ck0001540305-20230430
Aptus Large Cap Enhanced Yield ETF
(DUBS)
Listed
on the Cboe BZX Exchange, Inc.
PROSPECTUS
June 10,
2023
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved
of these securities or passed upon the accuracy or adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
TABLE
OF CONTENTS
|
|
|
|
|
| |
| Aptus
Large Cap Enhanced Yield ETF |
|
| Investment
Objective |
|
| Fees
and Expenses of the Fund |
|
| Expense
Example |
|
| Portfolio
Turnover |
|
| Principal
Investment Strategy |
|
| Principal
Investment Risks |
|
| Performance |
|
| Portfolio
Management |
|
| Purchase
and Sale of Shares |
|
| Tax
Information |
|
| Financial
Intermediary Compensation |
|
| Additional
Information About the Fund |
|
| Investment
Objective |
|
| Principal
Investment Strategy |
|
|
|
|
| Principal
Investment Risks |
|
| Portfolio
Holdings Information |
|
| Portfolio
Management |
|
| Investment
Adviser |
|
| Manager
of Managers Structure |
|
| Portfolio
Managers |
|
| How
to Buy and Sell Shares |
|
| Book
Entry |
|
| Frequent
Purchases and Redemptions of Shares |
|
| Determination
of Net Asset Value (NAV) |
|
| Fair
Value Pricing |
|
| Investments
by Registered Investment Companies |
|
| Delivery
of Shareholder Documents — Householding |
|
| Dividends,
Distributions, and Taxes |
|
| Distribution |
|
| Premium/Discount
Information |
|
| Additional
Notices |
|
| Financial
Highlights |
|
The Aptus Large Cap Enhanced
Yield ETF (the “Fund”) seeks capital appreciation and current
income.
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
|
|
|
|
|
| |
|
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment) |
|
Management
Fees |
0.39% |
|
Distribution
and/or Service (12b-1) Fees |
0.00% |
|
Other
Expenses(1) |
0.00% |
|
| |
|
Total
Annual Fund Operating Expenses |
0.39% |
|
| |
(1)
Estimated for the current
fiscal year.
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then continue to hold or redeem all of
your Shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in annual fund operating expenses or in the
Example, affect the Fund’s performance. Because the Fund is newly organized,
portfolio turnover information is not yet
available.
The
Fund is an actively managed exchange-traded fund (“ETF”) that seeks to achieve
its investment objective through a hybrid equity and equity-linked note (“ELN”)
strategy. The Fund invests primarily in U.S.-listed large-cap equity securities
(the “Equity Strategy”) and invests the remainder of its assets in ELNs to
generate income (the “ELN Strategy”). The Fund considers a large cap company to
be one with a market capitalization that, at the time of purchase, is within
with the capitalization range of the S&P 500 Index. As of May 31, 2023, the
market capitalization range represented by companies in the S&P 500 Index
was approximately $1.88 billion to $2.80 trillion.
Equity
Strategy
Under
normal circumstances, at least 80% of the Fund’s net assets (plus borrowings for
investment purposes) will be invested in equity securities of large cap
companies. For purposes of such policy, the Fund considers equity securities to
include U.S.-listed common stocks, American Depositary Receipts (“ADRs”), and
real estate investment trusts (“REITs”).
Aptus
Capital Advisors, LLC, the Fund’s investment adviser (“Aptus” or the “Adviser”),
generally selects equity securities for the Fund based on an analysis of each
company’s fundamental characteristics to try to identify attractive
opportunities. In selecting U.S.-listed large cap stocks for the Fund, the
Adviser uses an allocation method based on market capitalization, liquidity, and
prospects for future price appreciation (i.e.,
prospects for future price appreciation as having the potential to grow revenue,
earnings, or free cash flow).
ELN
Strategy
In
order to generate income, the Fund typically invests approximately 10% of its
net assets in ELNs. ELNs are investment products structured as notes that are
issued by counterparties, including banks, broker-dealers or their affiliates,
and designed to offer a return linked to the underlying instruments within the
ELN.
ELNs
in which the Fund invests are derivative instruments that are specially designed
to combine the economic characteristics of a U.S. large-cap equity index or
individual U.S. large-cap equity securities (the “Underlying Instruments”)
(e.g.,
the S&P 500) and option spreads in a single note form. Option spreads
consist of (i) writing (selling) call options on the Underlying Instruments,
while (ii) simultaneously reinvesting a portion of such premium to buy call
options on the Underlying Instrument.
