ck0001683471-20221231
PROSPECTUS
Horizon Kinetics Energy and Remediation
ETF
(NVIR
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Listed
on NYSE Arca, Inc.
February 11,
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.
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HORIZON
KINETICS ENERGY AND REMEDIATION ETF – FUND SUMMARY |
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Principal
Investment Strategies |
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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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Net
Investment Income Tax |
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Foreign
Investments by the Fund |
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HORIZON
KINETICS ENERGY AND REMEDIATION ETF – FUND SUMMARY
Investment Objective
The Horizon Kinetics Energy
and Remediation ETF (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% |
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*
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 |
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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. Because the Fund is newly
organized, portfolio turnover information is not yet
available.
Principal Investment Strategies
The
Fund is an actively managed exchange-traded fund (“ETF”) that seeks to achieve
its investment objective by investing primarily in securities of companies that
are expected to benefit, either directly or indirectly, from the increasing
focus on climate and environmentally sensitive carbon-based energy production.
The Fund invests, under normal circumstances, at least 80% of its net assets,
plus the amount of any borrowings for investment purposes, in companies that
produce hydrocarbon-based energy and related products, and/or provide products
or services to support such production efforts (collectively, “Energy
Companies”) and companies the public filings for which state they are engaged in
the development and/or distribution of products or the provision of services
intended to reduce or remediate the negative effects of hydrocarbon-based energy
production, or that they are committed to using such products and/or services in
their businesses (collectively, “Remediation Companies”). The Fund may invest in
common or preferred stock of domestic and foreign companies and units of royalty
trusts.
In
selecting investments for the Fund’s portfolio, Horizon Kinetics Asset
Management LLC (the “Adviser”), the Fund’s investment adviser, seeks to identify
companies that it believes are positioned to benefit from the growing demand for
carbon-based energy production, as well as existing and developing technologies
that can reduce the environmental impact from the production of fossil fuels.
The Adviser’s investment selection process focuses on two primary categories –
Energy Companies and Remediation Companies.
First,
the Adviser will focus on companies that produce carbon-based energy. These
companies include: (i) onshore and offshore oil/gas producers; and (ii) owners
of oil/gas pipeline networks and oil and gas exploration firms. The Fund also
may invest in passive entities such as royalty trusts. Royalties are generally
the right of a company to receive a percentage of revenue from the production of
a commodity or other utilization of the assets owned by the royalty trust.
Second,
the Adviser will focus on companies that have or are developing technologies
that can alleviate the negative impacts derived from the production or the
consumption of hydrocarbons. These may include, but are not limited to,
companies that: (i) produce or develop enhanced water meter and
filtration/treatment systems; (ii) develop technologies to capture and store
carbon dioxide or other types of emissions that are deemed harmful to the
environment, so as to prevent their release into the atmosphere; (iii) provide
or
utilize
products or services that enable the production or consumption of hydrocarbons
in a more efficient and/or environmentally-friendly manner; and/or (iv) have
developed or are developing advanced systems and technologies in the
hydrocarbons industry that are currently not in use.
In
selecting individual investments 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 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 will generally include approximately 30 to 60 securities in its portfolio
that may range from small- to large-capitalization companies. Although the
issues of a majority of the Fund’s securities are expected to be 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 will concentrate (i.e., hold more than 25% of its total assets)
in the securities of companies in the Crude Petroleum and Natural Gas
Industry. 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:
•Concentration
Risk.
Because the Fund’s assets will be concentrated in an industry or group of
industries, the Fund is subject to loss due to adverse occurrences that may
affect that industry or group of industries.
◦Crude
Petroleum and Natural Gas Industry.
