or a combination), unless your investment is
in an individual retirement account (“IRA”) or other tax-advantaged account.
Distributions on investments made through tax-deferred arrangements may be taxed
later upon withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
Each
Fund’s investment objective has been adopted as a non-fundamental investment
policy and may be changed by the Board of Trustees (the “Board”) of Listed Funds
Trust (the “Trust”) without shareholder approval upon written notice to
shareholders.
The
Blockchain Development ETF will concentrate its investments (i.e.,
hold more than 25% of its total assets) in issuers in the Capital Markets
Industry within the Financials Sector, as classified by GICS®.
The Medical ETF will concentrate its investments (i.e.,
hold more than 25% of its total assets) companies engaged in the medical
research, pharmaceutical and technology industries and related medical
technology industries, generally, with an emphasis toward companies engaged in
cancer research and drug development.
Principal
Investment Strategies
The
following information is in addition to, and should be read along with, the
description of each Fund’s (except where otherwise indicated) principal
investment strategies in the section titled “Fund Summary—Principal Investment
Strategies” above.
The
Medical ETF
The
Medical ETF invests, under normal circumstances, at least 80% of its net assets
plus any borrowings for investment purposes in common stocks, convertible
securities, warrants, and other equity securities having the characteristics of
common stocks (such as ADRs, GDRs, and IDRs) of U.S. and foreign companies
engaged in medical research, pharmaceutical and medical technology industries,
and related technology industries, generally, with an emphasis toward companies
engaged in cancer research and drug development, such as pharmaceutical
development companies, surgical and medical instrument manufacturers and
developers, pharmaceutical manufacturers, and biotech and medical research
companies. These types of companies derive at least 50% of their revenue from
such activities. The Fund also may invest in other ETFs and purchase and write
options for hedging purposes and/or direct investment.
The
Adviser believes that favorable investment opportunities are available through
companies that are developing technology, products, and/or services for cancer
research and treatment and related medical activities. Accordingly, the Medical
ETF seeks to invest in the equity securities of companies whose research and
development efforts may result in higher stock values. Securities will be
selected by the Adviser from companies that are engaged in the medical industry
generally, including, among others, companies engaged in cancer research and
treatment, biopharmaceutical research and the development of medical instruments
for therapeutic purposes. These companies may be large, medium or small in size
if, in the Adviser’s opinion, the companies meet the Medical ETF’s investment
criteria. Such companies include, but are not limited to, the following:
•Pharmaceutical
Development:
Companies that develop drugs and medications for the treatment and prevention of
cancer and other disease.
•Surgical
and Medical Instrument Manufacturers and Developers:
Companies that produce, manufacture and develop the tools used by health care
providers in the delivery of medical care and procedures for the treatment of
cancer and other diseases.
•Pharmaceutical
Manufacturers:
Companies that primarily engage in the mass production of existing drugs and
medicines including drugs and medicines for the treatment of cancer and other
diseases.
•Biotech
& Medical Research: Companies
that primarily research and develop new methods and procedures in the provision
of health care related services for the treatment of cancer and other
diseases.
The
Medical ETF may invest up to 20% of its assets in high quality, U.S. short-term
debt securities and money market instruments to maintain liquidity. Some of
these short-term instruments include commercial paper, certificates of deposit,
demand and time deposits and banker’s acceptances, U.S. government securities
(i.e.,
U.S. Treasury obligations) and repurchase agreements.
The
SPAC ETF
The
SPAC ETF invests, under normal circumstances, at least 80% of the Fund’s net
assets, plus borrowings for investment purposes, in Pre-Combination SPACs,
together with the warrants or rights issued in connection with the IPO of
Pre-Combination SPACs.
The
SPAC ETF invests in units, stock, warrants, and other securities of special
purpose acquisition companies or similar special purpose entities that pool
funds to seek potential acquisition opportunities (“SPACs”). Unless and until a
Combination meeting the SPAC’s requirements is completed, a SPAC generally
deposits substantially all of the cash raised in its IPO (less a specified
amount to cover operating expenses) in a bank trust account which is generally
invested in U.S. Government securities, money market securities and cash. If an
acquisition that meets the requirements for the SPAC is not completed within a
pre-established period of time, the invested funds are returned to the entity’s
shareholders. In addition, just prior to completion of an acquisition,
shareholders of the SPAC can redeem their shares for a pro rata share of the
value of the trust account. Because SPACs have no operating history or
ongoing
business other than seeking a Combination, the value of their securities can
vary on the perceived likelihood of management to identify and complete an
attractive acquisition. However, until a SPAC is liquidated or completes a
Combination, its common stock is unlikely to fall substantially below the per
share value of the trust account. Nonetheless, SPAC shares are subject to
secondary market risk and may decline in value if sold prior to deal completion
or trust liquidation. If a Combination is completed, the former SPAC’s shares
and other securities will take on the same risks as an equivalent investment in
the acquired company. Some SPACs may pursue acquisitions only within certain
industries or regions, which may affect the volatility of their
prices.
Rule
35d-1 Policies
The
Blockchain Development ETF, the Medical ETF, and the SPAC ETF have each adopted
a policy to comply with Rule 35d-1 under the 1940 Act. Each such policy has been
adopted as a non-fundamental investment policy and may be changed without
shareholder approval upon 60 days’ written notice to shareholders.
Temporary
Defensive Positions
To
respond to adverse market, economic, political, or other conditions, a Fund may
invest up to 100% of its assets in a temporary defensive manner by holding all
or a substantial portion of its assets in cash, cash equivalents, or other high
quality short-term investments. Temporary defensive investments generally may
include short-term U.S. government securities, commercial paper, bank
obligations, repurchase agreements, money market fund shares, and other money
market instruments. The Adviser or Sub-Adviser also may invest in these types of
securities or hold cash while looking for suitable investment opportunities or
to maintain liquidity. In these circumstances, a Fund may be unable to achieve
its investment objective.
An
investment in a Fund entails risks. A Fund could lose money, or its performance
could trail that of other investment alternatives. The following provides
additional information about each Fund’s principal risks. It is important that
investors closely review and understand these risks before making an investment
in a Fund. Each risk applies to each Fund unless otherwise specified. Just as in
each Fund’s summary section above, the principal risks below are presented in
alphabetical order to facilitate finding particular risks and comparing them
with those of other funds. Each risk summarized below is considered a “principal
risk” of investing in the applicable Fund, regardless of the order in which it
appears.
•Active
Management Risk (Inflation
Beneficiaries ETF only).
The Fund is actively-managed and may not meet its investment objective based on
the Adviser’s success or failure to implement investment strategies for the
Fund. The Adviser’s evaluations and assumptions regarding investments, interest
rates, inflation, and other factors may not successfully achieve the Fund’s
investment objective given actual market conditions. The Adviser expects to
select for the Fund equity securities of companies that are expected to benefit,
either directly or indirectly, from rising prices of real assets. To the extent
the Adviser’s expectations for increases in the prices of real assets do not
materialize, the Fund may underperform other funds. Similarly, if the Adviser’s
judgments about the extent to which a company will benefit from increases in the
prices of real assets prove to be incorrect, the value of such companies, and
consequently the Fund, may decline.
•Associated
Risk of Investing in Blockchain Development Companies (Blockchain
Development ETF only).
The
Fund will invest in Blockchain Development Companies. At times, Blockchain
Development Companies may be out of favor and underperform other industries or
groups of industries or the market as a whole. In such event, the value of the
Shares may rise and fall more than the value of shares of a fund that invests in
securities of companies in a broader range of industries. An investment in a
Blockchain Development Company may be subject to the following
risks:
◦Risk
that Blockchain Technology is New and Many of its Uses May be
Untested.
The mechanics of using blockchain technology to transact in digital or other
types of assets, such as securities or derivatives, is relatively new and
untested. There is no assurance that widespread adoption will occur. A lack of
expansion in the usage of blockchain technology could adversely affect
Blockchain Development Companies.
◦Theft,
Loss or Destruction Risk.
Transacting on a blockchain depends in part specifically on the use of
cryptographic keys that are required to access a user’s account (or “wallet”).
The theft, loss, or destruction of these keys could adversely affect a user’s
ownership claims over an asset or a company’s business or operations if it was
dependent on the blockchain.
◦Competing
Platforms, Technologies, and Patents Risk.
The development and acceptance of competing platforms or technologies may cause
consumers or investors to use an alternative to blockchains. Further, if one or
more other persons, companies or organizations has or obtains a valid patent
covering technology critical to the operation of one or more of a Blockchain
Development Company’s business lines, there can be no guarantee that such an
entity would be willing to license such technology at acceptable prices or at
all, which could have a material adverse effect on the Blockchain Development
Company’s business, financial condition and results of operations.
◦Cybersecurity
Incidents Risk.
Cybersecurity incidents may compromise an issuer, its operations, or its
business. Cybersecurity incidents may also specifically target a user’s
transaction history, digital assets, or identity, thereby leading to privacy
concerns. In addition, certain features of blockchain technology, such as
decentralization, open source protocol, and reliance on peer-to-peer
connectivity, may increase the risk of fraud or cyber-attack by potentially
reducing the likelihood of
a
coordinated response. Additionally, blockchain functionality relies on the
Internet. A significant disruption of Internet connectivity affecting large
numbers of users or geographic areas could impede the functionality of
blockchain technologies.
◦Emerging
Technologies Investment Risk.
The Fund invests primarily to gain exposure to the emerging technologies and
related activities in the blockchain and digital assets ecosystems. Companies
across a wide variety of industries, primarily in the technology, finance, and
entertainment sectors, are exploring the possible applications of these
technologies. Blockchain technology may never develop an optimization process
that may lead to increased economic returns in which the Fund invests. The
extent of such technologies’ versatility has not yet been fully explored.
Consequently, the Fund’s holdings may include equity securities of operating
companies that have exposure to a wide variety of industries, and the economic
fortunes of certain companies held by the Fund may be significantly tied to such
industries. Currently, there are few public companies for which these emerging
technologies represent an attributable and significant revenue or profit stream,
and such technologies may not ultimately have a material effect on the economic
returns of companies in which the Fund invests.
◦Financial
Technology Risk.
Companies that are developing financial technologies that seek to disrupt or
displace established financial institutions generally face competition from much
larger and more established firms. Such companies may not be able to capitalize
on their disruptive technologies if they face political and/or legal attacks
from competitors, industry groups or local and national governments. Laws
generally vary by country, creating some challenges to achieving scale. A
financial technology company may not currently derive any revenue, and there is
no assurance that such company will derive any revenue from innovative
technologies in the future. Additionally, financial technology companies may be
adversely impacted by potential rapid product obsolescence, cybersecurity
attacks, increased regulatory oversight and disruptions in the technology they
depend on.
◦Key
Personnel Risk. Blockchain
Development Companies rely on highly skilled financial service professionals and
software engineers. Because of competition from other firms, Blockchain
Development Companies may face difficulties in recruiting and retaining
professionals of a caliber consistent with their business strategy in the
future. The inability to successfully identify and retain qualified
professionals could materially and adversely affect the growth, operations, or
financial condition of the company.
◦Lack
of Liquid Markets, and Possible Manipulation of Blockchain-Based Assets Risk.
Digital
assets that are represented and trade on a blockchain may not necessarily
benefit from viable trading markets. Stock exchanges have listing requirements
and vet issuers, and perhaps users. These conditions may not necessarily be
replicated on a blockchain, depending on the platform’s controls and other
policies. The more lenient a blockchain is about vetting issuers of digital
assets or users that transact on the platform, the higher the potential risk for
fraud or the manipulation of digital assets. These factors may decrease
liquidity or volume, or increase volatility of digital securities or other
assets trading on a blockchain.
◦Lack
of Regulation Risk. Digital
assets and their associated platforms are largely unregulated, and the
regulatory environment is rapidly evolving. Because blockchain technology works
by having every transaction build on every other transaction, participants can
self-police any corruption, which can mitigate the need to depend on the current
level of legal or government safeguards to monitor and control the flow of
business transactions. As a result, companies engaged in such blockchain
activities may be exposed to adverse regulatory action, fraudulent activity, or
even failure. There can be no guarantee that future regulation of blockchain
technology will not have a negative impact on the value of such technologies and
of the companies in the which the Fund invests.
◦Network
Amendment Risk. Significant
contributors to any cryptocurrency network could propose amendments to the
respective network’s protocols and software that, if accepted and authorized by
such network, could adversely affect a Blockchain Development Company. For
example, with respect to the bitcoin network, a small group of individuals
contribute to the bitcoin network’s source code. Those individuals can propose
refinements or improvements to the bitcoin network’s source code through one or
more software upgrades that alter the protocols and software that govern the
bitcoin network and the properties of bitcoin, including the irreversibility of
transactions and limitations on the mining of new bitcoin. To the extent that a
significant majority of the users and miners on the bitcoin network install such
software upgrade(s), the bitcoin network would be subject to new protocols and
software that may adversely affect Blockchain Development
Companies.
◦Non-Fungible
Tokens Ecosystem Company Risk.
The value of NFTs may decline for short or long periods of time and may be
volatile due to factors such as the desirability of the particular NFT, the
availability of other similar NFTs, the accessibility of the blockchain used by
the NFT, and general risks applicable to Blockchain Development Companies.
Volatility in the value of NFTs may have a material adverse effect on a
Blockchain Development Company’s business, financial condition, and results of
operation.
◦Third
Party Product Defects or Vulnerabilities Risk.
Where blockchain systems are built using third party products, those products
may contain technical defects or vulnerabilities beyond a company’s control.
Open-source technologies that are used to build a blockchain application may
also introduce defects and vulnerabilities.
◦Reliance
on Cryptocurrency Risk. Certain
Blockchain Development Companies may rely on the success of the digital currency
industry, the development and acceptance of which is subject to a variety of
factors that are difficult to evaluate.
Cryptocurrencies
(also referred to as “virtual currencies” and “digital currencies”) are digital
assets designed to act as a medium of exchange. Though there are many
applications of blockchain technology outside of the digital currency industry,
digital currencies remain a key driver of interest in blockchain technology.
