ck0001683471-20221130
PROSPECTUS
SWAN HEDGED
EQUITY US LARGE CAP ETF
(HEGD)
Listed
on Cboe BZX Exchange, Inc.
March 31,
2023
The
SEC has not approved or disapproved of these securities or passed upon the
accuracy or adequacy of this Prospectus. Any representation to the contrary is a
criminal offense.
TABLE
OF CONTENTS
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| Swan
Hedged Equity US Large Cap ETF |
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| Principal
Investment Strategies |
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| Sub-Adviser |
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| Portfolio
Managers |
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| Other
Service Providers |
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| Investments
by Registered Investment Companies |
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| Delivery
of Shareholder Documents – Householding |
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| Net
Investment Income Tax |
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| Taxation
of Fund Investments |
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SWAN
HEDGED EQUITY US LARGE CAP ETF - FUND SUMMARY
Investment
Objective
The Swan Hedged Equity US Large Cap ETF (the “Fund”) seeks long
term capital appreciation while mitigating overall market risk.
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 investments) |
None |
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Annual
Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
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| Management
Fee |
0.79% |
| Distribution
and/or Service (12b-1) Fees |
0.00% |
| Other
Expenses* |
0.01% |
| Acquired
Fund Fees and Expenses |
0.03% |
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Total
Annual Fund Operating Expenses** |
0.83% |
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*
“Other Expenses” include
interest and tax expense. Interest and tax expenses are borne by the Fund
separately from the management fees paid to the Adviser.
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Total Annual
Operating Expenses in this fee table may not correlate to the expense ratios in
the Fund’s financial highlights (and the Fund’s financial statements) because
the financial highlights include only the Fund’s direct operating expenses and
do not include Acquired Fund Fees and Expenses, which represent the Fund’s pro
rata share of the fees and expenses of the exchange-traded funds in which it
invests.
Example
This Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your Shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same. The Example does not take into account brokerage commissions
that you may pay on your purchases and sales of Shares.
Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
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$85 |
3
Years: |
$265 |
5
Years: |
$460 |
10
Years: |
$1,025 |
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 November 30, 2022, the
Fund’s portfolio turnover rate was 230% 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 at least 80% of its net assets (plus any
borrowings for investment purposes) directly and indirectly through one or more
other investment companies, including ETFs, in equity securities of large
capitalization U.S. companies. “Large capitalization companies” are those within
the range of capitalizations of the S&P 500 Index. In seeking to achieve its
investment objective, the Fund also uses exchange-traded long-term put options
on the S&P 500 Index for hedging purposes and exchange-traded put and call
options on the S&P 500 Index (or exchange-traded funds seeking to track the
S&P 500 Index) to seek to generate additional returns.
The
Fund may buy and sell put and call options. The Fund seeks to provide
risk-managed growth of capital by matching or exceeding the long-term
performance of the US large-cap equity market by minimizing large declines
typically experienced during bear markets.
Hedging
Process.
The Fund utilizes the defined risk strategy (“DRS”) philosophy developed in 1997
by Randy Swan, President of Swan Capital Management, LLC (the “Adviser”), the
Fund’s adviser, and Swan Global Management, LLC (the “Sub-Adviser”), the Fund’s
sub-adviser. The DRS is based upon the Sub-Adviser’s research indicating that
market timing and/or stock selection is extremely difficult, may produce
volatile returns and that asset allocation is limited in its risk reduction. In
implementing this strategy, the equity portion of the Fund’s portfolio is hedged
using put options and the option portion of the Fund’s portfolio is
actively-managed to seek additional return or provide risk mitigation.
Specifically, the Sub-Adviser seeks to “define risk” by seeking to protect
against large losses. The Sub-Adviser seeks to do so by hedging the Fund’s
equity exposure through investments in protective long-term S&P 500 Index
put options (referred to as paying a premium) that give the Fund the right to
sell a security or index at a set (strike) price or sell the long-term put
option on an option exchange. Generally, S&P 500 Index put options have an
inverse relationship to the S&P 500 Index and its sector-specific
constituents.
Additional
Options Strategies.
In addition to seeking to protect against large losses, the Sub-Adviser seeks to
increase returns by buying and selling put and call options on the S&P 500
Index (or on ETFs that track the S&P 500 Index). A put option is a contract
that entitles the purchaser to receive from the seller a cash payment equal to
the amount of any depreciation in the value of the reference index below a fixed
price as of the valuation date of the option. A call option is a contract that
entitles the purchaser to receive from the seller a cash payment equal to the
amount of any appreciation in the value of the reference index over a fixed
price as of the valuation date of the option.
The
Sub-Adviser also will regularly engage in various spread option strategies.
Spread option strategies involve, for example, buying a six-month call option
while simultaneously selling a further out-of-the-money six-month call option.
Each spread includes a hedging element so that the Fund is not exposed to
significant losses on written options. In addition, the Fund will occasionally
write short-term (typically one to three months to expiration) S&P 500 Index
call options on a portion of the underlying equity in the Fund, similar to a
covered call strategy.
Rebalancing.
The Sub-Adviser will typically rebalance the portfolio on an annual basis to
maintain appropriate weighting across the components of the strategy and to
avoid excessive exposure. Long-term protective put options are typically traded
annually, but may be rebalanced more frequently depending on market conditions,
to protect capital and/or allow for profit potential, by re-establishing a
current-market strike price which depends on whether the market has increased or
decreased.
The
Sub-Adviser intends on having low portfolio turnover as most of the ETF
portfolio will be held indefinitely. Written call options are purchased when the
Sub-Adviser believes they present an unfavorable risk and reward profile.
Purchased options are sold when the Sub-Adviser believes they present an
unfavorable risk and reward profile or when more attractive investments are
available.
The Fund is considered to be
non-diversified, which means that it may invest more of its assets in the
securities of a single issuer or a smaller number of issuers than if it were a
diversified fund.
Principal
Investment Risks
The
principal risks of investing in the Fund are summarized below. The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with those of other funds. Each risk
summarized below is considered a “principal risk” of investing in the Fund,
regardless of the order in which it appears. As with any
investment, there is a risk that you could lose all or a portion of your
investment in the Fund. Some or all of these risks may adversely
affect the Fund’s net asset value (“NAV”), trading price, yield, total return
and/or ability to meet its investment objective. The following risks could
affect the value of your investment in the Fund:
•Cybersecurity
Risk.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause the Fund, the Adviser, 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 Fund Shares, potentially resulting in financial losses to the
Fund and its shareholders.
•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.
◦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.