The Crude Petroleum and Natural Gas Industry includes companies that engage in
operating oil and gas field properties. These companies may engage in activities
such as the exploration for crude petroleum and natural gas; drilling,
completing, and equipping wells; operation of separators, emulsion breakers,
desilting equipment, and field gathering lines for crude petroleum; and all
other activities in the preparation of oil and gas up to the point of shipment
from the producing property. Companies in the Crude Petroleum and Natural Gas
Industry also include the production of oil through the mining and extraction of
oil from oil shale and oil sands and the production of gas and hydrocarbon
liquids through gasification, liquid faction, and pyrolysis of coal at the mine
site. In addition, the Crude Petroleum and Natural Gas Industry includes
companies which have complete responsibility for operating oil and gas wells for
others on a contract or fee basis.
Companies
in the Crude Petroleum and Natural Gas Industry are affected by 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, Crude Petroleum and Natural Gas Industry 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 also may affect the
profitability of companies operating within the Crude Petroleum and Natural Gas
Industry.
•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 Fund Shares, 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. 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.
•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.
◦Risks
Related to Investing in Australia.
The Australian economy is heavily dependent on the price and demand for
commodities and natural resources as well as its exports from the agricultural
and mining sectors. Declines in the demand for such products may have an adverse
impact on the Fund. Australia also is dependent on trading with key trading
partners. The Fund is susceptible to loss due to adverse market, political,
regulatory, and other events affecting Australia. These events may in turn
adversely affect the trading market and price for Fund shares and cause the Fund
to decline in value.
◦Risks
Related to Investing in Canada.
Canada is a major producer of agricultural products and commodities, such as
forest products, metals, and energy, including oil, gas and hydroelectricity.
The Canadian economy, therefore, is heavily reliant on the sale of such products
and resources, which can pose risks such as price fluctuations and variability
of demand for exportation. Changes in spending on Canadian products by the
economies of other countries or changes in any of these economies, whether due
to changes in demand, market events, regulatory changes or other factors, may
cause a significant impact on the Canadian economy and adversely affect the
Fund.
◦Risks
Related to Investing in Europe.
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.
•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 global energy
needs, the development of non-carbon-based energy technologies, the
effectiveness and marketability of “clean energy” technologies, 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.
•New
Fund Risk. The
Fund is a recently organized investment company with no operating history. As a
result, prospective investors have no track record or history on which to base
their investment decision.
•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.
•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 Fund’s investments are exposed to issuers conducting business in the Energy
Sector, including energy, industrial, infrastructure, and logistics companies,
and is therefore susceptible to the adverse economic, environmental, business,
regulatory, or other occurrences affecting the Energy Sector. The Energy Sector
has historically experienced substantial price volatility. At times, the
performance companies operating in the Energy Sector may lag the performance of
companies operating in 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 also may affect the profitability of
companies operating within the Energy Sector.
•Tax
Risk.
In order to qualify for the favorable U.S. federal income tax treatment accorded
to regulated investment companies (“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 Subchapter
M of the Internal Revenue Code of 1986, as amended (the “Code”).
•Temporary
Defensive Positions 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 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/products/etf/nvir.
Portfolio
Management
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Adviser |
Horizon
Kinetics Asset Management LLC |
Portfolio
Managers |
Peter
B. Doyle, Managing Director and Co-Founder, Fredrik Tjernstrom, Portfolio
Manager and Research Analyst, and Steven Tuen, Portfolio Manager and
Research Analyst, have been the portfolio managers of the Fund since its
inception in February 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/products/etf/nvir.
Tax
Information
The
Fund’s distributions are generally taxable as ordinary income, qualified
dividend income, or capital gains (or a combination), unless your investment is
in an individual retirement account (“IRA”) or other tax-advantaged account.
Distributions on investments made through tax-deferred arrangements may be taxed
later upon withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
ADDITIONAL
INFORMATION ABOUT THE 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
following information is in addition to, and should be read along with, the
description of the Fund’s principal investment strategies in the section titled
“Fund Summary—Principal Investment Strategies” above.
In
accordance with Rule 35d-1 under the Investment Company Act of 1940 (the “1940
Act”), the Fund has adopted a non-fundamental investment policy to invest, under
normal circumstances, at least 80% of its net assets, plus the amount of any
borrowings for investment purposes, in Energy Companies and Remediation
Companies. Such policy may be changed without shareholder approval upon 60 days’
written notice to the Fund’s shareholders.