Cryptocurrency is an emerging asset class. There are thousands of
cryptocurrencies, the most well-known of which is bitcoin. Cryptocurrency
generally operates without a central authority (such as a bank) and is not
backed by any government. Cryptocurrency is not legal tender. Federal, state
and/or foreign governments may restrict the use and exchange of cryptocurrency,
and regulation in the United States is still developing. The market price of
bitcoin has been subject to extreme fluctuations. Similar to fiat currencies
(i.e.,
a currency that is backed by a central bank or a national, supra-national or
quasi-national organization), cryptocurrencies are susceptible to theft, loss,
and destruction. Cryptocurrency exchanges and other trading venues on which
cryptocurrencies trade are relatively new and, in most cases, largely
unregulated and may therefore be more exposed to fraud and failure than
established, regulated exchanges for securities, derivatives and other
currencies. Cryptocurrency exchanges may stop operating or permanently shut down
due to fraud, technical glitches, hackers, or malware, which may also affect
volatility.
◦Exposure
to Cryptocurrency Risk. The
Fund may have exposure to cryptocurrencies indirectly through investment in
individual Blockchain Development Companies that have either direct or indirect
exposure to cryptocurrencies, including cryptocurrencies other than bitcoin. To
date, cryptocurrency markets have experienced extreme fluctuations and generally
are characterized by significant volatility. The prices of cryptocurrencies
could fall sharply (potentially to zero) for various reasons, including, but not
limited to, regulatory changes, issues impacting the distributed ledger
networks, events involving entities that facilitate transactions in
cryptocurrency, or changes in user preferences in favor of alternative
cryptocurrencies. Furthermore, events that impact one cryptocurrency may lead to
a decline in the value of other cryptocurrencies within a short period of time.
Cryptocurrency exchanges and other trading venues on which cryptocurrencies
trade are relatively new and, in most cases, largely unregulated. Cryptocurrency
exchanges may not have the same features as traditional exchanges to enhance the
stability of trading on the exchange, such as measures designed to prevent
sudden price swings such as “flash crashes.” As a result, the prices of
cryptocurrencies on exchanges may be subject to greater volatility than
traditional assets traded on regulated exchanges. Cryptocurrency exchanges and
other trading venues also may be more vulnerable to fraud and failure, including
financial failure due to extreme market volatility, than established, regulated
exchanges for securities, derivatives and other currencies. The temporary or
permanent closure of a cryptocurrency exchange or other trading venue with
significant trading volume may significantly and adversely affect the value of
cryptocurrencies. The Fund’s investments in Blockchain Development Companies
with significant direct and indirect exposure to cryptocurrencies expose the
Fund to all of the risks related to cryptocurrencies described above in addition
to the risks related to the Blockchain Development Companies. Cryptocurrency
volatility may have a material adverse effect on a Blockchain Development
Company’s business, financial condition, and results of operation.
◦Line
of Business Risk. Some
Blockchain Development Companies are engaged in other lines of business
unrelated to blockchain and these lines of business could adversely affect their
operating results. The operating results of these companies may fluctuate as a
result of these additional risks and events in the other lines of business. In
addition, a company’s ability to engage in new activities may expose it to
business risks with which it has less experience than it has with the business
risks associated with its traditional businesses. Despite a company’s possible
success in activities linked to its use of blockchain, there can be no assurance
that the other lines of business in which these companies are engaged will not
have an adverse effect on a company’s business or financial
condition.
•Associated
Risks of Investing in the Medical Industry (Medical
ETF only).
Medical and pharmaceutical-related companies in general are subject to the rate
of change in technology, which is generally higher than that of other
industries. Similarly, cancer research-related industries use many products and
services of companies engaged in medical and pharmaceutical-related activities
and are also subject to relatively high risks of rapid obsolescence caused by
progressive scientific and technological advances. Medical research and
development also is subject to strict regulatory scrutiny and ongoing
legislative action.
•Associated
Risks of Pre-Combination SPACs
(SPAC ETF only). The
Fund invests in equity securities and rights and warrants of SPACs, which raise
assets to seek potential Combination opportunities. Unless and until a
Combination is completed, a SPAC generally invests its assets in U.S. government
securities, money market securities, and cash. If a Combination that meets the
requirements for the SPAC is not completed within a pre-established period of
time (e.g.,
18-24 months), the invested funds are returned to the entity’s shareholders. A
Pre-Combination SPAC may extend the time to consummate a Combination. Because
SPACs have no operating history or ongoing business other than seeking
Combinations, the value of their securities is particularly dependent on the
ability of the entity’s management to identify and complete a profitable
Combination. Public stockholders of SPACs may not be afforded a meaningful
opportunity to vote on a proposed initial Combination because certain
stockholders, including stockholders affiliated with the management of the SPAC,
may have sufficient voting power, and a financial incentive, to approve such a
transaction without support from public stockholders. As a result, a
Pre-Combination SPAC may complete a Combination even though a majority of its
public stockholders do not support such a Combination. There is no guarantee
that the SPACs in which the Fund invests will complete a Combination or that any
Combinations that are completed will be profitable. A SPAC may enter into a
Combination with affiliates of its sponsor which could create a stronger
incentive for the sponsor to approve the Combination. Some SPACs may pursue
Combinations only within certain industries or regions, which may increase the
volatility of their prices. A SPAC may restrict holders from redeeming more than
a certain percentage of the outstanding
public
shares in order to discourage holders from accumulating large blocks of shares.
Some SPACs may seek shareholder approval for a Combination and might have
different redemption terms depending on whether the shareholder votes for,
against, or abstains for the approval of the proposed Combination. In addition,
these securities, which are typically traded in the over-the-counter market, may
be considered illiquid and/or be subject to restrictions on resale. SPACs may
also encounter intense competition from other entities having a similar business
objective, such as private investors or investment vehicles and other SPACs,
competing for the same Combination opportunities, which could make completing an
attractive Combination more difficult. While the terms of warrants issued by
SPACs will vary, to the extent warrants are exercisable prior to a business
combination, the holders of a SPAC’s common stock may be subject to dilution
which could reduce the holder’s proportional ownership in the SPAC.
•Below
Investment Grade Bonds Risk
(Medical
ETF only).
Securities rated “BB+” or below by S&P or “Ba1” or below by Moody’s are
known as high yield securities and are commonly referred to as “junk bonds.”
Such securities entail greater price volatility and credit and interest rate
risk than investment-grade securities. Analysis of the creditworthiness of high
yield issuers is more complex than for higher-rated securities, making it more
difficult for the Adviser to accurately predict risk. There is a greater risk
with high yield fixed income securities that an issuer will not be able to make
principal and interest payments when due. If the Fund pursues missed payments,
there is a risk that Fund expenses could increase. In addition, lower-rated
securities may not trade as often and may be less liquid than higher-rated
securities, especially during periods of economic uncertainty or change. As a
result of all of these factors, these securities are generally considered to be
speculative.
•Concentration
Risk.
To the extent a Fund concentrates (i.e.,
invest more than 25% of its net assets) its investments in a limited number of
issuers conducting business in the same industry or group of related industries,
the Fund is more vulnerable to adverse market, economic, regulatory, political
or other developments affecting that industry or group of related industries
than a fund that invests its assets more broadly. The Blockchain Development ETF
and the Medical ETF each concentrate their investments in securities issued by
companies in one or more of the industries described below, as specified in the
Fund Summary section. As a result of concentrating in a particular industry or
group of related industries, the Blockchain Development ETF and the Medical ETF
are subject to the risks associated with those industries.
◦Capital
Markets Industry (Blockchain Development ETF only).
Global financial markets and economic conditions have been, and may continue to
be, volatile due to a variety of factors, including significant write-offs in
the Financials Sector. In volatile times, the cost of raising capital in the
debt and equity capital markets, and the ability to raise capital, may be
impacted. In particular, concerns about the general stability of financial
markets and specifically the solvency of lending counterparties, may impact the
cost of raising capital from the credit markets through increased interest
rates, tighter lending standards, difficulties in refinancing debt on existing
terms or at all and reduced, or in some cases ceasing to provide, funding to
borrowers. In addition, lending counterparties under existing revolving credit
facilities and other debt instruments may be unwilling or unable to meet their
funding obligations.
◦Medical
Research, Pharmaceutical and Technology Industries Risk (Medical ETF only).
Companies
in the medical research, pharmaceutical and technology industries, as
traditionally defined, spend heavily on research and development, and their
products or services may not prove commercially successful or may become
obsolete quickly. These industries are subject to a significant amount of
governmental regulation, and changes in governmental policies and the need for
regulatory approvals may have a material adverse effect on these industries.
This regulation requires significant investments in time and funds to maintain
compliance. The process of obtaining government approvals can be long and
costly, and the process is accompanied by significant uncertainty. Companies in
which the Fund may invest in may not currently have any marketed or approved
products and may never have marketed or approved products; companies may not be
able to maintain any regulatory approvals that they obtain for their products or
their products may not be accepted by patients or providers. In addition,
unanticipated problems often arise in connection with the development and
marketing of new products, and many such efforts are ultimately unsuccessful.
Companies in these sectors may not be able to obtain adequate pricing and
reimbursement levels for any marketed products, impeding their ability to
generate a profit. Companies may also have difficulty manufacturing, marketing,
and distributing their products, or may have regulatory authority-imposed
restrictions on their ability to do so. Companies may further face product
liability and other actions should their products be less safe or efficacious
than believed, should they be deemed to have engaged in misleading practices, or
should a person that received their product otherwise experience harm or injury.
Moreover, companies in the pharmaceutical industries are subject to competitive
forces that may make it difficult to raise prices and, in fact, may result in
price discounting and rebating. The profitability of some companies in these
industries may be dependent on a relatively limited number of products. In
addition, their products can become obsolete due to industry innovation, changes
in technologies, or other market developments. Pharmaceutical products are
subject to government approvals, regulation, and reimbursement rates. Companies
in the medical research, pharmaceutical and technology industries are subject to
risks of new technologies and competitive pressures and are heavily dependent on
patents and intellectual property rights. The loss or impairment of these rights
may adversely affect the profitability of these companies.
•Convertible
Securities Risk
(Inflation
Beneficiaries ETF, Blockchain Development ETF and Medical ETF only).
Convertible
securities are subject to the risks affecting both equity and fixed income
securities, including market, credit, liquidity and interest rate
risk.
•Currency
Exchange Rate Risk (Inflation
Beneficiaries ETF, Blockchain Development ETF and Medical ETF only).
The
Funds may invest in investments denominated in non-U.S. currencies or in
securities that provide exposure to such currencies. Changes in currency
exchange rates and the relative value of non-U.S. currencies will affect the
value of a Fund’s investment and the value of your Shares. The value of the U.S.
dollar measured against other currencies is influenced by a variety of factors.
These factors include interest rates, 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. Currency exchange rates can be very volatile and can
change quickly and unpredictably. As a result, the value of an investment in a
Fund may change quickly and without warning and you may lose money.
•Cybersecurity
Risk.
With the increased use of technologies such as the Internet and the dependence
on computer systems to perform business and operational functions, funds (such
as a Fund) and their service providers may be prone to operational and
information security risks resulting from cyber-attacks and/or technological
malfunctions. In general, cyber-attacks are deliberate, but unintentional events
may have similar effects. Cyber-attacks include, among others, stealing or
corrupting data maintained online or digitally, preventing legitimate users from
accessing information or services on a website, releasing confidential
information without authorization, and causing operational disruption.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause a Fund, the Adviser, the Sub-Adviser
and/or other service providers (including custodians and financial
intermediaries) to suffer data breaches or data corruption. Additionally,
cybersecurity failures or breaches of the electronic systems of a Fund, the
Adviser, the Sub-Adviser or a Fund’s other service providers, market makers,
APs, a Fund’s primary listing exchange or the issuers of securities in which
such Fund invests have the ability to disrupt and negatively affect the Fund’s
business operations, including the ability to purchase and sell Shares,
potentially resulting in financial losses to the Fund and its shareholders. For
instance, cyber-attacks or technical malfunctions may interfere with the
processing of shareholder or other transactions, affect a Fund’s ability to
calculate its NAV, cause the release of private shareholder information or
confidential Fund information, impede trading, cause reputational damage, and
subject a Fund to regulatory fines, penalties or financial losses, reimbursement
or other compensation costs, and additional compliance costs. Cyber-attacks or
technical malfunctions may render records of Fund assets and transactions,
shareholder ownership of Shares, and other data integral to the functioning of a
Fund inaccessible or inaccurate or incomplete. A Fund also may incur substantial
costs for cybersecurity risk management to prevent cyber incidents in the
future. A Fund and its respective shareholders could be negatively impacted as a
result.
•Depositary
Receipt Risk
(Blockchain Development ETF and Medical ETF only). The
Fund may hold the securities of non-U.S. companies in the form of depositary
receipts, including ADRs, GDRs and IDRs. ADRs are negotiable certificates issued
by a U.S. financial institution that represent a specified number of shares in a
foreign stock and trade on a U.S. national securities exchange, such as the New
York Stock Exchange. Sponsored ADRs are issued with the support of the issuer of
the foreign stock underlying the ADRs and carry all of the rights of common
shares, including voting rights. GDRs are similar to ADRs but may be issued in
bearer form and are typically offered for sale globally and held by a foreign
branch of an international bank. IDRs are a negotiable certificate issued by a
bank. It represents ownership of a number of shares of stock in a foreign
company that the bank holds in trust. The underlying issuers of certain
depositary receipts, particularly unsponsored or unregistered depositary
receipts, are under no obligation to distribute shareholder communications to
the holders of such receipts, or to pass through to them any voting rights with
respect to the deposited securities. Issuers of unsponsored depositary receipts
are not contractually obligated to disclose material information in the U.S.
and, therefore, such information may not correlate to the market value of the
unsponsored depositary receipt. The underlying securities of the ADRs and GDRs
in the Fund’s portfolio are usually denominated or quoted in currencies other
than the U.S. Dollar. As a result, changes in foreign currency exchange rates
may affect the value of the Fund’s portfolio. In addition, because the
underlying securities of ADRs and GDRs trade on foreign exchanges at times when
the U.S. markets are not open for trading, the value of the securities
underlying the ADRs and GDRs may change materially at times when the U.S.
markets are not open for trading, regardless of whether there is an active U.S.
market for Shares.
•Derivatives
Risk
(Medical ETF only).