•Equity
Investing Risk. The
values of equity securities could decline generally or could underperform other
investments due to factors affecting a specific issuer, market or securities
markets generally.
•ETF
Risks.
The Fund is an ETF and, as a result of its structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. Shares may trade at a material discount to NAV and
possibly face delisting if either: (i) APs exit the business or otherwise
become unable to process creation and/or redemption orders and no other APs step
forward to
perform
these services, or (ii) market makers and/or liquidity providers exit the
business or significantly reduce their business activities and no other entities
step forward to perform their functions.
◦Costs
of Buying or Selling Shares Risk.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV Risk. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant.
◦Trading
Risk. Although
Shares are listed for trading on the Cboe BZX Exchange, Inc. (the “Exchange”)
and may be traded on U.S. exchanges other than the Exchange, there can be no
assurance that Shares will trade with any volume, or at all, on any stock
exchange. In stressed market conditions, the liquidity of Shares may begin to
mirror the liquidity of the Fund’s underlying portfolio holdings, which can be
significantly less liquid than the Shares.
•Hedging
Risk. Options
used by the Fund to reduce volatility and generate returns may not perform as
intended. There can be no assurance that the Fund’s option strategy will be
effective. It may expose the Fund to losses, e.g.,
option premiums, to which it would not have otherwise been exposed. Further, the
option strategy may not fully protect the Fund against declines in the value of
its portfolio securities.
•Large-Capitalization
Risk. The
Fund’s investments in large-capitalization companies may underperform other
segments of the market because large-capitalization companies may be unable to
respond quickly to new competitive challenges, such as changes in technology and
consumer tastes, and may not be able to attain the high growth rate of
successful smaller companies, especially during extended periods of economic
expansion.
•Leveraging
Risk.
The use of leverage, such as that embedded in options, could magnify the Fund’s
gains or losses.
•Management
Risk.
The
Fund is actively managed using proprietary investment strategies and processes.
Derivatives play an integral role in certain of these strategies and processes,
including the Fund’s hedging processes. There can be no guarantee that the
Sub-Adviser’s judgments about the attractiveness, value and potential
appreciation of particular investments and strategies for the Fund will be
correct or produce the desired results or that the Fund will achieve its
investment objective. The Fund’s significant usage of derivatives gives rise to
derivatives-specific risks, including the risk that the derivatives do not
perform as expected, that the Sub-Adviser must take into consideration in its
management of the Fund. The execution of the Fund’s investment strategies using
derivatives requires significant skill on the part of the Sub-Adviser to both
achieve the desired investment exposure or hedging effect and manage the Fund’s
risk exposure. In addition, if the Sub-Adviser fails to accurately evaluate
market risk or appropriately react to current and developing market conditions,
the Fund’s share price may be adversely affected.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
these factors, including the impact of the COVID-19 pandemic and related public
health issues, growth concerns in the U.S. and overseas, uncertainties regarding
interest rates, trade tensions and the threat of tariffs imposed by the U.S. and
other countries. 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.
•Non-Diversification
Risk.
Because the
Fund is “non-diversified,” it may invest a greater percentage of its assets in
the securities of a single issuer or a lesser number of issuers than if it was a
diversified fund. As a result, the Fund may be more exposed to the risks
associated with and developments affecting an individual issuer or a lesser
number of issuers than a fund that invests more widely. This may increase the
Fund’s volatility and cause the performance of a relatively small number of
issuers to have a greater impact on the Fund’s performance.
•Other
Investment Company Risk.
The risks of investment in other investment companies, including ETFs, typically
reflect the risks of the types of instruments in which the investment companies
invest. By investing in another investment company, the Fund becomes a
shareholder of that investment company and bears its proportionate share of the
fees and expenses of the other investment company. Investments in ETFs are also
subject to the “ETF Risks” described above.
•Tax
Risk.
The writing of call options by the Fund may
significantly reduce or eliminate its ability to make distributions eligible to
be treated as qualified dividend income or as eligible for the dividends
received deduction for corporate shareholders. Covered call options may also be
subject to the federal tax rules applicable to straddles under the Internal
Revenue Code of 1986, as amended (the “Code”). If positions held by the Fund
were treated as “straddles” for federal income tax purposes, or the Fund’s risk
of loss with respect to a position was otherwise diminished as set forth in
Treasury regulations, dividends on stocks that are a part of such positions
would not constitute qualified dividend income subject to such favorable income
tax treatment in the hands of non-corporate shareholders or eligible for the
dividends received deduction for corporate shareholders. In addition, generally,
straddles are subject to certain rules that may affect the amount, character and
timing of the Fund’s recognition of gains and losses with respect to straddle
positions.
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
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 measures the performance of a
strategy similar to that implemented by the Fund. 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 etfs.swanglobalinvestments.com.
Calendar Year
Total Returns
During the period of time shown in the bar chart, the
highest
quarterly return was 6.93% for the quarter ended
December 31, 2021, and
the lowest
quarterly return was -8.26% for the quarter
ended June 30,
2022.
Average
Annual Total Returns
(for
periods ended December 31, 2022)
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Swan
Hedged Equity US Large Cap ETF |
1-Year |
Since
Inception
(12/22/20) |
| Return
Before Taxes |
-10.84% |
2.66% |
| Return
After Taxes on Distributions |
-11.02% |
2.52% |
| Return
After Taxes on Distributions and Sale of Shares |
-6.29% |
2.04% |
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S&P
500® Total Return Index
(reflects
no deduction for fees, expenses, or taxes) |
-18.11% |
3.59% |
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Cboe
S&P 500 95-110 Collar Index
(reflects
no deduction for fees, expenses, or
taxes) |
-15.05% |
0.34% |
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. In certain
cases, the figure representing “Return After Taxes on Distributions and Sale of
Shares” may be higher than the other return figures for the same period. A
higher after-tax return results when a capital loss occurs upon redemption and
provides an assumed tax deduction that benefits the
investor.
Portfolio
Management
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| Adviser |
Swan
Capital Management, LLC |
| Sub-Adviser |
Swan
Global Management, LLC |
| Portfolio
Managers |
Randy
Swan, Lead Portfolio Manager and President of the Adviser and Sub-Adviser,
Robert Swan, Portfolio Manager and Chief Operating Officer of the Adviser
and Sub-Adviser, and Chris Hausman, CMT, CAIA, Managing Director of Risk
and Senior Portfolio Manager of the Sub-Adviser, have each served as a
Portfolio Manager of the Fund since its inception in December
2020 |
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 etfs.swanglobalinvestments.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
held through an IRA or other tax-advantaged account. Distributions on
investments made through tax-deferred arrangements may be taxed later upon
withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
ADDITIONAL
INFORMATION ABOUT THE FUND
Investment
Objective
The
Fund’s investment objective has been adopted as a non-fundamental investment
policy and may be changed by the Board of Trustees (the “Board”) of Listed Funds
Trust (the “Trust”) without shareholder approval upon written notice to
shareholders.