Temporary
Defensive Positions
To
respond to adverse market, economic, political, or other conditions, the Fund
may invest up to 100% of its assets in a temporary defensive manner by holding
all or a substantial portion of its assets in cash, cash equivalents, or other
high quality short-term investments. Temporary defensive investments generally
may include short-term U.S. government securities, commercial paper, bank
obligations, repurchase agreements, money market fund shares, other money market
instruments, and ETFs that invest in the foregoing instruments. The Adviser also
may invest in these types of securities or hold cash while looking for suitable
investment opportunities or to maintain liquidity. In these circumstances, the
Fund may be unable to achieve its investment objective.
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.
•Concentration
Risk.
Because the Fund’s assets will be concentrated in an industry or group of
industries, the Fund is subject to loss due to adverse occurrences that may
affect that industry or group of industries. To the extent the Fund concentrates
in the securities of issuers in a particular industry, the Fund may face more
risks than if it were diversified more broadly over numerous industries.
◦Crude
Petroleum and Natural Gas Industry.
The Crude Petroleum and Natural Gas Industry includes companies that engage in
operating oil and gas field properties. These companies may engage in activities
such as the exploration for crude petroleum and natural gas; drilling,
completing, and equipping wells; operation of separators, emulsion breakers,
desilting equipment, and field gathering lines for crude petroleum; and all
other activities in the preparation of oil and gas up to the point of shipment
from the producing property. Companies in the Crude Petroleum and Natural Gas
Industry also include the production of oil through the mining and extraction of
oil from oil shale and oil sands and the production of gas and hydrocarbon
liquids through gasification, liquid faction, and pyrolysis of coal at the mine
site. In addition, the Crude Petroleum and Natural Gas Industry includes
companies which have complete responsibility for operating oil and gas wells for
others on a contract or fee basis.
Companies
in the Crude Petroleum and Natural Gas Industry are affected by 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, Crude Petroleum and Natural Gas Industry 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 also may affect the
profitability of companies operating within the Crude Petroleum and Natural Gas
Industry.
•Currency
Exchange Rate Risk.
Changes in currency exchange rates and the relative value of non-U.S. currencies
will affect the value of the Fund’s investments and the value of your Shares.
Because the Fund’s NAV is determined on the basis of U.S. dollars, the U.S.
dollar value of your investment in the Fund may go down if the value of the
local currency of the non-U.S. markets in which the Fund invests depreciates
against the U.S. dollar. This is true even if the local currency value of
securities in the Fund’s holdings goes up. Conversely, the dollar value of your
investment in the Fund may go up if the value of the local currency appreciates
against the U.S. dollar. The value of the U.S. dollar measured against other
currencies is influenced by a variety of factors. These factors include:
national debt levels and trade deficits, changes in balances of payments and
trade, domestic and foreign interest and inflation rates, global or regional
political, economic or financial events, monetary policies of governments,
actual
or potential government intervention, and global energy prices. Political
instability, the possibility of government intervention and restrictive or
opaque business and investment policies also may reduce the value of a country’s
currency. Government monetary policies and the buying or selling of currency by
a country’s government also may influence exchange rates. Currency exchange
rates can be very volatile and can change quickly and unpredictably. As a
result, the value of an investment in the Fund may change quickly and without
warning, and you may lose money.
•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, 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, 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 in order to prevent cyber incidents in the future. The Fund and its
shareholders could be negatively impacted as a result.
•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.
Different types of equity securities tend to go through cycles of outperformance
and underperformance in comparison to the general securities markets. 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. 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. 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 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.
•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 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.
•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.
◦Risks
of Investing in Australia.
Investment in Australian issuers may subject the Fund to regulatory, political,
currency, security, and economic risk specific to Australia. The economy of
Australia is heavily dependent on the price and the demand for commodities and
natural resources as well as its exports from the energy, agricultural and
mining sectors. As a result, the Australian economy is susceptible to
fluctuations in the commodity markets. Conditions that weaken demand for
Australian products worldwide could have a negative impact on the Australian
economy as a whole. Australia also is increasingly dependent on the economies of
its key trading partners, including China, the United States, and
Japan.