The Fund may invest in derivatives, including in particular options contracts,
to pursue its investment objective. The use of derivatives may expose the Fund
to risks in addition to and greater than those associated with investing
directly in the instruments underlying those derivatives, including risks
relating to leverage, correlation (imperfect correlations with underlying
instruments or the Fund’s other portfolio holdings), high price volatility, lack
of availability, counterparty credit, liquidity, valuation and legal
restrictions. The use of derivatives also may expose the Fund to the performance
of securities that the Fund does not own. To the extent the Fund engages in
derivatives in an attempt to hedge certain exposures or risks, there can be no
assurance that the Fund’s hedging investments or transactions will be effective.
In addition, hedging investments or transactions involve costs and may reduce
gains or result in losses, which may adversely affect the Fund. The skills
necessary to successfully execute derivatives strategies may be different from
those for more traditional portfolio management techniques, and if the Adviser
is incorrect about its expectations of market conditions, the use of derivatives
also could result in a loss, which in some cases may be unlimited. Use of
derivatives also may cause the Fund to be subject to additional regulations,
which may generate additional Fund expenses. These practices also entail
transactional expenses and may
cause
the Fund to realize higher amounts of short-term capital gains than if the Fund
had not engaged in such transactions. Certain of the derivatives in which the
Fund invests may trade (and privately negotiated) in the OTC market. OTC
derivatives are complex and often valued subjectively, which exposes the Fund to
heightened liquidity, mispricing and valuation risks. Improper valuations can
result in increased cash payment requirements to counterparties or a loss of
value to the Fund. In addition, OTC derivative instruments are often highly
customized and tailored to meet the needs of the Fund and its trading
counterparties. If a derivative transaction is particularly large or if the
relevant market is illiquid, it may not be possible to initiate a transaction or
liquidate a position at an advantageous time or price. As a result and similar
to other privately negotiated contracts, the Fund is subject to counterparty
credit risk with respect to such derivative contracts. Certain derivatives are
subject to mandatory exchange trading and/or clearing, which exposes the Fund to
the credit risk of the clearing broker or clearinghouse. While exchange trading
and central clearing are intended to reduce counterparty credit risk and to
increase liquidity, they do not make derivatives transactions risk-free.
◦Options
Risk.
Selling (writing) and buying options are speculative activities and entail
greater than ordinary investment risks. A Fund’s use of put options can lead to
losses because of adverse movements in the price or value of the underlying
asset, which may be magnified by certain features of the options. When selling a
put option, a Fund will receive a premium; however, this premium may not be
enough to offset a loss incurred by such Fund if the price of the underlying
asset is below the strike price by an amount equal to or greater than the
premium. Purchasing of put options involves the payment of premiums, which may
adversely affect a Fund’s performance. Purchasing a put option gives the
purchaser of the option the right to sell a specified quantity of an underlying
asset at a fixed exercise price over a defined period of time. Purchased put
options may expire worthless resulting in a Fund’s loss of the premium it paid
for the option.
The
value of an option may be adversely affected if the market for the option
becomes less liquid or smaller, and will be affected by changes in the value or
yield of the option’s underlying asset, an increase in interest rates, a change
in the actual or perceived volatility of the stock market or the underlying
asset and the remaining time to expiration. Additionally, the value of an option
does not increase or decrease at the same rate as the underlying asset. A Fund’s
use of options may reduce such Fund’s ability to profit from increases in the
value of the underlying asset. If the price of the underlying asset of an option
is above the strike price of a written put option, the value of the option, and
consequently of a Fund, may decline significantly more than if such Fund
invested directly in the underlying asset instead of using options. When the
Fund sells an option, it gains the amount of the premium it receives, but also
incurs a liability representing the value of the option it has sold until the
option is either exercised and finishes “in the money,” meaning it has value and
can be sold, or the option expires worthless, or the expiration of the option is
“rolled,” or extended forward. The value of the options in which the Fund
invests is based partly on the volatility used by market participants to price
such options (i.e.,
implied volatility). Accordingly, increases in the implied volatility of such
options will cause the value of such options to increase (even if the prices of
the options’ underlying stocks do not change), which will result in a
corresponding increase in the liabilities of the Fund under such options and
thus decrease the Fund’s NAV.
The
Fund is subject to the risk that a change in U.S. law and related regulations
will affect the way the Fund operates, increase the particular costs of the
Fund’s operation and/or change the competitive landscape. The SEC recently
adopted and implemented a new rule governing a fund’s use of derivatives. The
new rule, among other things, generally requires a fund to adopt a derivatives
risk management program, appoint a derivatives risk manager to oversee the
program and comply with an outer limit on fund leverage risk based on value at
risk, or “VaR.” The new rule has significantly changed the regulatory framework
applicable to the Fund’s use of derivatives, including by replacing the prior
asset segregation regulatory framework in its entirety. Complying with the new
rule may adversely affect the Fund’s performance and may increase costs related
to the Fund’s use of derivatives.
•Emerging
Markets Risk (Blockchain
Development ETF only). Investments
in securities and instruments traded in developing or emerging markets, or that
provide exposure to such securities or markets, can involve additional risks
relating to political, economic, or regulatory conditions not associated with
investments in U.S. securities and instruments. For example, developing and
emerging markets may be subject to (i) greater market volatility, (ii) lower
trading volume and liquidity, (iii) greater social, political and economic
uncertainty, (iv) governmental controls on foreign investments and limitations
on repatriation of invested capital, (v) lower disclosure, corporate governance,
auditing and financial reporting standards, (vi) fewer protections of property
rights, (vii) fewer investor rights and limited legal or practical remedies
available to investors against emerging market companies, (viii) restrictions on
the transfer of securities or currency, and (ix) settlement and trading
practices that differ from those in U.S. markets. Each of these factors may
impact the ability of the Fund to buy, sell or otherwise transfer securities,
adversely affect the trading market and price for Shares and cause the Fund to
decline in value.
•Equity
Market Risk. Common
stocks are susceptible to general stock market fluctuations and to volatile
increases and decreases in value as market confidence in and perceptions of
their issuers change. These investor perceptions are based on various and
unpredictable factors including: expectations regarding government, economic,
monetary and fiscal policies; inflation and interest rates; economic expansion
or contraction; and global or regional political, economic and banking crises.
If you held common stock, or common stock equivalents, of any given issuer, you
would generally be exposed to greater risk than if you held preferred stocks and
debt obligations of the issuer because common stockholders, or holders of
equivalent interests, generally have inferior rights to receive payments from
issuers in comparison with the rights of preferred stockholders, bondholders,
and other creditors of such issuers.
The
respiratory illness COVID-19 has spread globally for over two years, resulting
in a global pandemic and major disruption to economies and markets around the
world, including the United States. During this time, financial markets have
experienced extreme volatility and severe losses, and trading in many
instruments has been disrupted or suspended. Liquidity for many instruments has
been greatly reduced for periods of time. Some sectors of the economy and
individual issuers have experienced particularly large losses. Governments and
central banks, including the Federal Reserve in the U.S., have taken
extraordinary and unprecedented actions to support local and global economies
and the financial markets. The impact of these measures, and whether they will
be effective to mitigate the economic and market disruption, will not be known
for some time. However, the rapid COVID-19 vaccination rollout in the United
States and certain other developed countries, coupled with the passage of
stimulus programs in the U.S. and abroad, have resulted in the re-opening of
businesses, a reduction in quarantine and masking requirements, increased
consumer demand, and the resumption of in-person schooling, travel and events.
As a result, many global economies, including the U.S. economy, have either
re-opened fully or decreased significantly the number of public safety measures
in place that are designed to mitigate virus transmission. Despite these
positive trends, the prevalence of new COVID-19 variants, a failure to achieve
herd immunity, or other unforeseen circumstances may result in the continued
spread of the virus throughout unvaccinated populations or a resurgence in
infections among vaccinated individuals. As a result, it remains unclear if
recent positive trends will continue in developed markets and whether such
trends will spread world-wide to countries with limited access to effective
vaccines that are still experiencing rising COVID-19 hospitalizations and
deaths.
•ETF
Risks. Each
Fund is an ETF and, as a result of its structure, is exposed to the following
risks:
◦APs,
Market Makers, and Liquidity Providers Concentration Risk.
The Funds have a limited number of financial institutions that may act as APs.
In addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. Shares may trade at a material discount to NAV and
possibly face delisting if either: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares.
Investors buying or selling Shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers, as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of Shares. In addition, secondary market investors will also incur the cost of
the difference between the price at which an investor is willing to buy Shares
(the “bid” price) and the price at which an investor is willing to sell Shares
(the “ask” price). This difference in bid and ask prices is often referred to as
the “spread” or “bid/ask spread.” The bid/ask spread varies over time for Shares
based on trading volume and market liquidity, and is generally lower if Shares
have more trading volume and market liquidity and higher if Shares have little
trading volume and market liquidity. Further, a relatively small investor base
in a Fund, asset swings in a Fund, and/or increased market volatility may cause
increased bid/ask spreads. Due to the costs of buying or selling Shares,
including bid/ask spreads, frequent trading of Shares may significantly reduce
investment results and an investment in Shares may not be advisable for
investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. Although it is expected that the market price of Shares will
approximate a Fund’s NAV, there may be times when the market price of Shares is
more than the NAV intra-day (premium) or less than the NAV intra-day (discount)
due to supply and demand of Shares or during periods of market volatility. This
risk is heightened in times of market volatility, periods of steep market
declines, and periods when there is limited trading activity for Shares in the
secondary market, in which case such premiums or discounts may be significant.
The market price of Shares during the trading day, like the price of any
exchange-traded security, includes a “bid/ask” spread charged by the exchange
specialist, market makers or other participants that trade Shares. In times of
severe market disruption, the bid/ask spread can increase significantly. At
those times, Shares are most likely to be traded at a discount to NAV, and the
discount is likely to be greatest when the price of Shares is falling fastest,
which may be the time that you most want to sell your Shares. The Adviser
believes that, under normal market conditions, large market price discounts or
premiums to NAV will not be sustained because of arbitrage opportunities.
Because securities held by the Fund may trade on foreign exchanges that are
closed when a 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 a Fund’s underlying
portfolio holdings, which can be significantly less liquid than
Shares.
•Fixed
Income Risk
(Medical ETF only). Current
market conditions and the actions of governmental authorities and regulators in
response to COVID-19 and its far-reaching effects present heightened risks to
the fixed income market generally. Such risks could be further heightened if
such market conditions become more volatile or the governmental and regulatory
actions are unexpectedly or suddenly reversed or are ineffective in achieving
their desired outcomes. In addition, the current environment is exposing
fixed-income and debt markets to significant volatility and reduced liquidity
for Fund investments.
◦Call
Risk.
During periods of falling interest rates, an issuer of a callable bond held by
the Fund may “call” or repay the security before its stated maturity, and the
Fund may have to reinvest the proceeds at lower interest rates, resulting in a
decline in the Fund’s income.
◦Credit
Risk.
Debt issuers and other counterparties may not honor their obligations or may
have their debt downgraded by ratings agencies. This risk may be especially
acute with respect to high yield securities, whose issuers are particularly
susceptible to failure to meet repayment obligations principal under current
conditions. An issuer may suffer adverse changes in its financial condition or
be adversely affected by economic, political or social conditions that could
lower the credit quality (or the market’s perception of the credit quality) of a
security, leading to greater volatility in the price of the security and the
value of the Fund. A change in the credit quality rating of a security can
affect its liquidity and make it more difficult for the Fund to sell. Although
credit quality may not accurately reflect the true credit risk of a security, a
change in the credit quality rating of a security or an issuer can have a rapid,
adverse effect on the instrument’s liquidity and make it more difficult for the
Fund to sell at an advantageous price or time. The risk of the occurrence of
these types of events is especially heightened under current conditions. Any
applicable limitation on the credit quality of a security in which the Fund may
invest is applied at the time such Fund purchases the security.
Credit
quality is a measure of the issuer’s expected ability to make all required
interest and principal payments in a timely manner. An issuer with the highest
credit rating has a very strong capacity with respect to making all payments. An
issuer with the second highest credit rating has a strong capacity to make all
payments, but the degree of safety is somewhat less. An issuer with the lowest
credit quality rating may be in default or have extremely poor prospects of
making timely payment of interest and principal. Investment grade securities are
fixed-income securities that have been determined by a nationally recognized
statistical rating organization to have a medium to high probability of being
paid (although there is always a risk of default), or which, if unrated, have
been determined by the Adviser or Sub-Adviser to be of comparable quality. If
nationally recognized statistical rating organizations assign different ratings
to the same security, the Fund will use the higher rating for purposes of
determining the security’s credit quality.
◦Extension
Risk.
During periods of rising interest rates, certain debt obligations will be paid
off substantially more slowly than originally anticipated and the value of those
securities may fall sharply, resulting in a decline in the Fund’s income and
potentially in the value of the Fund’s investments. During periods when credit
spreads are increasing, certain CLO debt tranches may be paid off substantially
more slowly than originally anticipated and the value of those securities may
fall sharply, resulting in a decline in the Fund’s income and potentially in the
value of the Fund’s investments.
◦Interest
Rate Risk.
An increase in interest rates may cause the value of fixed-income securities
held by the Fund to decline. The Fund may be subject to a greater risk of rising
interest rates due to the recent historically low rates and the effect of
potential government fiscal policy initiatives and resulting market reaction to
those initiatives. Longer term fixed income instruments and zero coupon bonds
are generally more sensitive to interest rate changes than shorter-term fixed
income instruments. Generally, the longer the average maturity of the fixed
income investments in the Fund, the more such Fund’s share price will fluctuate
in response to interest rate changes. If an issuer calls or redeems an
investment during a time of declining interest rates, the Fund might have to
reinvest the proceeds in an investment offering a lower yield, and therefore
might not benefit from any increase in value as a result of declining interest
rates. Securities with floating interest rates, such as syndicated bank loans,
generally are less sensitive to interest rate changes, but may decline in value
if their interest rates do not rise as much or as fast as interest rates in
general. Changes in government or central bank policy, including changes in tax
policy or changes in a central bank’s implementation of specific policy goals,
may have a substantial impact on interest rates, and could have an adverse
effect on prices for fixed income securities and on the performance of the Fund.