Principal
Investment Strategies
The
Fund has adopted the following policy to comply with Rule 35d-1 under the
Investment Company Act of 1940 (the “1940 Act”). Such policy has been adopted as
a non-fundamental investment policy and may be changed without shareholder
approval upon 60 days’ written notice to shareholders. Under normal
circumstances, the Fund invests directly and indirectly through one of more
other investment companies, including ETFs, at least 80% of its net assets (plus
any borrowings for investment purposes) in equity securities of large
capitalization US companies. Large capitalization companies are those within the
range of capitalizations of the S&P 500 Index.
Principal
Investment Risks
An
investment in the Fund entails risks. The Fund could lose money, or its
performance could trail that of other investment alternatives. The following
provides additional information about the Fund’s principal risks. It is
important that investors closely review and understand these risks before making
an investment in the Fund. Just as in the Fund’s summary section, the principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with those of other funds. Each risk summarized below is
considered a “principal risk” of investing in the Fund, regardless of the order
in which it appears.
•Cybersecurity
Risk.
With the increased use of technologies such as the Internet and the dependence
on computer systems to perform business and operational functions, funds (such
as the Fund) and their service providers may be prone to operational and
information security risks resulting from 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 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,
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 Fund 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 the Fund’s ability to
calculate its NAV, cause the release of private shareholder information or
confidential Fund information, impede trading, cause reputational damage, and
subject the Fund to regulatory fines, penalties or financial losses,
reimbursement or other compensation costs, and additional compliance costs.
Cyber-attacks or technical malfunctions may render records of Fund assets and
transactions, shareholder ownership of Fund Shares, and other data integral to
the functioning of the Fund inaccessible or inaccurate or incomplete. The Fund
also may incur substantial costs for cybersecurity risk management to prevent
cyber incidents in the future. The Fund and its shareholders could be negatively
impacted as a result.
•Derivatives
Risk.
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.
Certain risks also are specific to the derivatives in which the Fund
invests.
◦Options
Risk. The
buyer of an option acquires the right, but not the obligation, to buy (a call
option) or sell (a put option) a certain quantity of a security (the underlying
security) or instrument, including a futures contract or swap, at a certain
price up to a specified point in time. The seller or writer of an option is
obligated to sell (a call option) or buy (a put option) the underlying
instrument. 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.
Options
are often used to manage or hedge risk because they enable an investor to buy or
sell an asset in the future at an agreed-upon price. Options also are used for
other reasons, such as to manage exposure to changes in interest rates and bond
prices; as an efficient means of adjusting overall exposure to certain markets;
in an effort to enhance income; to protect the value of portfolio securities or
other instruments; and to adjust portfolio duration.
Options
are subject to correlation risk. The writing and purchasing of options are
highly specialized activities as the successful use of options depends on the
Adviser’s ability to predict correctly future price fluctuations and the degree
of correlation between the markets for options and the underlying instruments.
Exchanges can limit the number of positions that can be held or controlled by
the Fund or the Adviser, thus limiting the ability to implement the Fund’s
strategies. Options also are particularly subject to leverage risk and can be
subject to liquidity risk. Because option premiums paid or received by the Fund
are small in relation to the market value of the investments underlying the
options, the Fund is exposed to the risk that buying and selling put and call
options can be more speculative than investing directly in
securities.
Exchange-traded
index options give the holder of the option the right to buy (or to sell) a
position in an index of securities to the writer of the option, at a certain
price. Writing index call options reduces the Fund’s ability to profit from
increases in the value of the Fund’s equity portfolio. 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.
The
Fund also may purchase or sell call and put options on a “covered” basis. A call
option is “covered” if the Fund owns the security underlying the call or has an
absolute right to acquire the security without additional cash consideration
(or, if additional cash consideration is required, cash or cash equivalents in
such amount are segregated by the Fund’s custodian). As a seller of covered call
options, the Fund faces the risk that it will forgo the opportunity to profit
from increases in the market value of the security covering the call option
during an option’s life.
The
Fund is subject to the risk that a change in U.S. law and related regulations
will impact the way the Fund operates, increase the particular costs of the
Fund’s operation and/or change the competitive landscape. In October 2020, the
SEC adopted 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.” Certain funds may be exempted from these requirements if they use
derivatives only to a limited extent and comply with certain other conditions
set forth in the new rule. The Fund expects to use derivatives only to a limited
extent and therefore, to be exempt from complying with many of the rule’s
requirements. The new rule significantly changes the regulatory framework
applicable to a fund’s use of derivatives, including by replacing the existing
asset segregation regulatory framework in its entirety. The Fund The new rule
may influence the extent to which the Fund will use derivatives, adversely
affect the Fund’s performance, and increase costs related to the Fund’s use of
derivatives.
•Equity
Investing Risk.
An investment in the Fund involves risks similar to those of investing in any
fund holding equity securities, such as market fluctuations, changes in interest
rates and perceived trends in stock prices. The values of equity securities
could decline generally or could underperform other investments. Different types
of equity securities tend to go through cycles of outperformance and
underperformance in comparison to the general securities markets. In addition,
securities may decline in value due to factors affecting a specific issuer,
market or securities markets generally. Recent unprecedented turbulence in
financial markets, reduced liquidity in credit and fixed income markets, or
rising interest rates may negatively affect many issuers worldwide, which may
have an adverse effect on the Fund.
•ETF
Risks.
The Fund is an ETF and, as a result of its structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk.
The Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. 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.
Investors buying or selling Shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers, as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of Shares. In addition, secondary market investors also will incur the cost of
the difference between the price at which an investor is willing to buy Shares
(the “bid” price) and the price at which an investor is willing to sell Shares
(the “ask” price). This difference in bid and ask prices is often referred to as
the “spread” or “bid/ask spread.” The bid/ask spread varies over time for Shares
based on trading volume and market liquidity and is generally lower if Shares
have more trading volume and market liquidity and higher if Shares have little
trading volume and market liquidity. Further, a relatively small investor base
in the Fund, asset swings in the Fund and/or increased market volatility may
cause increased bid/ask spreads. Due to the costs of buying or selling Shares,
including bid/ask spreads, frequent trading of Shares may significantly reduce
investment results and an investment in Shares may not be advisable for
investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV 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 or periods of
steep market declines and periods when there is limited trading activity for
Shares in the secondary market, in which case such premiums or discounts may be
significant. The market price of Shares during the trading day, like the price
of any exchange-traded security, includes a “bid/ask” spread charged by the
exchange specialist, market makers or other participants that trade Shares. In
times of severe market disruption, the bid/ask spread can increase
significantly. At those times, Shares are most likely to be traded at a discount
to NAV, and the discount is likely to be greatest when the price of Shares is
falling fastest, which may be the time that you most want to sell your Shares.