◦Risks
of Investing in Canada.
Investment in Canadian issuers may subject the Fund to regulatory, political,
currency, security, and economic risk specific to Canada. 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 other
countries or changes in the other countries’ economies may cause a significant
impact on the Canadian economy. In particular, the Canadian economy is heavily
dependent on relationships with certain key trading partners, including the
United States and China. The United States is Canada’s largest trading and
investment partner, and the Canadian economy is significantly affected by
developments in the U.S. economy. Any downturn in the U.S. or Chinese economic
activity is likely to have an adverse impact on the Canadian economy and may
adversely affect the Fund.
◦Risks
of Investing in Europe.
Investment in European issuers may subject the Fund to regulatory, political,
currency, security, and economic risk specific to Europe. 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 recently experienced volatility and adverse
trends due to concerns about rising 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. For example, Greece has been required to impose harsh austerity
measures on its population to receive financial aid from the International
Monetary Fund and EU member countries. These austerity measures also have
led to social uprisings within Greece, as citizens have protested – at times
violently – the actions of their government. The persistence of these factors
may seriously reduce the economic performance of Greece and pose serious risks
for the country’s economy 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 United Kingdom (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.
In
addition, on January 31, 2020, the UK formally withdrew from the EU (commonly
referred to as “Brexit”) and entered an 11-month transition period, which
concluded on December 31, 2020, with the UK leaving the EU single market and
customs union under the terms of a new trade agreement. The agreement governs
the new relationship between the UK and EU with respect to trading goods and
services, but critical aspects of the relationship remain unresolved and subject
to further negotiation and agreement. There is still considerable uncertainty
relating to the potential consequences associated with the UK’s exit and whether
its exit will increase the likelihood of other countries also departing the EU.
Any exits from the EU, or the possibility of such exits, may have a significant
impact on the UK, Europe, and global economies, which may result in increased
volatility and illiquidity, new legal and regulatory uncertainties and
potentially lower economic growth for these economies that could potentially
have an adverse effect on the value of the Fund’s investments. In addition, the
UK has been a target of terrorism in the past. Acts of terrorism in Europe or
the UK or against such countries’ interests abroad may cause uncertainty in the
European or UK financial markets and adversely affect the performance of the
issuers to which the Fund has exposure.
•Management
Risk. The
Fund is actively managed and uses proprietary investment strategies and
processes. The Adviser’s evaluations and assumptions regarding global energy
needs, the development of non-carbon-based energy technologies, the
effectiveness and marketability of “clean energy” technologies, and other
factors may not successfully achieve the Fund’s investment objective given
actual market conditions. There can be no guarantee that the 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. If the 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 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 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.
•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. 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
larger capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than larger 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.
•New
Fund Risk. The
Fund is a recently organized investment company with no operating history. As a
result, prospective investors have no track record or history on which to base
their investment decision. Moreover, investors will not be able to evaluate the
Fund against one or more comparable funds on the basis of relative performance
until the Fund has established a track record.
•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.
•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. 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
Fund’s investing approach may result in an emphasis on certain sectors or
sub-sectors of the market at any given time. To the extent the 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 also may 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. The Fund’s performance also could 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.
◦Energy
Sector Risk.
The securities of, or financial instruments tied to the performance of, issuers
in the Energy Sector that the Fund purchases may underperform the market as a
whole either by declining in value or failing to perform as well. To the extent
that the Fund’s investments are exposed to issuers conducting business in the
Energy Sector (“Energy Companies”),
the
Fund is subject to legislative or regulatory changes, adverse market conditions
and/or increased competition affecting the Energy Sector. The Energy Sector has
historically experienced substantial price volatility. At times, the performance
of Energy Companies may lag the performance of companies in operating in other
sectors or the market as a whole. The prices of securities of Energy Companies
may fluctuate widely due to 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. The
prices of the securities of Energy Companies also may fluctuate widely due to
changes in value and dividend yield, which depend largely on the price and
supply of energy resources, international political events relating to oil
producing countries, energy conservation, the success of exploration projects,
and tax and other governmental regulatory policies.