In particular, interest rates in the U.S. are at or near historically low levels
and as a result, fixed income securities markets may experience heightened
levels of interest rate risk. Any unexpected or sudden reversal of the fiscal
policy underlying current interest rate levels could adversely affect the value
of the Fund. There can be no guarantee that any particular government or central
bank policy will be continued, discontinued or changed, nor that any such policy
will have the desired effect on interest rates.
There
is a risk that interest rates across the financial system may change, sometimes
unpredictably, in response to a variety of factors, such as central bank
monetary policies, inflation rates and general economic conditions. Very low or
negative interest rates may magnify the Fund’s susceptibility to interest rate
risk and diminish yield and performance (e.g.,
during periods of very low or negative interest rates, the Fund may be unable to
maintain positive returns). Changes in fixed-income or related market
conditions, including the potential for changes to interest rates and negative
interest rates, may expose fixed-income or related markets to heightened
volatility and reduced liquidity for Fund investments, which may be difficult to
sell at favorable times or prices, causing the value of the Fund’s investments
and NAV per share to decline. A rise in general interest rates also may result
in increased redemptions from the Fund. Very low, negative or changing interest
rates also may
have
unpredictable effects on securities markets in general, directly or indirectly
affecting the Fund’s investments, yield and performance.
◦Income
Risk.
The Fund’s income may decline if interest rates fall. This decline in income can
occur because most of the debt instruments held by the Fund will have floating
or variable interest rates.
•Foreign
Securities Risk
(Inflation Beneficiaries ETF, Blockchain Development ETF and Medical ETF only).
Investments
in non-U.S. securities involve certain risks that may not be present with
investments in U.S. securities. For example, investments in non-U.S. securities
may be subject to risk of loss due to foreign currency fluctuations or to
political or economic instability. There may be less information publicly
available about a non-U.S. issuer. Non-U.S. issuers may be subject to different
accounting, auditing, financial reporting, and investor protection standards
than US. issuers. Investments in non-U.S. securities also may be subject to
withholding or other taxes and may be subject to additional trading, settlement,
custodial, and operational risks. With respect to certain countries, there is
the possibility of government intervention and expropriation or nationalization
of assets. Because legal systems differ, there is also the possibility that it
will be difficult to obtain or enforce legal judgments in certain countries.
Since foreign exchanges may be open on days when a Fund does not price its
shares, the value of the securities in the Fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the Fund’s shares.
Conversely, Shares may trade on days when foreign exchanges are close. These and
other factors can make investments in a Fund more volatile and potentially less
liquid than other types of investments.
•Frontier
Markets Risk
(Blockchain
Development ETF only).
Certain foreign markets are only in the earliest stages of development and may
be considered “frontier markets.” Frontier financial markets generally are less
liquid and more volatile than other markets, including markets in developing and
emerging economies. Frontier markets have a high concentration of market
capitalization and trading volume in a small number of issuers representing a
limited number of industries. Securities may have limited marketability and be
subject to erratic price movements. Frontier market governments typically
exercise substantial influence over many aspects of the private sector. In
certain cases, the government owns or controls many companies, including the
largest company in the country. Accordingly, governmental actions in the future
could have a significant effect on economic conditions in frontier market
countries. This could affect private sector companies and the Fund, as well as
the value of securities in the Fund’s portfolio. Further, substantial
limitations may exist in certain frontier market countries with respect to the
Fund’s ability to protect its legal interests and ability to repatriate its
investment, investment income or capital gains. The Fund could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation of capital, as well as by the application to the Fund of any
restrictions on investment. Procedures concerning transaction settlement and
dividend collection may be less reliable than in developed markets and larger
emerging markets. Frontier markets have been, and may continue to be, impacted
by political instability, war, terrorist activities and religious, ethnic and/or
socioeconomic unrest. These and other factors make investing in frontier market
countries significantly riskier than investing in developed market or emerging
market countries.
•Geographic
Investment Risk
(Inflation Beneficiaries ETF and Blockchain Development ETF only). To
the extent a 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.
◦Australia-Specific
Risk (Inflation Beneficiaries ETF only). Because
investments in the metals and mining industry may be geographically concentrated
in Australian companies or companies that have a significant presence in
Australia, investment results could be dependent on the financial condition of
the Australian economy. Investments in Australian issuers may subject the Fund
to regulatory, political, currency, security, and economic risk specific to
Australia. The Australian economy is heavily dependent on exports from the
agricultural and mining sectors. This makes the Australian economy susceptible
to fluctuations in the commodity markets. Australia is also dependent on trading
with key trading partners.
◦Canada-Specific
Risk. Because
a Fund may have significant exposure to Canadian companies or companies that
have a significant presence in Canada, investment results could be dependent on
the financial condition of the Canadian economy. The Canadian economy is reliant
on the sale of natural resources and commodities, which can pose risks such as
the fluctuation of prices and the variability of demand for exportation of such
products. Changes in spending on Canadian products by the economies of other
countries or changes in any of these economies may cause a significant impact on
the Canadian economy.
◦Europe-Specific
Risk (Inflation Beneficiaries ETF only). The
economies of Europe are highly dependent on each other, both as key trading
partners and as in many cases as fellow members maintaining the euro. Reduction
in trading activity among European countries may cause an adverse impact on each
nation’s individual economies. European countries that are part of the Economic
and Monetary Union of the EU are required to comply with restrictions on
inflation rates, deficits, interest rates, debt levels, and fiscal and monetary
controls, each of which may significantly affect every country in Europe.
Decreasing imports or exports, changes in governmental or EU regulations on
trade, changes in the exchange rate of the euro, the default or threat of
default by an EU member country on its sovereign debt, and recessions in an EU
member country may have a significant adverse effect on the economies of EU
member countries and their trading partners.
The
European financial markets have experienced volatility and adverse trends due to
concerns about increased government debt levels of several European countries,
including Greece, Spain, Ireland, Italy, and Portugal. These events have
adversely affected the exchange rate of the euro and may continue to
significantly affect every country in Europe. For some countries, the ability to
repay sovereign debt is in question, and default is possible, which could affect
their ability to borrow in the future. Furthermore, there is the possibility of
contagion that could occur if one country defaults on its debt, and that a
default in one country could trigger declines and possible additional defaults
in other countries in the region.
Responses
to the financial problems by European governments, central banks and others,
including austerity measures and reforms, may not work, may result in social
unrest and may limit future growth and economic recovery or have other
unintended consequences. Further defaults or restructurings by governments and
other entities of their debt could have additional adverse effects on economies,
financial markets, and asset valuations around the world. In addition, one or
more countries may abandon the euro, the common currency of the EU, and/or
withdraw from the EU alongside the UK, as discussed below. The impact of these
actions, especially if they occur in a disorderly fashion, is not clear but
could be significant and far-reaching.
The
UK formally exited from the EU on January 31, 2020 (known as “Brexit”) and,
following an 11-month transition period, left the EU single market and customs
union under the terms of a new trade agreement on December 31, 2020.
The
agreement governs the new relationship between the United Kingdom and EU with
respect to trading goods and services, but critical aspects of the relationship
remain unresolved and subject to further negotiation and agreement. The full
scope and nature of the consequences of the exit are not at this time known, but
may include increased volatility and illiquidity, and potentially lower economic
growth of markets in the UK, Europe and globally, which may adversely affect the
value of the Fund’s investments.
•Limited
Operating History Risk
(Blockchain Development ETF only). The
Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•Liquidity
Risk
(Medical ETF and SPAC ETF only). Liquidity
risk refers to the possibility that a Fund may not be able to sell or buy a
security or close out an investment contract at a favorable price or time.
Consequently, a Fund may have to accept a lesser price to sell a security, sell
other securities to raise cash, or give up an investment opportunity, any of
which could have a negative effect on a Fund’s performance. Infrequent trading
of securities also may lead to an increase in their price volatility.
In
addition, during periods of reduced market liquidity or in the absence of
readily available market quotations for particular investments in a Fund’s
portfolio, the ability of a Fund to assign an accurate daily value to these
investments may be difficult and the Adviser or Sub-Adviser may be required to
fair value the investments. Fair value determinations are inherently subjective
and reflect good faith judgments based on available information. Accordingly,
there can be no assurance that the determination of a security’s fair value in
accordance with a Fund’s valuation procedures will in fact approximate the price
at which such Fund could sell that security at that time (i.e.,
the sale price could differ, sometimes significantly, from the Fund’s last
valuation for the security). Investors who purchase or redeem shares of a Fund
on days when such Fund is holding fair valued securities may receive fewer or
more shares or lower or higher redemption proceeds than they would have received
if the Fund had not fair valued the securities or had used a different valuation
methodology. These risks may be magnified in a rising interest rate environment
and if a Fund holds a significant percentage of fair valued or otherwise
difficult to value securities, such Fund may be particularly susceptible to the
risks associated with valuation.
Liquidity
risk also refers to the risk of unusually high redemption requests, redemption
requests by certain large shareholders such as institutional investors or asset
allocators, or other unusual market conditions that may make it difficult for a
Fund to sell investments within the allowable time period to meet redemptions.
Meeting such redemption requests could require a Fund to sell securities at
reduced prices or under unfavorable conditions or access additional means of
liquidity, which would reduce the value of such Fund. This risk is especially
acute under current market conditions.
•Management
Risk.
Each Fund is actively managed and may not meet its investment objective based on
the Adviser’s or Sub-Adviser’s success or failure to implement investment
strategies for the Fund. The Adviser’s or Sub-Adviser’s evaluations and
assumptions regarding issuers, securities, and other factors may not
successfully achieve a Fund’s investment objective given actual market
conditions.
•Market
Capitalization Risk
◦Large-Capitalization
Investing Risk (Inflation Beneficiaries ETF and Blockchain Development ETF
only). The
securities of large-capitalization companies may be relatively mature compared
to smaller companies and therefore subject to slower growth during times of
economic expansion. Large-capitalization companies may also be unable to respond
quickly to new competitive challenges, such as changes in technology and
consumer tastes.
◦Mid-Capitalization
Investing Risk.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes
than
large-capitalization stocks or the stock market as a whole. Some medium
capitalization companies have limited product lines, markets, financial
resources, and management personnel and tend to concentrate on fewer
geographical markets relative to large-capitalization companies.
◦Small-Capitalization
Investing Risk. The
securities of small-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of large- or
mid-capitalization companies. The securities of small-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large- or mid-capitalization stocks or the
stock market as a whole. Some small capitalization companies have limited
product lines, markets, and financial and managerial resources and tend to
concentrate on fewer geographical markets relative to larger capitalization
companies. There is typically less publicly available information concerning
smaller-capitalization companies than for larger, more established companies.
Small-capitalization companies also may be particularly sensitive to changes in
interest rates, government regulation, borrowing costs and
earnings.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. A Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
economic, political and global macro factors, including public health issues,
growth concerns in the U.S. and overseas, uncertainties regarding interest
rates, trade tensions and the threat of tariffs imposed by the U.S. and other
countries. In addition, local, regional or global events such as war, including
Russia’s invasion of Ukraine, acts of terrorism, spread of infectious diseases
or other public health issues, recessions, rising inflation, or other events
could have a significant negative impact on the performance of a Fund and its
investments. These developments as well as other events could result in further
market volatility and negatively affect financial asset prices, the liquidity of
certain securities and the normal operations of securities exchanges and other
markets, which could have an adverse effect on the Fund.
The
COVID-19 pandemic has significantly impacted economies and markets around the
world, including the United States. The pandemic has resulted in a wide range of
social and economic disruptions, including closed borders, voluntary or
compelled quarantines of large populations, stressed healthcare systems, reduced
or prohibited domestic or international travel, supply chain disruptions, and
so-called “stay-at-home” orders throughout much of the United States and many
other countries. Financial markets have experienced extreme volatility and
severe losses, and trading in many instruments has been disrupted. Some sectors
of the economy and individual issuers have experienced particularly large
losses. Such disruptions may continue for an extended period of time or reoccur
in the future to a similar or greater extent. Liquidity for many instruments has
been greatly reduced for periods of time. In response to these disruptions, the
U.S. government and the Federal Reserve have taken extraordinary actions to
support the domestic economy and financial markets. It is unknown how long
circumstances related to the COVID-19 pandemic will persist, whether they will
reoccur in the future, whether efforts to support the economy and financial
markets will be successful, and what additional implications may follow from the
pandemic. The impact of these events and other epidemics or pandemics in the
future could adversely affect Fund performance.
•MLP
Risk
(Inflation
Beneficiaries ETF only). MLP
investment returns are enhanced during periods of declining or low interest
rates and tend to be negatively influenced when interest rates are rising. In
addition, most MLPs are leveraged investments and are subject to interest rate
risk as higher interest rates generally result in increased costs associated
with MLPs’ floating rate debt. As such, a significant upward swing in interest
rates would also drive interest expense higher. Furthermore, most MLPs grow by
acquisitions partly financed by debt, and higher interest rates could make it
more difficult to make acquisitions. Certain MLP securities may trade in lower
volumes due to their smaller capitalizations. Accordingly, those MLPs may be
subject to more abrupt or erratic price movements and may lack sufficient market
liquidity to enable the Fund to effect sales at an advantageous time or without
a substantial drop in price. MLP investments also entail many of the general tax
risks of investing in a partnership. Limited partners in an MLP typically have
limited control and limited rights to vote on matters affecting the partnership.
Additionally, there is always the risk that an MLP will fail to qualify for
favorable tax treatment. MLPs may incur environmental costs and liabilities due
to the nature of their businesses and the substances they handle. Changes in
existing laws, regulations or enforcement policies governing the sectors in
which MLPs operate could significantly increase the compliance costs of
MLPs.
•New
Strategy Risk
(SPAC ETF only).
The Fund may not be successful in implementing its new investment strategy, and
its investment strategy may not be successful under all future market
conditions, either of which could result in the Fund being liquidated at some
future time without shareholder approval and/or at a time that may not be
favorable for certain shareholders. New strategies may not attract sufficient
assets to achieve investment, trading or other efficiencies.
•Non-Diversification
Risk.