The Adviser believes that, under normal market conditions, large market price
discounts or premiums to NAV will not be sustained because of arbitrage
opportunities.
◦Trading
Risk.
Although Shares are listed for trading on the Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange “circuit breaker”
rules, which temporarily halt trading on the Exchange when a decline in the
S&P 500®
Index during a single day reaches certain thresholds (e.g.,
7%, 13%, and 20%). Additional rules applicable to the Exchange may halt trading
in Shares when extraordinary volatility causes sudden, significant swings in the
market price of Shares. There can be no assurance that Shares will trade with
any volume, or at all, on any stock exchange. In stressed market conditions, the
liquidity of Shares may begin to mirror the liquidity of the Fund’s underlying
portfolio holdings, which can be significantly less liquid than
Shares.
•Hedging
Risk. Options
used by the Fund to reduce volatility may not perform as intended. There can be
no assurance that the Fund’s option strategy will be effective. It may expose
the Fund to losses, e.g.,
option premiums, to which it would not have otherwise been exposed if it only
invested in stocks. Further, the option strategy may not fully protect the Fund
against declines in the value of its portfolio securities.
•Large-Capitalization
Risk. Investments
in large-capitalization companies may go in and out of favor based on market and
economic conditions and may underperform other market segments. Some
large-capitalization companies may be unable to respond quickly to new
competitive challenges, such as changes in technology and consumer tastes, and
may not be able to attain the high growth rate of successful smaller companies,
especially during extended periods of economic expansion. As such, returns on
investments in stocks of large-capitalization companies could trail the returns
on investments in stocks of small and mid-capitalization companies.
•Leveraging
Risk.
The use of leverage, such as that embedded in options, will magnify the Fund’s
gains or losses. The use of leverage may cause the Fund to liquidate portfolio
positions when it would not be advantageous to do so in order to satisfy its
obligations. Written option positions expose the Fund to potential losses many
times the option premium received.
•Management
Risk. The
Fund is actively managed and uses proprietary investment strategies and
processes. Derivatives play an integral role in certain of these strategies and
processes, including the Fund’s hedging processes. There can be no guarantee
that the Sub-Adviser’s judgments about the attractiveness, value and potential
appreciation of particular investments and strategies for the Fund will be
correct or produce the desired results and no guarantee that the Fund will
achieve its investment objective or outperform other investment strategies over
the short- or long-term market cycles. The Fund’s significant usage of
derivatives gives rise to derivatives-specific risks, including the risk that
the derivatives do not perform as expected, that the Sub-Adviser must take into
consideration in its management of the Fund. The execution of the Fund’s
investment strategies using derivatives
requires
significant skill on the part of the Sub-Adviser to both achieve the desired
investment exposure or hedging effect and manage the Fund’s risk exposure. In
addition, if the Sub-Adviser fails to accurately evaluate market risk or
appropriately react to current and developing market conditions, the Fund’s
share price may be adversely affected. Securities selected by the Sub-Adviser
may not perform as expected. This could result in the Fund’s underperformance
compared to other funds with similar investment objectives.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
economic, political and global macro factors, including public health issues,
growth concerns in the U.S. and overseas, uncertainties regarding interest
rates, trade tensions and the threat of tariffs imposed by the U.S. and other
countries. In addition, local, regional or global events such as war, including
Russia’s invasion of Ukraine, acts of terrorism, spread of infectious diseases
or other public health issues, recessions, rising inflation, or other events
could have a significant negative impact on the performance of the Fund and its
investments. These developments as well as other events could result in further
market volatility and negatively affect financial asset prices, the liquidity of
certain securities and the normal operations of securities exchanges and other
markets, which could have an adverse effect on 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.
•Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may invest a greater percentage of its
assets in the securities of a single issuer or a lesser number of issuers than
if it was a diversified fund. As a result, the Fund may be more exposed to the
risks associated with and developments affecting an individual issuer or a
lesser number of issuers than a fund that invests more widely. This may increase
the Fund’s volatility and cause the performance of a relatively small number of
issuers to have a greater impact on the Fund’s performance.
•Other
Investment Companies Risk.
The Fund may invest in shares of other investment companies, such as ETFs. The
risks of investment in these securities typically reflect the risks of the types
of instruments in which the investment company invests. When the Fund invests in
investment company securities, shareholders of the Fund bear indirectly their
proportionate share of their fees and expenses, as well as their share of the
Fund’s fees and expenses. As a result, an investment by the Fund in an
investment company could cause the Fund’s operating expenses (taking into
account indirect expenses such as the fees and expenses of the investment
company) to be higher and, in turn, performance to be lower than if it were to
invest directly in the instruments underlying the investment company.
Investments in ETFs are also subject to the “ETF Risks” described above.
•Tax
Risk.
The writing of call options by the Fund may significantly reduce or eliminate
its ability to make distributions eligible to be treated as qualified dividend
income or as eligible for the dividends received deduction for corporate
shareholders. Covered call options may also be subject to the federal tax rules
applicable to straddles under the Code. If positions held by the Fund were
treated as “straddles” for federal income tax purposes, or the Fund’s risk of
loss with respect to a position was otherwise diminished as set forth in
Treasury regulations, dividends on stocks that are a part of such positions
would not constitute qualified dividend income subject to such favorable income
tax treatment in the hands of non-corporate shareholders or eligible for the
dividends received deduction for corporate shareholders. In addition, generally,
straddles are subject to certain rules that may affect the amount, character and
timing of the Fund’s recognition of gains and losses with respect to straddle
positions by requiring, among other things, that: (1) any loss realized on
disposition of one position of a straddle may not be recognized to the extent
that the Fund has unrealized gains with respect to the other position in such
straddle; (2) the Fund’s holding period in straddle positions be suspended while
the straddle exists (possibly resulting in a gain being treated as short-term
capital gain rather than long-term capital gain); (3) the losses recognized with
respect to certain straddle positions that are part of a mixed straddle and that
are not subject to Section 1256 of the 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.