•Tax
Risk.
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.
•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.
PORTFOLIO
HOLDINGS INFORMATION
Information
about the Fund’s daily portfolio holdings is available at
www.horizonkinetics.com/products/etf/nvir. 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
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 Fund.
The Adviser, subject to general supervision and oversight of the Board, provides
an investment program for the Fund and manages the day-to-day investment of the
Fund’s assets. The Adviser also arranges for transfer agency, custody, fund
administration, distribution and all other services necessary for the Fund to
operate. The Adviser is an SEC-registered investment adviser that offers a broad
range of portfolio management, portfolio advisory and other business activities.
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
based on the Fund’s average daily net assets as set forth in the table
below.
|
|
|
|
| |
Fund
|
Management
Fee |
Horizon
Kinetics Energy and Remediation ETF |
0.85% |
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 fee payable to the Adviser under the Advisory
Agreement, interest charges on any borrowings, dividends and other expenses on
securities sold short, taxes, brokerage commissions and other expenses incurred
in placing orders for the purchase and sale of securities and other investment
instruments, acquired fund fees and expenses, accrued deferred tax liability,
extraordinary expenses, and distribution fees and expenses paid by the Trust
under the distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act.
The
basis for the Board’s approval of the Advisory Agreement will be available in
the Fund’s first Semi-Annual Report to Shareholders.
Portfolio
Managers
The
individuals identified below are jointly and primarily responsible for the
day-to-day management of the Fund’s portfolio.
Peter
B. Doyle is a Managing Director and co-founder of the Adviser, and President of
Kinetic Mutual Funds, Inc. He is a senior member of the Adviser’s research team,
and a member of the Adviser’s Investment Committee, and Board of Directors. Mr.
Doyle is a co-portfolio manager for several registered investment companies,
private funds, and institutional separate accounts. He also is responsible for
oversight of the Adviser’s marketing and sales activities and is the Vice
President of FRMO Corp. Previously, Mr. Doyle was with Bankers Trust
Company (1985-1994) as a Senior Investment Officer, where he also served on the
Finance, Utility and REIT Research sub-group teams. He received a BS from St.
John’s University and an MBA from Fordham University.
Fredrik
Tjernstrom is a Portfolio Manager and Research Analyst with the Adviser. He
joined the Adviser in 1998 and has responsibilities in both portfolio management
and research. Mr. Tjernstrom is a co-portfolio manager for several private funds
and institutional separate accounts, and authors research reports produced by
the Adviser. Previously, he was the Director of Research for Brokerage Research
Services, an independent research provider which he co-founded. Mr. Tjernstrom
has a BSc in Electrical Engineering from Växjö University, Sweden, an MBA with a
concentration in Finance and an MSc in Information Systems from Hawaii Pacific
University. He also attended Harvard University for parts of his graduate work
and is a CFA®
charter holder.
Steven
Tuen is Portfolio Manager and Research Analyst with the Adviser. He joined the
Adviser in 1996 and has responsibilities in both portfolio management and
research. Mr. Tuen is a co-portfolio manager of a registered investment company
and is responsible for conducting and authoring research. His research
responsibilities include the coverage of equity and fixed income securities,
with particular emphasis on high yield securities. Previously, Mr. Tuen spent
seven years with Bankers Trust Company as a portfolio manager in the Private
Client Group, serving high net worth individual and trust accounts. He received
a Bachelor of Business Administration from Baruch College – City University of
New York. He is a CFA®
charter holder and a member of the CFA Institute, as well as of the New York
Society of Security Analysts.
The
Fund’s SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts managed by the Portfolio Manager, and the
Portfolio Manager’s ownership of Shares.
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 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 Fund.