Because each Fund is “non-diversified,” it may invest a greater percentage of
its assets in the securities of a single issuer or a lesser number of issuers
than if it was a diversified fund. As a result, a Fund may be more exposed to
the risks associated with and developments affecting an individual issuer or a
lesser number of issuers than a fund that invests more widely. This may increase
a Fund’s volatility and cause the performance of a relatively small number of
issuers to have a greater impact on such Fund’s performance.
•Other
Investment Companies Risk
(Medical
ETF only).
A Fund may invest in shares of other investment companies, such as ETFs. The
risks of investment in these securities typically reflect the risks of the types
of instruments in which the investment company invests. When a Fund invests in
investment company securities, shareholders of such Fund bear indirectly their
proportionate share of their fees and expenses, as well as their share of such
Fund’s fees and expenses. As a result, an investment by a Fund in an investment
company could cause such Fund’s operating expenses (taking into account indirect
expenses such as the fees and expenses of the investment company) to be higher
and, in turn, performance to be lower than if it were to invest directly in the
instruments underlying the investment company. Investments in ETFs are also
subject to the “ETF Risks” described above.
•Portfolio
Turnover Risk
(SPAC
ETF only). Because
the Fund may “turn over” some or all of its options as frequently as monthly,
the Fund may incur high levels of transaction costs from commissions or mark-ups
in the bid/offer spread. Higher portfolio turnover may result in the Fund paying
higher levels of transaction costs and generating greater tax liabilities for
shareholders. Portfolio turnover risk may cause the Fund’s performance to be
less than you expect. While the turnover of the warrants is not deemed
“portfolio turnover” for accounting purposes, the economic impact to the Fund is
similar to what could occur if the Fund experienced high portfolio turnover
(e.g.,
in excess of 100% per year).
•Real
Assets Risk (Inflation
Beneficiaries ETF only). The
Fund’s investments in securities linked to real assets involve significant
risks, including financial, operating, and competitive risks. Investments in
securities linked to real assets expose the Fund to adverse macroeconomic
conditions, such as changes and volatility in commodity prices, a rise in
interest rates or a downturn in the economy in which the asset is located,
elevating the risk of loss. Changes in inflation rates or in the market’s
inflation expectations may adversely affect the market value of
inflation-sensitive equities.
•Royalty
Trusts Risk
(Inflation
Beneficiaries ETF only). The
Fund may invest in publicly traded royalty trusts. Royalty trusts are special
purpose vehicles organized as investment trusts created to make investments in
operating companies or their cash flows. A royalty trust generally acquires an
interest in natural resource companies and distributes the income it receives to
the investors of the royalty trust. A sustained decline in demand for the
royalty trust’s underlying commodity could adversely affect income and royalty
trust revenues and cash flows. Factors that could lead to a decrease in market
demand include a recession or other adverse economic conditions, an increase in
the market price of the underlying commodity, higher taxes or other regulatory
actions that increase costs, or a shift in consumer demand for such products. A
rising interest rate environment could adversely impact the performance of
royalty trusts. Rising interest rates could limit the capital appreciation of
royalty trusts because of the increased availability of alternative investments
at more competitive yields. Further, because natural resources are depleting
assets, the income-producing ability of a royalty trust will eventually be
exhausted and the royalty trust will need to raise or retain funds to make new
acquisitions to maintain its value. The Fund’s investment in royalty trusts may
result in the layering of expenses such that shareholders will indirectly bear a
proportionate share of the royalty trusts’ operating expenses in addition to
paying Fund expenses.
•Sector
Risk.
The Funds’ investing approach may result in an emphasis on certain sectors or
sub-sectors of the market at any given time. To the extent a Fund invests more
heavily in one sector or sub-sector of the market, it thereby presents a more
concentrated risk and its performance will be especially sensitive to
developments that significantly affect those sectors or sub-sectors. In
addition, the value of Shares may change at different rates compared to the
value of shares of a fund with investments in a more diversified mix of sectors
and industries. An individual sector or sub-sector of the market may have
above-average performance during particular periods, but may also move up and
down more than the broader market. The several industries that constitute a
sector may all react in the same way to economic, political or regulatory
events. A Fund’s performance could also be affected if the sectors or
sub-sectors do not perform as expected. Alternatively, the lack of exposure to
one or more sectors or sub-sectors may adversely affect performance.
◦Communication
Services Sector Risk (Blockchain Development ETF only). Market
or economic factors impacting communication services companies and companies
that rely heavily on technological advances could have a major effect on the
value of the Fund’s investments. Communication services companies are
particularly vulnerable to the potential obsolescence of products and services
due to technological advancement and the innovation of competitors. Companies in
the communication services sector may also be affected by other competitive
pressures, such as pricing competition, as well as research and development
costs, substantial capital requirements and government regulation. Additionally,
fluctuating domestic and international demand, shifting demographics and often
unpredictable changes in consumer tastes can drastically affect a communication
services company’s profitability. Stocks of communication services
companies and companies that rely heavily on technology, especially those of
smaller, less-seasoned companies, tend to be more volatile than the overall
market. Additionally, companies in the communication services sector may face
dramatic and often unpredictable changes in growth rates and competition for the
services of qualified personnel. While all companies may be susceptible to
network security breaches, certain companies in the communication services
sector may be particular targets of hacking and potential theft of proprietary
or consumer information or disruptions in service, which could have a material
adverse effect on their businesses.
◦Energy
Sector Risk (Inflation Beneficiaries ETF only). The
energy sector is comprised of energy, energy industrial, energy infrastructure,
and energy logistics companies, and will therefore be susceptible to adverse
economic, environmental,
business,
regulatory, or other occurrences affecting that sector. The energy sector has
historically experienced substantial price volatility. At times, the performance
of these investments may lag the performance of other sectors or the market as a
whole. Companies operating in the energy sector are subject to specific risks,
including, among others, fluctuations in commodity prices; reduced consumer
demand for commodities such as oil, natural gas, or petroleum products; reduced
availability of natural gas or other commodities for transporting, processing,
storing, or delivering; slowdowns in new construction; extreme weather or other
natural disasters; and threats of attack by terrorists on energy assets.
Additionally, energy sector companies are subject to substantial government
regulation and changes in the regulatory environment for energy companies may
adversely impact their profitability. Certain energy sector companies may incur
environmental costs and liabilities due to the nature of their businesses and
the substances they handle. Changes in existing laws, regulations, or
enforcement policies governing the energy sector could significantly increase
the compliance costs of such companies. Such companies could, from time to time,
be held responsible for implementing remediation measures, the cost of which may
not be recoverable from insurance. Over time, depletion of natural gas reserves
and other energy reserves may also affect the profitability of energy companies.
The above factors may change quickly and without warning and may negatively
impact the value of the Fund and your investment.
◦Financials
Sector Risk (Blockchain Development ETF only). The
financials sector includes companies involved in such activities as banking,
commercial and consumer finance, investment banking, brokerage, asset
management, custody and insurance. Companies in the financials sector may be
subject to extensive government regulation that affects the scope of their
activities, the prices they can charge and the amount of capital they must
maintain. The profitability of companies in the financials sector may be
adversely affected by increases in interest rates. The profitability of
companies in the financials sector may be adversely affected by loan losses,
which usually increase in economic downturns. In addition, the financials sector
in certain countries is undergoing numerous changes, including continuing
consolidations, development of new products and structures and changes to its
regulatory framework, which may have an impact on the issuers included in the
Fund. Furthermore, increased government involvement in the financials sector,
including measures such as taking ownership positions in financial institutions,
could result in a dilution of the Fund’s investments in financial institutions.
◦Information
Technology Sector Risk (Blockchain Development ETF only).
Market or economic factors impacting information technology companies and
companies that rely heavily on technological advances could have a significant
effect on the value of the Fund’s investments. The value of stocks of
information technology companies and companies that rely heavily on technology
is particularly vulnerable to rapid changes in technology product cycles, rapid
product obsolescence, government regulation and competition, both domestically
and internationally, including competition from foreign competitors with lower
production costs. Stocks of information technology companies and companies that
rely heavily on technology, especially those of smaller, less-seasoned
companies, tend to be more volatile than the overall market. Information
technology companies are heavily dependent on patent and intellectual property
rights, the loss or impairment of which may adversely affect profitability.
Additionally, companies in the technology sector may face dramatic and often
unpredictable changes in growth rates and competition for the services of
qualified personnel.
◦Manufacturing
Sector (Medical ETF only). Companies
in the Manufacturing Sector can be significantly affected by supply and demand
both for their specific product or service and for Manufacturing Sector products
in general; a decline in demand for products due to rapid technological
developments and frequent new product introduction; government regulation, world
events and economic conditions; and the risks associated with potential
environmental damage and product liability claims.
•Securities
Exchange Companies Risk
(Inflation
Beneficiaries ETF only). The
Fund’s investments in securities exchange companies subject it to more risks as
compared to a fund that invests in a wider variety of companies. For instance,
various factors may significantly affect securities exchange companies,
including economic, political and geopolitical market conditions; legislative
and regulatory changes, including any direct or indirect restrictions on or
increased costs associated with trading in the markets; broad trends in the
industry and financial markets; changes in price levels, trading volumes and
volatility in the derivatives, cash and OTC markets and in their underlying
markets; shifts in demand or supply in commodities underlying their products;
and competition.
•Tax
Risk
(Inflation Beneficiaries ETF only).
In order to qualify for the favorable U.S. federal income tax treatment accorded
to RICs, the Fund must derive at least 90% of its gross income in each taxable
year from certain categories of income (“qualifying income”) and must satisfy
certain asset diversification requirements. Certain of the Fund’s investments,
including certain investments in royalty trusts, may generate income that is not
qualifying income. The Fund will seek to restrict its income from such
investments that do not generate qualifying income to a maximum of 10% of its
gross income (when combined with its other investments that produce
non-qualifying income) to comply with the qualifying income requirement for the
Fund to qualify as a RIC under the Code. However, the Fund may generate more
non-qualifying income than anticipated, may not be able to generate qualifying
income in a particular taxable year at levels sufficient to meet the qualifying
income requirement, or may not be able to accurately predict the non-qualifying
income from these investments. Accordingly, the extent to which the Fund invests
in real assets, including commodities, and royalty trusts may be limited by the
qualifying income requirement, which the Fund must continue to satisfy to
maintain its status as a RIC. Failure to comply with the qualifying income
requirement would have significant negative tax consequences to Fund
shareholders. Under certain circumstances, the Fund may be able to cure a
failure
to
meet the qualifying income requirement, but in order to do so the Fund may incur
significant Fund-level taxes, which would effectively reduce (and could
eliminate) the Fund’s returns.
•Tax
Risk (Medical
ETF only).
The writing of call options by a Fund may significantly reduce or eliminate its
ability to make distributions eligible to be treated as qualified dividend
income for non-corporate shareholders or eligible for the dividends received
deduction applicable to corporate shareholders. Covered call options may also be
subject to the federal tax rules applicable to straddles under the Code. In
addition, positions held by a Fund were treated as “straddles” for federal
income tax purposes, or a Fund’s risk of loss with respect to a position was
otherwise diminished as set forth in Treasury regulations, dividends on stocks
that are a part of such positions would not constitute qualified dividend income
subject to such favorable income tax treatment in the hands of non-corporate
shareholders or eligible for the dividends received deduction for corporate
shareholders. In addition, generally, straddles are subject to certain rules
that may affect the amount, character and timing of a Fund’s recognition of
gains and losses with respect to straddle positions by requiring, among other
things, that: (1) any loss realized on disposition of one position of a straddle
may not be recognized to the extent that a Fund has unrealized gains with
respect to the other position in such straddle; (2) a Fund’s holding period in
straddle positions be suspended while the straddle exists (possibly resulting in
a gain being treated as short-term capital gain rather than long-term capital
gain); (3) the losses recognized with respect to certain straddle positions that
are part of a mixed straddle and that are not subject to Section 1256 of the
Code be treated as 60% long-term and 40% short-term capital loss; (4) losses
recognized with respect to certain straddle positions that would otherwise
constitute short-term capital losses be treated as long-term capital losses; and
(5) the deduction of interest and carrying charges attributable to certain
straddle positions may be deferred.
•Warrants
and Rights Risk
(SPAC ETF only). The
Fund may receive warrants or rights in connection with purchasing equity
securities, specifically SPAC Units. Investments in warrants or rights are pure
speculation in that they have no voting rights, pay no dividends and have no
rights with respect to the assets of the corporation issuing them. They do not
represent ownership of the securities, but only the right to buy them. The
prices of warrants or rights do not necessarily move parallel to the prices of
underlying securities. Warrants or rights involve the risk that the Fund could
lose the purchase value of the warrant if the warrant is not exercised or sold
prior to its expiration. They also involve the risk that the effective price
paid for the warrant or right added to the subscription price of the related
security may be greater than the value of the subscribed security’s market
price. If the Fund holds warrants or rights associated with a SPAC that does not
complete a business combination within the designated time period, the warrants
or rights held by the Fund will expire and lose all value.
Information
about each Fund’s daily portfolio holdings is available at
www.horizonkinetics.com/products/etf. A complete description of the Funds’
policies and procedures with respect to the disclosure of the Funds’ portfolio
holdings is available in the Funds’ Statement of Additional Information (the
“SAI”).
Horizon
Kinetics Asset Management LLC, located at 470 Park Avenue South, 3rd Floor
South, New York, New York 10016, serves as the investment adviser for the Funds.
The Adviser, subject to the oversight of the Board, provides an investment
management program for the Funds and manages the day-to-day investment of each
Fund’s assets. The Adviser continuously reviews, supervises, and administers
each Fund’s investment program. In particular, the Adviser provides investment
and operational oversight of the Sub-Adviser for the SPAC ETF. The Adviser also
arranges for transfer agency, custody, fund administration, distribution and all
other services necessary for the Funds to operate. The Adviser is an
SEC-registered investment adviser that offers a broad range of portfolio
management, portfolio advisory and other business activities. As of December 31,
2022, the Adviser had approximately $7.9 billion in assets under
management.