PORTFOLIO
HOLDINGS INFORMATION
Information
about the Fund’s daily portfolio holdings is available at
etfs.swanglobalinvestments.com. A complete description of the Fund’s policies
and procedures with respect to the disclosure of the Fund’s portfolio holdings
is available in the Fund’s Statement of Additional Information (the
“SAI”).
MANAGEMENT
Investment
Adviser
Swan
Capital Management, LLC, located at 1099 Main Avenue, Suite 206, Durango,
Colorado 81301, serves as the investment adviser for the Fund. The Adviser
oversees the day-to-day operations of the Fund, subject to the oversight of the
Board. The Adviser is responsible for assuring that the Fund’s investments are
made according to the Fund’s investment objective, policies and restrictions.
The Adviser also arranges for sub-advisory, transfer agency, custody, fund
administration, distribution and all other services necessary for the Fund to
operate. The Adviser is an SEC-registered investment adviser established in 2012
for the purpose of managing mutual funds.
The
Adviser continuously reviews, supervises, and administers the Fund’s investment
program. In particular, the Adviser provides investment and operational
oversight of the Sub-Adviser, For the services it provides to the Fund, the
Adviser is entitled to a unified management fee, which is calculated daily and
paid monthly, at an annual rate of 0.79% based on the Fund’s average daily net
assets.
Pursuant
to an investment advisory agreement between the Trust, on behalf of the Fund,
and the Adviser (the “Advisory Agreement”), the Adviser has agreed to pay all
expenses of the Fund except the following: the fee payable to the Adviser under
the Advisory Agreement, interest charges on any borrowings, dividends, and other
expenses on securities sold short, taxes, brokerage commissions and other
expenses incurred in placing orders for the purchase and sale of securities and
other investment instruments, acquired fund fees and expenses, accrued deferred
tax liability, extraordinary expenses, and distribution (12b-1) fees and
expenses (if any). The Adviser, in turn, compensates the Sub-Adviser from the
management fee it receives.
Sub-Adviser
Swan
Global Management, LLC, located at 20 Ridge Top Drive, Humacao, Puerto Rico
00791, serves as sub-adviser to the Fund. The Sub-Adviser is an affiliate of the
Adviser with the same ownership and management as the Adviser. The Sub-Adviser
was established in 2014 for the purpose of managing mutual funds and other
separately managed accounts.
Subject
to the oversight of the Adviser, the Sub-Adviser is responsible for the
day-to-day management of the Fund’s investment portfolio, including selecting
broker-dealers to execute purchase and sale transactions. The Sub-Adviser is
responsible for selecting the Fund’s investments according to the Fund’s
investment objective, policies and restrictions. Pursuant to the Sub-Advisory
Agreement, the Adviser will pay to the Sub-Adviser as compensation for the
Sub-Adviser’s services rendered, a fee, computed monthly at a rate of 70% of the
Adviser’s net advisory fee.
Portfolio
Managers
The
Fund is managed by Randy Swan, Robert Swan, and Chris Hausman (collectively, the
“Portfolio Managers”).
Randy
Swan is the President and founder of the Adviser and Sub-Adviser and oversees
the team that runs all of the firms’ investment activities. Before forming the
Sub-Adviser in 2014 and the Adviser in 2012, Randy Swan was a Senior Manager for
KPMG, working in the financial services sector. Randy Swan is a 1990 graduate of
the University of Texas with a BBA and an MPA (Master’s Degree in Professional
Accounting).
Robert
Swan serves as the Chief Operating Officer and Portfolio Manager of the Adviser,
providing daily oversight of operations, investment management, trading, and the
development and maintenance of proprietary technologies enabling the firms to
scale and execute the DRS strategy across multiple funds and platforms. Prior to
joining the Sub-Adviser in 2014 and the Adviser in 2012, Robert Swan worked at
Boeing Company as a flight testing and aerodynamics engineer. Robert Swan
graduated from the University of Texas with a BS in Aeronautical and
Astronautical Engineering.
Chris
Hausman serves as a Senior Portfolio Manager of the Sub-Adviser, with
responsibility for risk management and assisting in the daily operations and
trading for all DRS investments and positions. Prior to joining the Sub-Adviser
in 2015, Mr. Hausman served in various roles at Saliba Portfolio Management,
including Senior Portfolio Manager, Chief Portfolio Strategist and Director of
Trading Operations. Mr. Hausman is a graduate of the University of
Pennsylvania’s Wharton School of Business with a BS in Economics, and is also a
Chartered Market Technician and Chartered Alternative Investment
Analyst.
The
Fund’s SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts managed by the Portfolio Managers, and
the Portfolio Managers’ ownership of Shares.
Prior
Performance of Similarly Managed Accounts
The
Portfolio Managers are also responsible for managing separate accounts for
clients which comprise the Swan Defined Risk US Large Cap Prime Strategy (the
“Strategy Accounts”). The accounts in the Strategy Accounts employ the same
features of the Fund’s principal investment strategies including investment in
S&P 500 Index and related options. Consequently, the Strategy Accounts are
substantially similar to the strategy employed by the Fund. The Strategy
Accounts are also managed by the same investment team as the Fund, and the
investment team intends to use substantially the same goals and style of
investment management in managing the Fund. The Fund will have substantially the
same investment objective, policies and strategies as the Strategy Accounts.
The
information for the Strategy Accounts since their inception date of October 1,
2019, which includes all substantially similar accounts, is provided to show the
past performance of those accounts as measured against the specified benchmark
and index. The performance of the Strategy Accounts does not represent the
historical performance of the Fund, and should not be considered indicative of
future performance of the Strategy Accounts or the Fund. Future results will
differ from past results because of differences in future behavior of the
various investment markets, in brokerage commissions, account expenses, the size
of positions taken in relation to account size and diversification of
securities, and the timing of purchases and sales, among other things. In
addition, the accounts comprising the Strategy Accounts are not subject to
certain investment limitations and other restrictions imposed by the 1940 Act
and the Code which, if applicable, might have adversely affected the performance
of the Strategy Accounts during the periods shown. Performance of the Fund for
future periods will vary, and some months and some quarters may result in
negative performance; indeed, some future years may have negative
performance.