U.S.
Bank National Association, located at 1555 N. 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.
DIVIDENDS,
DISTRIBUTIONS, AND TAXES
Dividends
and Distributions
The
Fund intends to pay out dividends, if any, and distribute any net realized
capital gains to its shareholders at least annually. The Fund will declare and
pay capital gain distributions, if any, in cash. Distributions in cash may be
reinvested automatically in additional whole Shares only if the broker through
whom you purchased Shares makes such option available. Your broker is
responsible for distributing the income and capital gain distributions to
you.
Taxes
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax 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 intends to elect and to qualify each year for treatment as a RIC. If it
meets certain minimum distribution requirements, a RIC is not subject to tax at
the fund level on income and gains from investments that are timely distributed
to shareholders. However, the Fund’s failure to qualify as a RIC or to meet
minimum distribution requirements would result (if certain relief provisions
were not available) in fund-level taxation and, consequently, a reduction in
income available for distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA, you need to be aware of the possible tax consequences
when the Fund makes distributions, when you sell your Shares listed on the
Exchange, and when you purchase or redeem Creation Units (APs only).
Taxes
on Distributions
The
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long the Fund owned the investments that generated them,
rather than how long a shareholder has owned his or her Shares. Sales of assets
held by the Fund for more than one year generally result in long-term capital
gains and losses, and sales of assets held by the Fund for one year or less
generally result in short-term capital gains and losses. Distributions of the
Fund’s net capital gain (the excess of net long-term capital gains over net
short-term capital losses) that are reported by the Fund as capital gain
dividends (“Capital Gain Dividends”) will be taxable as long-term capital gains,
which for non-corporate shareholders are subject to tax at reduced rates of up
to 20% (lower rates apply to individuals in lower tax brackets). Distributions
of short-term capital gain will generally be taxable as ordinary income.
Dividends and distributions are generally taxable to you whether you receive
them in cash or reinvest them in additional Shares.
Distributions
reported by the Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided holding period and other requirements are met. “Qualified dividend
income” generally is income derived from dividends paid by U.S. corporations or
certain foreign corporations that are either incorporated in a U.S. possession
or eligible for tax benefits under certain U.S. income tax treaties. In
addition, dividends that the Fund 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.
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 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 Internal Revenue Code of 1986, as
amended. 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 wash sale rules apply 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.
Foreign
Investments by the Fund
Interest
and other income received by the 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 the Fund’s assets consists of certain foreign stock or securities, the
Fund will be eligible to elect to “pass through” to investors the amount of
foreign income and similar taxes (including withholding taxes) paid by the 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 the Fund does not so elect, it will be entitled to claim a
deduction for certain foreign taxes incurred by the Fund. The 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.
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
www.horizonkinetics.com/products/etf/nvir.
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 and the Fund make no representation or warranty, express or implied, to
the owners of the Fund’s Shares or any member of the public regarding the
advisability of investing in securities generally or in the Fund’s Shares
particularly.
FINANCIAL
HIGHLIGHTS
Financial
information is not available because the Fund had not commenced operations prior
to the date of this Prospectus.
Horizon
Kinetics Energy and Remediation ETF
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Adviser |
Horizon
Kinetics Asset Management LLC
470
Park Avenue South, 3rd Floor 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 |
Custodian |
U.S.
Bank National Association
1555
North Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212 |
Distributor |
Foreside
Fund Services, LLC
Three
Canal Plaza, Suite 100
Portland,
Maine 04101 |
Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
1350
Euclid Avenue, Suite 800
Cleveland,
Ohio 44115 |
Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue, NW
Washington,
DC 20004-2541 |
Investors
may find more information about the 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 will be available in the
Fund’s annual and semi-annual reports to shareholders. In the annual report,
when available, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund’s performance after
the first fiscal year in which the Fund is in operation.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Fund by contacting the Fund at 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 also are 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 Fund’s Internet web site at
www.horizonkinetics.com/products/etf/nvir; or
(SEC
Investment Company Act File No. 811-23226)