For
the services it provides to the Funds, the Adviser is entitled to a unified
management fee, which is calculated daily and paid monthly, at an annual rate
based on each Fund’s average daily net assets as set forth in the table
below.
|
|
|
|
| |
Fund
|
Management
Fee |
Horizon
Kinetics Inflation Beneficiaries ETF |
0.85% |
Horizon
Kinetics Blockchain Development ETF |
0.85% |
Horizon
Kinetics Medical ETF |
0.85% |
Horizon
Kinetics SPAC Active ETF |
0.85% |
Pursuant
to an investment advisory agreement between the Trust, on behalf of the Funds,
and the Adviser (the “Advisory Agreement”), the Adviser has agreed to pay all
expenses of the Funds except the fee payable to the Adviser under the Advisory
Agreement, interest charges on any borrowings, dividends and other expenses on
securities sold short, taxes, brokerage commissions
and
other expenses incurred in placing orders for the purchase and sale of
securities and other investment instruments, acquired fund fees and expenses,
accrued deferred tax liability, extraordinary expenses, and distribution (12b-1)
fees and expenses (if any).
The
basis for the Board’s approval of the Advisory Agreement with respect to the
Inflation Beneficiaries ETF and the Blockchain Development ETF is available in
the Funds’ Annual Report to Shareholders for the period ended December 31, 2022.
The basis for the Board’s approval of the Advisory Agreement with respect to the
Medical ETF and the SPAC ETF will be available in the Funds’ Semi-Annual Report
to Shareholders.
Manager
of Managers Structure
The
Fund and the Adviser intend to apply for exemptive relief from the SEC
permitting the Adviser (subject to certain conditions and the approval of the
Board to change or select new sub-advisers without obtaining shareholder
approval. The relief would also permit the Adviser to materially amend the terms
of agreements with a sub-adviser (including an increase in the fee paid by the
Adviser to the sub-adviser (and not paid by the Fund)) or to continue the
employment of a sub-adviser after an event that would otherwise cause the
automatic termination of services with Board approval, but without shareholder
approval. Shareholders will be notified of any sub-adviser changes. Unless and
until such exemptive relief is granted and the Fund’s reliance on such relief is
approved by Fund shareholders, shareholder approval will be required for changes
in a sub-adviser agreement or for the addition of a new
sub-adviser.
Ryan
Heritage, LLP, a Delaware limited liability partnership located at Park 80 West
- Plaza Two, 250 Pehle Avenue, Suite 708, Saddle Brook, New Jersey 07663, is
responsible for the day-to-day management of the SPAC ETF. An SEC-registered
investment adviser formed in 2021, the Sub-Adviser is owned by Andrew Dakos and
Phillip Goldstein.
Pursuant
to a sub-advisory agreement between the Trust, on behalf of the SPAC ETF, the
Adviser, and the Sub-Adviser (the “Sub-Advisory Agreement”), the Sub-Adviser is
responsible for trading portfolio securities for the SPAC ETF, including
selecting broker-dealers to execute purchase and sale transactions, subject to
the supervision of the Adviser and the Board. For its services, the Sub-Adviser
is entitled to a fee paid by the Adviser from its management fee, which fee is
calculated daily and paid monthly, at an annual rate of 0.425% based on the
average daily net assets of the SPAC ETF.
The
basis for the Board of Trustees’ approval of the Sub-Advisory Agreement for the
SPAC ETF will be available in the SPAC ETF’s Semi-Annual Report to Shareholders.
To
the extent that a reference in this Prospectus refers to the Adviser, with
respect to the SPAC ETF, such reference should also be read to refer to Ryan
Heritage, LLP, where the context requires.
The
individuals identified below are jointly and primarily responsible for the
day-to-day management of each Fund’s portfolio:
|
|
|
|
| |
Fund |
Portfolio
Manager |
| |
Inflation
Beneficiaries ETF |
Peter
B. Doyle |
| Murray
Stahl |
| Steven
Bregman |
| James
Davolos |
| Brandon
Colavita |
| |
Blockchain
Development ETF |
Peter
B. Doyle |
| Murray
Stahl |
| Steven
Bregman |
| James
Davolos |
| Brandon
Colavita |
| |
Medical
ETF |
Peter
B. Doyle |
| B.
Paul Abel |
| |
SPAC
Active ETF |
Philip
Goldstein |
| Andrew
Dakos |
| Rajeev
Das |
Peter
B. Doyle
is a Managing Director of the Adviser, the President of Kinetic Mutual Funds,
Inc., and is a Portfolio Manager for each Fund. In 1994, he co-founded Horizon
and in 1996, he co-founded Kinetics Asset Management LLC (“Kinetics”). From 1996
through 2011, Mr. Doyle was a dual employee of both Horizon and Kinetics. In
April 2019, Kinetics reorganized into Horizon and was renamed Horizon Kinetics
Asset Management, LLC.
Murray
Stahl
is the Chairman and Chief Investment Strategist of the Adviser, and co-manages
the Blockchain Development ETF. In 1994, he co-founded Horizon Asset Management
LLC (“Horizon”) and, in 1996, he co-founded Kinetics Asset Management LLC
(“Kinetics”). From 1996 through 2011, Mr. Stahl was a dual employee of both
Horizon and Kinetics. In April 2019, Kinetics reorganized into Horizon and was
renamed Horizon Kinetics Asset Management, LLC.
Steven
Bregman
is the President of the Adviser and is a Portfolio Manager for each Fund. In
1994, he co-founded Horizon Asset Management LLC (“Horizon”) and currently
serves as President and Director of Research for Horizon Kinetics LLC. In April
2019, Kinetics reorganized into Horizon and was renamed Horizon Kinetics Asset
Management, LLC.
James
Davolos
is a Portfolio Manager for each Fund. He joined Kinetics as an analyst in 2005,
and became a Portfolio Manager of Kinetics in 2006, focusing on, among other
things, emerging markets. In April 2019, Kinetics reorganized into Horizon and
was renamed Horizon Kinetics Asset Management, LLC.
Brandon
Colavita
is a Portfolio Manager for the Adviser , and co-manages the Blockchain
Development ETF. He joined the Adviser in 2014 and is a member of the firm’s ESG
committee. Mr. Colavita is involved in developing research and investment ideas,
and is responsible for portfolio analytics and client relationship management.
He received a B.S. in Economics from The Wharton School of the University of
Pennsylvania, and is a CFA®
charterholder.
B.
Paul Abel
is Senior Portfolio Manager of the Adviser. He is responsible for research and
analysis of developing scientific technologies and innovations in the medical
and bio-pharmaceutical industries. Prior to joining the firm in 1999, Mr. Abel
was with Brookhaven National Laboratory from 1989 to 1999, where he researched,
developed and implemented technical and scientific programs and systems in the
areas of nuclear physics, computer programming and industrial design. During
that time, he also provided freelance writing services for the Academic Science
and News Review, reporting and offering insight on a myriad of issues and
developments in the fields of science and technology. Mr. Abel earned a Master’s
degree in Mechanical and Nuclear Engineering from Manhattan College in 1994 and
a Bachelor’s degree in Physics from SUNY, Stony Brook in 1987.
Philip
Goldstein
is a Partner of the Sub-Adviser, which he co-founded in 2019. Mr. Goldstein also
co-founded Bulldog Investors, LLP, an SEC-registered investment adviser, in
1993, and is a Principal of the firm and its lead investment strategist. He
graduated from the University of Southern California in 1966 with a Bachelor of
Engineering degree and from City College, New York in 1968 with a Master of
Engineering degree. Mr. Goldstein appears on television and is widely quoted on
closed-end funds, SPACs, and shareholder activism.
Andrew
Dakos
is a Partner of the Sub-Adviser, which he co-founded in 2019. Mr. Dakos has also
served as a Principal and Partner in Bulldog Investors, LLP, an SEC-registered
investment adviser, since 1999. He graduated from the University of Delaware in
1988 with a BS in Business Administration.
Rajeev
Das
has served as a Principal of the Sub-Adviser since 2019. Mr. Das has also served
a Portfolio Manager and Head of Trading for Bulldog Investors, LLP, an
SEC-registered investment adviser, since 1997. He received a Bachelor of Arts in
Economics from the University of Bombay in 1989 and a Master of Arts in
Economics from New York University in 1999. Mr. Das is a Chartered Financial
Analyst (CFA).
The
Funds’ SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts managed by each Portfolio Manager, and
each Portfolio Manager’s ownership of Shares.
Foreside
Fund Services, LLC (the “Distributor”) serves as the principal underwriter and
distributor of each Fund’s Shares. The Distributor’s principal address is Three
Canal Plaza, Suite 100, Portland, Maine 04101. The Distributor will not
distribute shares in less than whole Creation Units, and it does not maintain a
secondary market in the Shares. The Distributor is a broker-dealer registered
under the Securities Exchange Act of 1934, and a member of the Financial
Industry Regulatory Authority, Inc. (“FINRA”). The Distributor has no role in
determining the policies of the Funds or the securities that are purchased or
sold by a Fund and is not affiliated with the Adviser or any of its affiliates.
U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services,
located at 615 East Michigan Street, Milwaukee, Wisconsin 53202, serves as the
administrator and transfer agent for the Funds.
U.S.
Bank National Association, located at 1555 North Rivercenter Drive, Suite 302,
Milwaukee, Wisconsin 53212, serves as the custodian for the Funds.
Morgan,
Lewis & Bockius LLP, located at 1111 Pennsylvania Avenue, N.W., Washington,
D.C. 20004, serves as legal counsel to the Trust.
Cohen
& Company, Ltd., located at 1350 Euclid Avenue, Suite 800, Cleveland, Ohio
44115, serves as the Funds’ independent registered public accounting firm. The
independent registered public accounting firm is responsible for auditing the
annual financial statements of the Funds.
Each
Fund issues and redeems Shares only in Creation Units at the NAV per share next
determined after receipt of an order from an AP. Only APs may acquire Shares
directly from a Fund, and only APs may tender their Shares for redemption
directly to a Fund, at NAV. APs must be a member or participant of a clearing
agency registered with the SEC and must execute a Participant Agreement that has
been agreed to by the Distributor, and that has been accepted by the Funds’
transfer agent, with respect to purchases and redemptions of Creation Units.
Once created, Shares trade in the secondary market in quantities less than a
Creation Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Individual Shares are listed for trading on the secondary market on the Exchange
and can be bought and sold throughout the trading day like other publicly traded
securities.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the spread between the
bid and the offer price in the secondary market on each leg of a round trip
(purchase and sale) transaction. In addition, because secondary market
transactions occur at market prices, you may pay more than NAV when you buy
Shares and receive less than NAV when you sell those Shares.
Shares
are held in book-entry form, which means that no stock certificates are issued.
The Depository Trust Company (the “DTC”) or its nominee is the record owner of
all outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial owner of Shares, you
are not entitled to receive physical delivery of stock certificates or to have
Shares registered in your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other securities that you hold in book entry or
“street name” through your brokerage account.
The
Funds impose no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly from the Funds, are an essential part of the ETF process and
help keep Share trading prices in line with NAV. As such, the Funds accommodate
frequent purchases and redemptions by APs. However, frequent purchases and
redemptions for cash may increase tracking error and portfolio transaction costs
and lead to the realization of capital gains. The Funds’ fair valuation of their
holdings consistent with the 1940 Act and Rule 2a-5 thereunder and their ability
to impose transaction fees on purchases and redemptions of Creation Units to
cover the custodial and other costs incurred by the Funds in effecting trades
help to minimize the potential adverse consequences of frequent purchases and
redemptions.
Each
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (the “NYSE”), generally 4:00 p.m. Eastern time, each day the
NYSE is open for business. The NAV for a Fund is calculated by dividing the
applicable Fund’s net assets by its Shares outstanding.
In
calculating its NAV, each Fund generally values its assets on the basis of
market quotations, last sale prices, or estimates of value furnished by a
pricing service or brokers who make markets in such instruments. For example, a
Fund generally values equity securities at their readily available market
quotations. If such information is not available for an investment held by a
Fund or is determined to be unreliable, the investment will be valued by the
Adviser at fair value pursuant to procedures established by the Adviser and
approved by the Board (as described below).
The
Adviser has been designated by the Board as the valuation designee for the Funds
pursuant to Rule 2a-5 under the 1940 Act. In its capacity as valuation designee,
the Adviser has adopted procedures and methodologies to fair value Fund
investments whose market prices are not “readily available” or are deemed to be
unreliable. For example, such circumstances may arise when: (i) an investment
has been de-listed or has had its trading halted or suspended; (ii) an
investment’s primary pricing source is unable or unwilling to provide a price;
(iii) an investment’s primary trading market is closed during regular market
hours; or (iv) an investment’s value is materially affected by events occurring
after the close of the investment’s primary trading market. Generally, when fair
valuing an
investment
held by a Fund, the Adviser will take into account all reasonably available
information that may be relevant to a particular valuation including, but not
limited to, fundamental analytical data regarding the issuer, information
relating to the issuer’s business, recent trades or offers of the investment,
general and/or specific market conditions and the specific facts giving rise to
the need to fair value the investment. Fair value determinations are made in
good faith and in accordance with the fair value methodologies established by
the Adviser. Due to the subjective and variable nature of determining the fair
value of a security or other investment, there can be no assurance that the
Adviser’s determined fair value will match or closely correlate to any market
quotation that subsequently becomes available or the price quoted or published
by other sources. In addition, a Fund may not be able to obtain the fair value
assigned to an investment if the Fund were to sell such investment at or near
the time its fair value is determined.
Section
12(d)(1) of the 1940 Act and the rules thereunder restrict investments by
registered investment companies in the securities of other investment companies.
Registered investment companies are permitted to invest in a Fund beyond the
limits set forth in section 12(d)(1), subject to certain terms and conditions,
including that such investment companies enter into an agreement with the
Funds.
Householding
is an option available to certain investors of the Funds. Householding is a
method of delivery, based on the preference of the individual investor, in which
a single copy of certain shareholder documents can be delivered to investors who
share the same address, even if their accounts are registered under different
names. Householding for the Funds is available through certain broker-dealers.
If you are interested in enrolling in householding and receiving a single copy
of prospectuses and other shareholder documents, please contact your
broker-dealer. If you are currently enrolled in householding and wish to change
your householding status, please contact your broker-dealer.
Each
Fund intends to pay out dividends, if any, and distribute any net realized
capital gains to its shareholders at least annually. Each Fund will declare and
pay capital gain distributions in cash, if any. Distributions in cash may be
reinvested automatically in additional whole Shares only if the broker through
whom you purchased Shares makes such option available. Your broker is
responsible for distributing the income and capital gain distributions to
you.