The
Sub-Adviser provided the information shown below and calculated the performance
information. The Strategy Accounts returns shown include realized and unrealized
gains plus income, including accrued income. These returns have been adjusted to
reflect the estimated expenses of the shares of the Fund in place of the fees
charged for the Strategy Accounts. The performance is shown net of estimated
operating expenses (excluding the expenses incurred within underlying funds,
such as ETFs) for the first year of operations of the Fund. Results include the
reinvestment of dividends and capital gains. Returns from cash and cash
equivalents in the Strategy Accounts are included in the performance
calculations, and the cash and cash equivalents are included in the total assets
on which the performance is calculated. The Strategy Accounts were valued on a
monthly basis, which differs from the SEC return calculation method that employs
daily valuation.
|
|
|
|
|
|
|
|
| |
|
|
One
Year
(1/1/2022
- 12/31/2022) |
Since
Inception
(10/1/2019
- 12/31/2022) |
| Swan
Defined Risk U.S. Large Cap Prime Strategy (net 0.79%) |
(10.26)% |
7.72% |
|
S&P
500 Index1 |
(18.11)% |
9.95% |
1The
S&P 500 Index is a market-capitalization-weighted index of the 500 largest
U.S. publicly traded companies.
Other
Service Providers
Foreside
Fund Services, LLC (the “Distributor”) serves as the principal underwriter and
distributor of the Fund’s Shares. The Distributor’s principal address is Three
Canal Plaza, Suite 100, Portland, Maine 04101. The Distributor will not
distribute shares in less than whole Creation Units, and it does not maintain a
secondary market in the Shares. The Distributor is a broker-dealer registered
under the Securities Exchange Act of 1934, as amended, and a member of the
Financial Industry Regulatory Authority, Inc. (“FINRA”). The Distributor has no
role in determining the policies of the Fund or the securities that are
purchased or sold by the Fund and is not affiliated with the Adviser,
Sub-Adviser, or any of their respective affiliates.
U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services,
located at 615 East Michigan Street, Milwaukee, Wisconsin 53202, serves as the
administrator and transfer agent for the Fund.
U.S.
Bank National Association, located at 1555 North Rivercenter Drive, Suite 302,
Milwaukee, Wisconsin 53212, serves as the custodian for the Fund.
Morgan,
Lewis & Bockius LLP, located at 1111 Pennsylvania Avenue, N.W., Washington,
D.C. 20004, serves as legal counsel to the Trust.
Cohen
& Company, Ltd., located at 1350 Euclid Avenue, Suite 800, Cleveland, Ohio
44115, serves as the Fund’s independent registered public accounting firm. The
independent registered public accounting firm is responsible for auditing the
annual financial statements of the Fund.
HOW
TO BUY AND SELL SHARES
The
Fund issues and redeems Shares only in Creation Units at the NAV per share next
determined after receipt of an order from an AP. Only APs may acquire Shares
directly from the Fund, and only APs may tender their Shares for redemption
directly to the Fund, at NAV. APs must be a member or participant of a clearing
agency registered with the SEC and must execute a Participant Agreement that has
been agreed to by the Distributor, and that has been accepted by the Fund’s
transfer agent, with respect to purchases and redemptions of Creation Units.
Once created, Shares trade in the secondary market in quantities less than a
Creation Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Individual Shares are listed for trading on the secondary market on the Exchange
and can be bought and sold throughout the trading day like other publicly traded
securities.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the spread between the
bid and the offer price in the secondary market on each leg of a round trip
(purchase and sale) transaction. In addition, because secondary market
transactions occur at market prices, you may pay more than NAV when you buy
Shares and receive less than NAV when you sell those Shares.
Book
Entry
Shares
are held in book-entry form, which means that no stock certificates are issued.
The Depository Trust Company (the “DTC”) or its nominee is the record owner of
all outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial owner of Shares, you
are not entitled to receive physical delivery of stock certificates or to have
Shares registered in your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other securities that you hold in book entry or
“street name” through your brokerage account.
Frequent
Purchases and Redemptions of Shares
The
Fund imposes no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly from the Fund, are an essential part of the ETF process and help
keep Share trading prices in line with NAV. As such, the Fund accommodates
frequent purchases and redemptions by APs. However, frequent purchases and
redemptions for cash may increase tracking error and portfolio transaction costs
and lead to the realization of capital gains. The Fund’s fair valuation of its
holdings consistent with the 1940 Act and Rule 2a-5 thereunder and its ability
to impose transaction fees on purchases and redemptions of Creation Units to
cover the custodial and other costs incurred by the Fund in effecting trades
help to minimize the potential adverse consequences of frequent purchases and
redemptions.
Determination
of Net Asset Value
The
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (the “NYSE”), generally 4:00 p.m. Eastern time, each day the
NYSE is open for business. The NAV is calculated by dividing the Fund’s net
assets by its Shares outstanding.
In
calculating its NAV, the Fund generally values its assets on the basis of market
quotations, last sale prices, or estimates of value furnished by a pricing
service or brokers who make markets in such instruments. In particular, the Fund
generally values equity securities at their readily available market quotations.
If such information is not available for a security held by the Fund or is
determined to be unreliable, the security will be valued by the Adviser at fair
value pursuant to procedures established by the Adviser and approved by the
Board (as described below).
Fair
Value Pricing
The
Adviser has been designated by the Board as the valuation designee for the Fund
pursuant to Rule 2a-5 under the 1940 Act. In its capacity as valuation designee,
the Adviser has adopted procedures and methodologies to fair value Fund
securities whose market prices are not “readily available” or are deemed to be
unreliable. For example, such circumstances may arise when: (i) a security has
been de-listed or has had its trading halted or suspended; (ii) a security’s
primary pricing source is unable or unwilling to provide a price; (iii) a
security’s primary trading market is closed during regular market hours; or (iv)
a security’s value is materially affected by events occurring after the close of
the security’s primary trading market. Generally, when fair valuing an
investment held by the Fund, the Adviser will take into account all reasonably
available information that may be relevant to a particular valuation including,
but not limited to, fundamental analytical data regarding the issuer,
information relating to the issuer’s business, recent trades or offers of the
security, general and/or specific market conditions and the specific facts
giving rise to the need to fair value the security. Fair value determinations
are made in good faith and in accordance with the fair value methodologies
established by the Adviser. Due to the subjective and variable nature of
determining the fair value of a security or other investment, there can be no
assurance that the Adviser’s 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, the Fund may not be
able to obtain the fair value assigned to an investment if the Fund were to sell
such investment at or near the time its fair value is determined.
Investments
by Registered Investment Companies
Section
12(d)(1) of the 1940 Act restricts investments by registered investment
companies in the securities of other investment companies. Registered investment
companies are permitted to invest in the 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 Fund.
Delivery
of Shareholder Documents – Householding
Householding
is an option available to certain investors of the Fund. Householding is a
method of delivery, based on the preference of the individual investor, in which
a single copy of certain shareholder documents can be delivered to investors who
share the same address, even if their accounts are registered under different
names. Householding for the Fund is available through certain broker-dealers. If
you are interested in enrolling in householding and receiving a single copy of
prospectuses and other shareholder documents, please contact your broker-dealer.
If you are currently enrolled in householding and wish to change your
householding status, please contact your broker-dealer.
DIVIDENDS,
DISTRIBUTIONS, AND TAXES
Dividends
and Distributions
The
Fund intends to pay out dividends, if any, and distribute any net realized
capital gains to its shareholders at least annually. The Fund will declare and
pay capital gain distributions 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.
Taxes
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax adviser
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws. This summary does not apply
to Shares held in an IRA or other tax-qualified plans, which are generally not
subject to current tax. Transactions relating to Shares held in such accounts
may, however, be taxable at some time in the future. This summary is based on
current tax laws, which may change.
The
Fund has elected and intends to qualify each year for treatment as a regulated
investment company (“RIC”) under Subchapter M of the Code. If it meets certain
minimum distribution requirements, a RIC is not subject to tax at the fund level
on income and gains from investments that are timely distributed to
shareholders. However, the Fund’s failure to qualify as a RIC or to meet minimum
distribution requirements would result (if certain relief provisions were not
available) in fund-level taxation and, consequently, a reduction in income
available for distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA, you need to be aware of the possible tax consequences
when the Fund makes distributions, when you sell your Shares listed on the
Exchange, and when you purchase or redeem Creation Units (APs only).
Taxes
on Distributions
The
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. The distributions you receive may be
subject to federal, state, and local taxation, depending on your tax situation.
For federal income tax purposes, distributions of investment income are
generally taxable as ordinary income or qualified dividend income. Taxes on
distributions of capital gains (if any) are determined by how long the Fund
owned the investments that generated them, rather than how long a shareholder
has owned his or her Shares. Sales of assets held by the Fund for more than one
year generally result in long-term capital gains and losses, and sales of assets
held by the Fund for one year or less generally result in short-term capital
gains and losses. Distributions of the Fund’s net capital gain (the excess of
net long-term capital gains over net short-term capital losses) that are
reported by the Fund as capital gain dividends (“Capital Gain Dividends”) will
be taxable as long-term capital gains, which for non-corporate shareholders are
subject to tax at reduced rates of up to 20% (lower rates apply to individuals
in lower tax brackets). Distributions of short-term capital gain will generally
be taxable as ordinary income. Dividends and distributions are generally taxable
to you whether you receive them in cash or reinvest them in additional
Shares.
Distributions
reported by the Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided 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 the Fund receives in respect of stock of
certain foreign corporations may be qualified dividend income if that stock is
readily tradable on an established U.S. securities market. Corporate
shareholders may be entitled to a dividends received deduction for the portion
of dividends they receive from the Fund that are attributable to dividends
received by the Fund from U.S. corporations, subject to certain limitations. For
such dividends to be taxed as qualified dividend income to a non-corporate
shareholder, the 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 the Fund’s
Shares. Holding periods may be suspended for these purposes for stock that is
hedged. The Fund’s investment strategy may significantly limit its ability to
report dividends as qualified dividend income.
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from the Fund.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by the Fund before
your investment (and thus were included in the Shares’ NAV when you purchased
your Shares).
You
may wish to avoid investing in the Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your
investment.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
the Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
your Shares from non-U.S. shareholders generally are not subject to U.S.
taxation, unless you are a nonresident alien individual who is physically
present in the U.S. for 183 days or more per year. The Fund may, under certain
circumstances, report all or a portion of a dividend as an “interest-related
dividend” or a “short-term capital gain dividend,” which would generally be
exempt from this 30% U.S. withholding tax, provided certain other requirements
are met. Different tax consequences may result if you are a foreign shareholder
engaged in a trade or business within the United States or if a tax treaty
applies.
The
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage (currently 24%) of the taxable distributions and sale proceeds paid
to any shareholder who fails to properly furnish a correct taxpayer
identification number, who has underreported dividend or interest income, or who
fails to certify that the shareholder is not subject to such withholding.
Taxes
When Shares Are Sold on the Exchange
Provided
that a shareholder holds Shares as capital assets, any capital gain or loss
realized upon a sale 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 the Fund are acquired, including through reinvestment of
dividends, within a 61-day period beginning 30 days before and ending 30 days
after the disposition of Shares. The ability to deduct capital losses may be
limited.
The
cost basis of Shares of the Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Code. The difference between the
selling price and the cost basis of Shares generally determines the amount of
the capital gain or loss realized on the sale or exchange of Shares. Contact the
broker through whom you purchased your Shares to obtain information with respect
to the available cost basis reporting methods and elections for your account.
Taxes
on Purchases and Redemptions of Creation Units
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered, plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The
Internal Revenue Service may assert, however, that a loss that is realized upon
an exchange of securities for Creation Units may not be currently deducted under
the rules governing “wash sales” (for an AP who does not mark-to-market its
holdings) or on the basis that there has been no significant change in economic
position. APs exchanging securities should consult their own tax adviser with
respect to whether the wash sales rule applies and when a loss might be
deductible.
The
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. The Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in kind. As a result, the Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
Net
Investment Income Tax
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8% tax
on all or a portion of their “net investment income,” which includes interest,
dividends, and certain capital gains (generally including capital gains
distributions and capital gains realized on the sale of Shares). This 3.8% tax
also applies to all or a portion of the undistributed net investment income of
certain shareholders that are estates and trusts.
Taxation
of Fund Investments
If
positions held by the Fund were treated as “straddles” for federal income tax
purposes, or the Fund’s risk of loss with respect to a position was otherwise
diminished as set forth in Treasury Regulations, dividends on stocks that are a
part of such positions would not constitute qualified dividend income subject to
such favorable income tax treatment and would not be eligible for the
dividends-dividends received deduction for corporate shareholders. In addition,
straddles are generally subject to certain rules that may affect the amount,
character and timing of the Fund’s gains and losses with respect to straddle
positions by requiring, among other things, that: (1) any loss realized on
disposition of one position of a straddle may not be recognized to the extent
that the Fund has unrealized gains with respect to the other position in such
straddle; (2) the Fund’s holding period in straddle positions be suspended while
the straddle exists (possibly resulting in a gain being treated as short-term
capital gain rather than long-term capital gain); (3) the losses recognized with
respect to certain straddle positions that are part of a mixed straddle and that
are not subject to Code Section 1256 be treated as 60% long-term and 40%
short-term capital loss; (4) losses recognized with respect to certain straddle
positions that would otherwise constitute short-term capital losses be treated
as long-term capital losses; and (5) the deduction of interest and carrying
charges attributable to certain straddle positions may be deferred.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in the Fund. It is not a substitute for
personal tax advice. You also may be subject to state and local tax on Fund
distributions and sales of Shares. Consult your personal tax adviser about the
potential tax consequences of an investment in Shares under all applicable tax
laws. For more information, please see the section entitled “Federal Income
Taxes” in the SAI.