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Funds. Your investment
in a Fund may have other tax implications. Please consult your tax advisor about
the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws. This summary does not apply
to Shares held in an IRA or other tax-qualified plans, which are generally not
subject to current tax. Transactions relating to Shares held in such accounts
may, however, be taxable at some time in the future. This summary is based on
current tax laws, which may change.
Each
Fund intends to qualify each year for treatment as a RIC under Subchapter M of
the Code. If it meets certain minimum distribution requirements, a RIC is not
subject to tax at the fund level on income and gains from investments that are
timely distributed to shareholders. However, a Fund’s failure to qualify as a
RIC or to meet minimum distribution requirements would result (if certain relief
provisions were not available) in fund-level taxation and, consequently, a
reduction in income available for distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA, you need to be aware of the possible tax consequences
when a Fund makes distributions, when you sell your Shares listed on the
Exchange, and when you purchase or redeem Creation Units (APs only).
Each
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long a Fund owned the investments that generated them, rather
than how long a shareholder has owned his or her Shares. Sales of assets held by
a Fund for more than one year generally result in long-term capital gains and
losses, and sales of assets held by a Fund for one year or less generally result
in short-term capital gains and losses. Distributions of a Fund’s net capital
gain (the excess of net long-term capital gains over net short-term capital
losses) that are reported by such Fund as capital gain dividends (“Capital Gain
Dividends”) will be taxable as long-term capital gains, which for non-corporate
shareholders are subject to tax at reduced rates of up to 20% (lower rates apply
to individuals in lower tax brackets). Distributions of short-term capital gain
will generally be taxable as ordinary income. Dividends and distributions are
generally taxable to you whether you receive them in cash or reinvest them in
additional Shares.
Distributions
reported by a Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided certain 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 a Fund receives in respect of stock of certain foreign
corporations may be qualified dividend income if that stock is readily tradable
on an established U.S. securities market. Corporate shareholders may be entitled
to a dividends received deduction for the portion of dividends they receive from
a Fund that are attributable to dividends received by the Fund from U.S.
corporations, subject to certain limitations. For such dividends to be taxed as
qualified dividend income to a non-corporate shareholder, a Fund must satisfy
certain holding period requirements with respect to the underlying stock and the
non-corporate shareholder must satisfy holding period requirements with respect
to his or her ownership of such Fund’s Shares. Holding periods may be suspended
for these purposes for stock that is hedged. Certain of the Funds’ investment
strategies may limit their ability to distribute dividends eligible to be
treated as qualified dividend income in the hands of non-corporate shareholders
or eligible for the dividends received deduction for corporate
shareholders.
To
the extent that a Fund makes a distribution of income received by such Fund in
lieu of dividends (a “substitute payment”) with respect to securities on loan
pursuant to a securities lending transaction, such income will not constitute
qualified dividend income to individual shareholders and will not be eligible
for the dividends received deduction for corporate shareholders.
A
RIC that receives business interest income may pass through its net business
interest income for purposes of the tax rules applicable to the interest expense
limitations under Section 163(j) of the Code. A RIC’s total “Section 163(j)
Interest Dividend” for a tax year is limited to the excess of the RIC’s business
interest income over the sum of its business interest expense and its other
deductions properly allocable to its business interest income. A RIC may, in its
discretion, designate all or a portion of ordinary dividends as Section 163(j)
Interest Dividends, which would allow the recipient shareholder to treat the
designated portion of such dividends as interest income for purposes of
determining such shareholder’s interest expense deduction limitation under
Section 163(j). This can potentially increase the amount of a shareholder’s
interest expense deductible under Section 163(j). In general, to be eligible to
treat a Section 163(j) Interest Dividend as interest income, you must have held
your shares in a Fund for more than 180 days during the 361-day period beginning
on the date that is 180 days before the date on which the share becomes
ex-dividend with respect to such dividend. Section 163(j) Interest Dividends, if
so designated by a Fund, will be reported to your financial intermediary or
otherwise in accordance with the requirements specified by the Internal Revenue
Service (the “IRS”).
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from a Fund.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by a Fund before your
investment (and thus were included in the Shares’ NAV when you purchased your
Shares).
You
may wish to avoid investing in a Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your
investment.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
a Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
your Shares from non-U.S. shareholders generally are not subject to U.S.
taxation, unless you are a nonresident alien individual who is physically
present in the U.S. for 183 days or more per year. A Fund may, under certain
circumstances, report all or a portion of a dividend as an “interest-related
dividend” or a “short-term capital gain dividend,” which would generally be
exempt from this 30% U.S. withholding tax, provided certain other requirements
are met. Different tax consequences may result if you are a foreign shareholder
engaged in a trade or business within the United States or if a tax treaty
applies.
A
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage of the taxable distributions and sale proceeds paid to any
shareholder who fails to properly furnish a correct taxpayer identification
number, who has underreported dividend or interest income, or who fails to
certify that the shareholder is not subject to such withholding.
Provided
that a shareholder holds Shares as capital assets, any capital gain or loss
realized upon a sale or exchange of Shares generally is treated as a long-term
capital gain or loss if Shares have been held for more than one year and as a
short-term capital gain or loss if Shares have been held for one year or less.
However, any capital loss on a sale of Shares held for six months or less is
treated as long-term capital loss to the extent of Capital Gain Dividends paid
with respect to such Shares. Any loss realized on a sale will be disallowed to
the extent Shares of a Fund are acquired, including through reinvestment of
dividends, within a 61-day period beginning 30 days before and ending 30 days
after the disposition of Shares. The ability to deduct capital losses may be
limited.
The
cost basis of Shares of a Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Code. The difference between the
selling price and the cost basis of Shares generally determines the amount of
the capital gain or loss realized on the sale or exchange of Shares. Contact the
broker through whom you purchased your Shares to obtain information with respect
to the available cost basis reporting methods and elections for your account.
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 IRS may
assert, however, that a loss that is realized upon an exchange of securities for
Creation Units may not be currently deducted under the rules governing “wash
sales” (for an AP who does not mark-to-market their holdings) or on the basis
that there has been no significant change in economic position. APs exchanging
securities should consult their own tax advisor with respect to whether the wash
sales rule applies and when a loss might be deductible.
A
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. A Fund may sell
portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause a Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in-kind. As a result, a Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8% tax
on all or a portion of their “net investment income,” which includes interest,
dividends, and certain capital gains (generally including capital gains
distributions and capital gains realized on the sale of Shares). This 3.8% tax
also applies to all or a portion of the undistributed net investment income of
certain shareholders that are estates and trusts.
The
Funds may invest in complex securities and these investments may be subject to
numerous special and complex tax rules.
These
rules could affect a Fund’s ability to qualify as a RIC, affect whether gains
and losses recognized by the Funds are treated as ordinary income or capital
gain, accelerate the recognition of income to the Funds and/or defer the Funds’
ability to recognize losses, and, in limited cases, subject the Funds to U.S.
federal income tax on income from certain of their foreign securities.
In
turn, these rules may affect the amount, timing or character of the income
distributed to you by the Funds and may require the Funds to sell securities to
mitigate the effect of these rules and prevent disqualification of a Fund as a
RIC at a time when the Adviser might not otherwise have chosen to do
so.
If
a Fund fails to qualify as a RIC and to avail itself of certain relief
provisions, it would be subject to tax at the regular corporate rate without any
deduction for distributions to shareholders, and its distributions would
generally be taxable as dividends. Please see the SAI for a more detailed
discussion, including the availability of certain relief provisions for certain
failures by the Fund to qualify as a RIC.
Certain
of a Fund’s investments, such as investments in real assets, including
commodities, and royalty trusts when made directly, may not produce qualifying
income to the Fund. A Fund will seek to restrict its income from such
instruments that do not generate qualifying income to a maximum of 10% of its
gross income (when combined with its other investments that produce
non-qualifying income).
A
Fund may invest in MLPs taxed as partnerships.
Due
to a variety of factors, including significant non-cash deductions such as
depreciation and depletion, MLPs have historically made cash distributions to
limited partners that exceed the amount of taxable income allocable to such
limited partners or members. These excess cash distributions would not be
treated as income to a Fund but rather would be treated as a return of capital
to the extent of the Fund’s basis in the MLP. As a consequence, a Fund may make
distributions that exceed its earnings and profits, which would be characterized
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 Fund
shares and result in a higher capital gain or lower capital loss when the Fund
shares are sold. After a shareholder’s basis in Fund shares has been reduced to
zero, distributions in excess of earnings and profits in respect of those Fund
shares will be treated as gain from the sale of the Fund shares.
“Qualified
publicly traded partnership income” within the meaning of section 199A(e)(5) of
the Code is eligible for a 20% deduction by non-corporate taxpayers.
“Qualified
publicly traded partnership income” is generally income of a “publicly traded
partnership” that is not treated as a corporation for U.S. federal income tax
purposes that is effectively connected with such entity’s trade or business, but
does not include certain investment income. This deduction, if allowed in full,
equates to a maximum effective federal income tax rate of 29.6% (37% top rate
applied to income after 20% deduction).
The
Code does not contain a provision permitting a RIC, such as a Fund, to pass the
special character of this income through to its shareholders.
Currently,
direct investors in entities that generate “qualified publicly traded
partnership income” will enjoy the lower rate, but investors in RICs that invest
in such entities will not.
The
Funds may invest in REITs. “Qualified REIT dividends” (i.e.,
ordinary REIT dividends other than capital gain dividends and portions of REIT
dividends designated as qualified dividend income eligible for capital gain tax
rates) are eligible for a 20% deduction by non-corporate taxpayers. This
deduction, if allowed in full, equates to a maximum effective tax rate of 29.6%
(37% top rate applied to income after 20% deduction). Distributions by a Fund to
its shareholders that are attributable to qualified REIT dividends received by
the Fund and which the Fund properly reports as “section 199A dividends,” are
treated as “qualified REIT dividends” in the hands of non-corporate
shareholders. A section 199A dividend is treated as a qualified REIT dividend
only if the shareholder receiving such dividend holds the dividend-paying RIC
shares for at least 46 days of the 91-day period beginning 45 days before the
shares become ex-dividend, and is not under an obligation to make related
payments with respect to a position in substantially similar or related
property. The Funds are permitted to report such part of their dividends as
section 199A dividends as are eligible, but are not required to do
so.
REITs,
MLPs and other partnerships in which a Fund invests often do not provide
complete and final tax information to the Fund until after the time that the
Fund issues a tax reporting statement. As a result, a Fund may at times find it
necessary to reclassify the amount and character of its distributions to you
after it issues your tax reporting statement. When such reclassification is
necessary, a Fund (or its administrative agent) will send you a corrected, final
Form 1099-DIV to reflect the reclassified information. If you receive a
corrected Form 1099-DIV, use the information on this corrected form, and not the
information on the previously issued tax reporting statement, in completing your
tax returns.
The
Funds invest in foreign securities. Interest and other income received by a Fund
with respect to foreign securities may give rise to withholding and other taxes
imposed by foreign countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. If as of the close of a
taxable year more than 50% of the value of a Fund’s assets consists of certain
foreign stock or securities, each such Fund will be eligible to elect to “pass
through” to investors the amount of foreign income and similar taxes (including
withholding taxes) paid by such Fund during that taxable year. This means that
investors would be considered to have received as additional income their
respective shares of such foreign taxes, but may be entitled to either a
corresponding tax deduction in calculating taxable income, or, subject to
certain limitations, a credit in calculating federal income tax. If a Fund does
not so elect, each such Fund will be entitled to claim a deduction for certain
foreign taxes incurred by such Fund. A Fund (or a financial intermediary, such
as a broker, through which a shareholder owns Shares) will notify you if it
makes such an election and provide you with the information necessary to reflect
foreign taxes paid on your income tax return.
Foreign
tax credits, if any, received by a Fund as a result of an investment in another
RIC (including an ETF which is taxable as a RIC) will not be passed through to
you unless the Fund qualifies as a “qualified fund-of-funds” under the Code. If
a Fund is a “qualified fund-of-funds” it will be eligible to file an election
with the IRS that will enable the Fund to pass along these foreign tax credits
to its shareholders. A Fund will be treated as a “qualified fund-of-funds” under
the Code if at least 50% of the value of the Fund’s total assets (at the close
of each quarter of the Fund’s taxable year) is represented by interests in other
RICs.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in each Fund. It is not a substitute for
personal tax advice. You also may be subject to state and local tax on Fund
distributions and sales of Shares. Consult your personal tax advisor about the
potential tax consequences of an investment in Shares
under
all applicable tax laws. For more information, please see the section entitled
“Federal Income Taxes” in the SAI.
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, each Fund is authorized
to pay an amount up to 0.25% of its average daily net assets each year for
certain distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Funds, and there are no plans to
impose these fees. However, in the event Rule 12b-1 fees are charged in the
future, because the fees are paid out of Fund assets, over time these fees will
increase the cost of your investment and may cost you more than certain other
types of sales charges.
Information
regarding how often each Fund’s Shares traded on the Exchange at a price above
(i.e.,
at a premium) or below (i.e.,
at a discount) its NAV is available on the Funds’ website at
www.horizonkinetics.com/products/etf.
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange is not
responsible for, nor has it participated in the determination of, the timing,
prices, or quantities of the Funds’ 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 the Funds’ Shares in
connection with the administration, marketing, or trading of the Funds’
Shares.
Without
limiting any of the foregoing, in no event shall the Exchange have any liability
for any lost profits or indirect, punitive, special, or consequential damages
even if notified of the possibility thereof.
The
Adviser and the Funds make no representation or warranty, express or implied, to
the owners of the Funds’ Shares or any member of the public regarding the
advisability of investing in securities generally or in the Funds’ Shares
particularly.
The
Inflation Beneficiaries ETF and the Blockchain Development ETF
The
financial highlights tables below show the financial performance information for
each Fund’s five most recent fiscal years (or the life of a Fund, if shorter).
Certain information reflects financial results for a single share of a Fund. The
total returns in the table represent the rate that you would have earned or lost
on an investment in a Fund (assuming you reinvested all distributions). This
information has been audited by Cohen & Company, Ltd., the independent
registered public accounting firm of each Fund, whose report, along with each
Fund’s financial statements, are included, in the Inflation Beneficiaries ETF
and Blockchain Development ETF’s Annual
Report,
which is available upon request.
The
Medical ETF and SPAC ETF
On
January 27, 2023, (i) the Medical ETF acquired all of the assets and liabilities
of the Kinetics Medical Fund (the “Medical Predecessor Fund”) in exchange for
shares of beneficial interest of the Medical ETF, and (ii) the SPAC ETF acquired
all of the assets and liabilities of the Kinetics Alternative Income Fund (the
“Alternative Income Predecessor Fund” and together, with the Medical Predecessor
Fund, each a “Predecessor Fund” or the “Predecessor Funds”) (the
“Reorganization”). As a result of the Reorganization, each of the Medical ETF
and the SPAC ETF have adopted the financial history of the Medical Predecessor
Fund and the Alternative Income Predecessor Fund, respectively.
The
financial highlights table is intended to help you understand each Predecessor
Fund’s financial performance. Certain information reflects financial results for
a single Predecessor Fund share. The total returns in the table represent the
rate that an investor would have earned or lost, on an investment in a
Predecessor Fund (assuming reinvestment of all dividends and distributions).
This information has been audited by the Predecessor Funds’ prior independent
registered public accounting firm, whose report, along with each Predecessor
Fund’s financial statements, is included in the Predecessor Funds’ Annual
Report
which is available upon request.
HORIZON
KINETICS INFLATION BENEFICIARIES ETF
For
a Share Outstanding Throughout each Period
|
|
|
|
|
|
|
| |
| Year
Ended December 31, 2022 |
Period
Ended
December
31,
2021(1) |
Net
Asset Value, Beginning of Period |
$31.21 |
$25.00 |
|
| |
Income
(loss) from investment operations: |
| |
Net
investment income(2) |
0.53 |
| 0.30 |
|
Net
realized and unrealized gain (loss) on investments(7) |
0.24 |
| 6.19 |
|
Total
from investment operations |
0.77 |
| 6.49 |
|
|
| |
Less
distributions paid: |
| |
From
net investment income |
(0.52) |
| (0.27) |
|
From
net realized gains |
— |
| (0.01) |
|
Total
distributions paid |
(0.52) |
| (0.28) |
|
|
| |
Net
Asset Value, End of Period |
$31.46 |
$31.21 |
|
| |
Total
return, at NAV(3) |
2.57%(4) |
26.05%(4) |
Total
return, at Market(3) |
2.66%(4) |
26.03%(4) |
|
| |
Supplemental
Data and Ratios: |
| |
Net
assets, end of period (000’s) |
$1,274,223 |
$868,512 |
|
| |
Ratio
of expenses to average net assets |
0.85%(5) |
0.85%(5) |
Ratio
of net investment income to average net assets |
1.73%(5) |
1.02%(5) |
Portfolio
turnover rate(6) |
9.24%(4) |
0%(4)(8) |
(1) The
Fund commenced investment operations on January 11, 2021.
(2)
Per
share net investment income was calculated using average shares
outstanding.
(3)
Total
return in the table represents the rate that the investor would have earned or
lost on an investment in the Fund, assuming reinvestment of
dividends.
(4)
Not
annualized for periods less than one year.
(5)
Annualized
for periods less than one year.
(6)
Excludes in-kind transactions associated with creations
and redemptions of the Fund.
(7)
Realized and unrealized gains and losses per share in
this caption are balancing amounts necessary to reconcile the change in net
asset value per share for the period, and may not reconcile with the aggregate
gains and losses in the Statement of Operations due to share transactions for
the period.
(8)
Amount
is less than 0.5%.
HORIZON
KINETICS BLOCKCHAIN DEVELOPMENT ETF
For
a Share Outstanding Throughout each Period
|
|
|
|
| |
|
Period
Ended
December
31,
2022(1) |
Net
Asset Value, Beginning of Period |
$25.23 |
| |
Income
(loss) from investment operations: |
|
Net
investment income(2)(7) |
0.08 |
|
Net
realized and unrealized gain (loss) on investments |
(5.51) |
|
Total
from investment operations |
(5.43) |
|
| |
Less
distributions paid: |
|
From
net investment income |
(0.07) |
|
From
net realized gains |
— |
|
Total
distributions paid |
(0.07) |
|
| |
Net
Asset Value, End of Period |
$19.73 |
| |
Total
return, at NAV(3) |
(21.50)%(4) |
Total
return, at Market(3) |
(21.31)%(4) |
| |
Supplemental
Data and Ratios: |
|
Net
assets, end of period (000’s) |
$1,973 |
| |
Ratio
of expenses to average net assets |
0.87%(5)(8) |
Ratio
of net investment income to average net assets |
0.90%(5) |
Portfolio
turnover rate(6) |
5.12%(4) |
(1) The
Fund commenced investment operations on August 1, 2022.
(2)
Per
share net investment income was calculated using average shares
outstanding.
(3)
Total
return in the table represents the rate that the investor would have earned or
lost on an investment in the Fund, assuming reinvestment of
dividends.
(4)
Not
annualized for periods less than one year.
(5)
Annualized
for periods less than one year.
(6)
Excludes in-kind transactions associated with creations
and redemptions of the Fund.
(7)
Amount is less than 0.05%.
(8)
Ratio
of expenses to average net assets includes tax expense of 0.02% for the period
ended December 31, 2022.
HORIZON
KINETICS MEDICAL ETF
FINANCIAL
HIGHLIGHTS
No
Load Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| For
the Year Ended December 31, 2022 |
| For
the Year Ended December 31, 2021 |
| For
the Year Ended December 31, 2020 |
|
For
the
Year
Ended December 31, 2019 |
|
For
the
Year
Ended December 31, 2018 |
PER
SHARE DATA:(1) |
|
|
|
|
|
|
|
| |
Net
Asset Value, Beginning of Year |
$ |
30.78 |
|
| $ |
28.13 |
|
| $ |
26.53 |
|
| $ |
23.47 |
|
| $ |
25.33 |
|
|
|
|
|
|
|
|
|
| |
Income
from Investment Operations: |
|
|
|
|
|
|
|
| |
Net
investment income(2) |
0.27 |
|
| 0.25 |
|
| 0.29 |
|
| 0.33 |
|
| 0.27 |
|
Net
realized and unrealized gain on investments |
1.02 |
|
| 2.73 |
|
| 2.11 |
|
| 3.43 |
|
| 0.12 |
|
Total
from Investment Operations |
1.29 |
|
| 2.98 |
|
| 2.40 |
|
| 3.76 |
|
| 0.39 |
|
Redemption
Fees(3) |
0.00 |
|
| 0.00 |
|
| 0.00 |
|
| 0.00 |
|
| 0.00 |
|
Less
Distributions: |
|
|
|
|
|
|
|
| |
From
net investment income |
(0.36) |
|
| (0.26) |
|
| (0.31) |
|
| (0.35) |
|
| (0.29) |
|
From
net realized gains |
(0.16) |
|
| (0.07) |
|
| (0.49) |
|
| (0.35) |
|
| (1.96) |
|
Total
Distributions |
(0.52) |
|
| (0.33) |
|
| (0.80) |
|
| (0.70) |
|
| (2.25) |
|
Net
Asset Value, End of Year |
$ |
31.55 |
|
| $ |
30.78 |
|
| $ |
28.13 |
|
| $ |
26.53 |
|
| $ |
23.47 |
|
Total
return |
4.21 |
% |
| 10.59 |
% |
| 9.04 |
% |
| 16.04 |
% |
| 1.67 |
% |
|
|
|
|
|
|
|
|
| |
SUPPLEMENTAL
DATA AND RATIOS |
|
|
|
|
|
| |
Net
assets, end of Year (000’s) |
$ |
19,280 |
|
| $ |
16,188 |
|
| $ |
15,462 |
|
| $ |
15,442 |
|
| $ |
14,814 |
|
Ratio
of operating expenses to average net assets: |
|
|
|
|
|
|
|
| |
Before
expense reimbursement |
2.21 |
% |
| 2.18 |
% |
| 2.26 |
% |
| 2.34 |
% |
| 2.23 |
% |
After
expense reimbursement |
1.39 |
% |
| 1.39 |
% |
| 1.39 |
% |
| 1.39 |
% |
| 1.39 |
% |
Ratio
of net investment income to average net assets: |
0.89 |
% |
| 0.84 |
% |
| 1.12 |
% |
| 1.34 |
% |
| 1.03 |
% |
Portfolio
turnover rate(4) |
3 |
% |
| 1 |
% |
| 7 |
% |
| 6 |
% |
| 0 |
% |
(1) Information
presented relates to a share of capital stock outstanding for each
year.
(2)
Net investment income per share represents net
investment income divided by the average shares outstanding throughout the
year.
(3)
Amount calculated is less than $0.005.
(4)
Portfolio
turnover of The Medical Portfolio.
HORIZON
KINETICS SPAC ACTIVE ETF
FINANCIAL
HIGHLIGHTS
No
Load Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| For
the Year Ended December 31, 2022 |
| For
the Year Ended December 31, 2021 |
| For
the Year Ended December 31, 2020 |
|
For
the
Year
Ended December 31, 2019 |
|
For
the
Year
Ended December 31, 2018 |
PER
SHARE DATA:(1) |
|
|
|
|
|
|
|
| |
Net
Asset Value, Beginning of Year |
$ |
98.92 |
|
| $ |
100.24 |
|
| $ |
98.28 |
|
| $ |
97.46 |
|
| $ |
97.57 |
|
|
|
|
|
|
|
|
|
| |
Income
from Investment Operations: |
|
|
|
|
|
|
|
| |
Net
investment income (loss)(2) |
0.89 |
|
| (0.15) |
|
| 0.25 |
|
| 1.39 |
|
| 0.92 |
|
Net
realized and unrealized gain (loss) on investments |
(4.92) |
|
| (1.17) |
|
| 1.91 |
|
| 1.01 |
|
| (0.03) |
|
Total
from Investment Operations |
(4.03) |
|
| (1.32) |
|
| 2.16 |
|
| 2.40 |
|
| 0.89 |
|
Redemption
Fees |
0.00 |
|
(3) |
0.00 |
|
(3) |
0.02 |
|
| — |
|
| 0.01 |
|
Less
Distributions: |
|
|
|
|
|
|
|
| |
From
net investment income |
(0.87) |
|
| — |
|
| (0.22) |
|
| (1.58) |
|
| (1.01) |
|
From
net realized gains |
(0.11) |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total
Distributions |
(0.98) |
|
| — |
|
| (0.22) |
|
| (1.58) |
|
| (1.01) |
|
Net
Asset Value, End of Year |
$ |
93.91 |
|
| $ |
98.92 |
|
| $ |
100.24 |
|
| $ |
98.28 |
|
| $ |
97.46 |
|
Total
return |
(4.07 |
%) |
| (1.32 |
%) |
| 2.23 |
% |
| 2.47 |
% |
| 0.92 |
% |
|
|
|
|
|
|
|
|
| |
SUPPLEMENTAL
DATA AND RATIOS |
|
|
|
|
|
|
| |
Net
assets, end of Year (000’s) |
$ |
7,384 |
|
| $ |
2,626 |
|
| $ |
2,642 |
|
| $ |
3,482 |
|
| $ |
4,265 |
|
Ratio
of operating expenses to average net assets: |
|
|
|
|
|
|
|
| |
Before
expense reimbursement |
2.76 |
% |
| 2.35 |
% |
| 2.16 |
% |
| 2.01 |
% |
| 1.88 |
% |
After
expense reimbursement |
0.95 |
% |
| 0.95 |
% |
| 0.95 |
% |
| 0.95 |
% |
| 0.95 |
% |
Ratio
of net investment income (loss) to average net assets: |
0.93 |
% |
| (0.15 |
%) |
| 0.25 |
% |
| 1.41 |
% |
| 0.94 |
% |
Portfolio
turnover rate(4) |
0 |
% |
| 0 |
% |
| 0 |
% |
| 0 |
% |
| 0 |
% |
(1)
Information presented relates to a share of capital
stock outstanding for each year.
(2)
Net investment income per share represents net
investment income divided by the average shares outstanding throughout the
year.
(3)
Amount calculated is less than $0.005.
(4) Portfolio
turnover of The Alternative Income Portfolio.
Horizon
Kinetics Inflation Beneficiaries ETF
Horizon
Kinetics Blockchain Development ETF
Horizon
Kinetics Medical ETF
Horizon
Kinetics SPAC Active ETF
|
|
|
|
|
|
|
|
|
|
| |
Adviser |
Horizon
Kinetics Asset Management LLC
470
Park Avenue South
New
York, New York 10016 |
Transfer
Agent and Administrator |
U.S.
Bancorp Fund Services, LLC
d/b/a
U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Sub-Adviser |
Ryan
Heritage, LLP
Park
80 West - Plaza Two
250
Pehle Avenue, Suite 708
Saddle
Brook, New Jersey 07663 |
Distributor |
Foreside
Fund Services, LLC
Three
Canal Plaza, Suite 100
Portland,
Maine 04101 |
Custodian |
U.S.
Bank National Association
1555
North Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212 |
Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue, NW
Washington,
DC 20004-2541 |
Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
1350
Euclid Avenue, Suite 800
Cleveland,
Ohio 44115 |
| |
Investors
may find more information about the Funds in the following
documents:
Statement
of Additional Information: The
Funds’ SAI provides additional details about the investments of the Funds and
certain other additional information. The SAI is on file with the SEC and is
herein incorporated by reference into this Prospectus. It is legally considered
a part of this Prospectus.
Annual/Semi-Annual
Reports: Additional
information about the Funds’ investments is available in the Funds’ Annual and
Semi-Annual Reports to shareholders. In the Annual Report you will find a
discussion of the market conditions and investment strategies that significantly
affected the Funds’ performance.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Funds by contacting the Funds at c/o U.S. Bank
Global Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701 or by
calling 1-800-617-0004.
Shareholder
reports and other information about the Funds are also available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov;
•Free
of charge from the Funds’ Internet web site at
www.horizonkinetics.com/products/etf; or
(SEC
Investment Company Act File No. 811-23226)