DISTRIBUTION
PLAN
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, the Fund is authorized to
pay an amount up to 0.25% of its average daily net assets each year for certain
distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Fund, and there are no plans to impose
these fees. However, in the event Rule 12b-1 fees are charged in the future,
because the fees are paid out of Fund assets, over time these fees will increase
the cost of your investment and may cost you more than certain other types of
sales charges.
PREMIUM/DISCOUNT
INFORMATION
Information
regarding how often Shares traded on the Exchange at a price above (i.e.,
at a premium) or below (i.e.,
at a discount) the NAV per share is available on the Fund’s website at
etfs.swanglobalinvestments.com.
ADDITIONAL
NOTICES
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange is not
responsible for, nor has it participated in the determination of, the timing,
prices, or quantities of the Fund’s Shares to be issued, nor in the
determination or calculation of the equation by which Shares are redeemable. The
Exchange has no obligation or liability to owners of the Fund’s Shares in
connection with the administration, marketing, or trading of the Fund’s
Shares.
Without
limiting any of the foregoing, in no event shall the Exchange have any liability
for any lost profits or indirect, punitive, special, or consequential damages
even if notified of the possibility thereof.
The
Adviser, the Sub-Adviser, and the Fund make no representation or warranty,
express or implied, to the owners of Shares or any member of the public
regarding the advisability of investing in securities generally or in the Fund
particularly.
FINANCIAL
HIGHLIGHTS
The
financial highlights table below shows the financial performance information for
the Fund’s five most recent fiscal years (or the life of the Fund, if shorter).
Certain information reflects financial results for a single share of the Fund.
The total returns in the table represent the rate that you would have earned or
lost on an investment in the Fund (assuming you reinvested all distributions).
This information has been audited by Cohen & Company, Ltd., the independent
registered public accounting firm of the Fund, whose report, along with the
Fund’s financial statements, is included in the Fund’s Annual
Report,
which is available upon request.
Financial
Highlights
For
a Share Outstanding Throughout each Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Year
Ended
November 30, 2022 |
|
Period
Ended
November
30, 2021(1) |
|
| Net
Asset Value, Beginning of Period |
$ |
19.04 |
|
| $ |
16.49 |
| |
|
|
|
|
| |
| Income
from investment operations: |
|
|
| |
|
Net
investment income(2) |
0.08 |
|
| 0.04 |
| |
| Net
realized and unrealized gain (loss) on investments |
(1.00) |
|
| 2.50 |
| |
| Total
from investment operations |
(0.92) |
|
| 2.54 |
| |
|
|
|
|
| |
| Less
distributions paid: |
|
|
| |
| From
net investment income |
(0.06) |
|
| — |
| |
| Total
distributions paid |
(0.06) |
|
| — |
| |
|
|
|
|
| |
| Capital
share transactions: |
|
|
| |
| Transaction
fees |
0.00 |
|
(9) |
0.01 |
| |
|
|
|
|
| |
| Net
Asset Value, End of Period |
$ |
18.06 |
|
| $ |
19.04 |
| |
|
|
|
|
| |
|
Total
return, at NAV(3) |
-4.85 |
% |
| 15.46 |
% |
(4) |
|
Total
return, at Market(3) |
-5.08 |
% |
| 15.52 |
% |
(4) |
|
|
|
|
| |
| Supplemental
Data and Ratios: |
|
|
| |
| Net
assets, end of period (000’s) |
$ |
138,514 |
|
| $ |
145,083 |
| |
|
|
|
|
| |
|
Ratio
of expenses to average net assets(7)(8) |
0.80 |
% |
| 0.79 |
% |
(5) |
|
Ratio
of net investment income to average net assets(8) |
0.46 |
% |
| 0.27 |
% |
(5) |
|
Portfolio
turnover rate(6) |
230 |
% |
| 2 |
% |
(4) |
(1)The
Fund commenced operations on December 22, 2020.
(2)Per
share net investment income was calculated using average shares
outstanding.
(3)Total
return in the table represents the rate that the investor would have earned or
lost on an investment in the Fund, assuming reinvestment of
distributions.
(4)Not
annualized for periods less than one year.
(5)Annualized
for periods less than one year.
(6)Excludes
in-kind transactions associated with creations and redemptions of the
Fund.
(7)Includes
interest and tax expense of 0.01% and 0.00% for the year/period ended November
30, 2022 and November 30, 2021, respectively.
(8)Does
not include income and expenses of investment companies in which the Fund
invests.
(9)Less
than $0.005.
SWAN
HEDGED EQUITY US LARGE CAP ETF
|
|
|
|
|
|
|
|
|
|
|
| |
| Adviser |
Swan
Capital Management, LLC
1099
Main Avenue, Suite 206
Durango,
Colorado 81301 |
Transfer
Agent
and
Administrator |
U.S.
Bancorp Fund Services, LLC
d/b/a
U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
| Sub-Adviser |
Swan
Global Management, LLC
20
Ridge Top Drive
Humacao,
Puerto Rico 00791 |
Custodian |
U.S.
Bank National Association
1555
North Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212 |
| Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue, NW
Washington,
DC 20004-2541 |
Distributor |
Foreside
Fund Services, LLC
Three
Canal Plaza, Suite 100
Portland,
Maine 04101 |
| Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
1350
Euclid Avenue, Suite 800
Cleveland,
Ohio 44115 |
| |
Investors
may find more information about the Fund in the following
documents:
Statement
of Additional Information: The
Fund’s SAI provides additional details about the investments of the Fund and
certain other additional information. The SAI is on file with the SEC and is
herein incorporated by reference into this Prospectus. It is legally considered
a part of this Prospectus.
Annual/Semi-Annual
Reports: Additional
information about the Fund’s investments is available in the Fund’s annual and
semi-annual reports to shareholders. In the Annual
Report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund’s performance.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Fund by contacting the Fund at c/o U.S. Bank Global
Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701 or by calling
1-800-617-0004.
Shareholder
reports and other information about the Fund are also available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
•Free
of charge from the Fund’s Internet web site at etfs.swanglobalinvestments.com;
or
•For
a fee, by e-mail request to publicinfo@sec.gov.
(SEC
Investment Company Act File No. 811-23226)