The
ELNs provide recurring cash flow to the Fund based on the premiums from the call
options the ELNs write and are an important source of the Fund’s return.
Generally, when purchasing an ELN, the Fund pays the counterparty the current
value of the ELN’s Underlying Instruments plus the cost to structure the ELN.
Upon the maturity of the note, the Fund generally receives the par value of the
note, plus interest, plus or minus a return based on the appreciation or
depreciation of the Underlying Instruments.
The
Fund invests in ELNs to enhance the Fund’s yield (i.e.,
for income generation from premiums on options sold and capital appreciation
potential). When the Fund invests in ELNs, the Fund receives cash but this
limits the Fund’s opportunity to profit from an increase in the market value of
the instrument because of the limits relating to the call options written within
the particular ELN.
The
ELNs in which the Fund invests generate interest, which is paid following the
maturity of the ELN. The ELNs in which the Fund invests are highly customizable,
individually negotiated, bilateral instruments that typically have a maturity
between one week and six months. The Fund caps its exposure to ELNs with a
single counterparty at 5% of the Fund’s assets. The ELNs in which the Fund
invests may not be sold to third parties. In order to redeem an ELN, the Adviser
would sell back the ELN to the issuing counterparty and unwind the components of
the ELN (i.e.,
the Underlying Instruments and the options spread).
In
selecting ELNs for the Fund, the Adviser considers the potential income the
Underlying Instruments will generate and the potential gains or losses that
could be experienced by the Underlying Instruments, as well as the liquidity of
the Underlying Instruments and the maturity of the
ELN.
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with other funds. Each risk summarized below is considered a
“principal risk” of investing in the Fund, regardless of the order in which it
appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s Prospectus titled “Additional Information About the
Fund.”
•Counterparty
Risk.
Counterparty risk includes the possibility that a party to a transaction
involving the Fund will fail to meet its obligations. This could cause the Fund
to lose the benefit of the transaction or prevent the Fund from selling or
buying other securities to implement its investment strategy.
•Depositary
Receipt Risk.
Depositary
Receipts involve risks similar to those associated with investments in foreign
securities, such as changes in political or economic conditions of other
countries and changes in the exchange rates of foreign currencies. Depositary
Receipts listed on U.S. exchanges are issued by banks or trust companies and
entitle the holder to all dividends and capital gains that are paid out on the
underlying
foreign
shares (“Underlying Shares”). When the Fund invests in Depositary Receipts as a
substitute for an investment directly in the Underlying Shares, the Fund is
exposed to the risk that the Depositary Receipts may not provide a return that
corresponds precisely with that of the Underlying Shares.
•ELNs
Risk.
Investing in ELNs may be more costly to a Fund than if the Fund had invested in
the Underlying Instruments directly. Investments in ELNs often have risks
similar to the Underlying Instruments, which include market risk and
large-capitalization investing risk. The Underlying Instruments of the ELN
involve the use of options under the terms defined in the ELN itself. Due to the
utilization of options and depending on the terms of the ELN, the ELN may be
sensitive to leverage risk. That leverage risk is limited to the change in the
value of the ELN and its terms. Investments in ELNs allow for enhanced yield but
are subject to limited upside appreciation potential based on movements of a
single underlying reference asset, basket of stocks, or index of equity
securities. The Fund’s losses from investing in an ELN is limited to the
principal amount that the Fund invested in such ELN. In addition, since ELNs are
in note form, ELNs are also subject to certain debt securities risks, such as
credit or counterparty risk. Should the prices of the Underlying Instruments
move in an unexpected manner, a Fund may not achieve the anticipated benefits of
an investment in an ELN, and may realize losses, which could be significant and
could include the entire principal investment. Investments in ELNs are also
subject to liquidity risk, meaning that ELNs may be difficult to sell and value.
A lack of liquidity of an ELN may also cause the value of the ELN to decline. In
addition, ELNs may exhibit price behavior that does not correlate with the
Underlying Instruments. ELN investments are subject to the risk that issuers
and/or counterparties will fail to make payments when due or default completely.
Prices of these investments may be adversely affected if any of the issuers or
counterparties it is invested in are subject to an actual or perceived
deterioration in their credit quality. Unlike a direct investment in equity
securities, ELNs typically involve a term or expiration date, potentially
increasing the Fund’s turnover rate, transaction costs and tax liability.
•ETF
Risks.
The
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
•Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
•Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
•Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant.
•Trading. Although
Shares are listed for trading on Cboe BZX Exchange, Inc. (the “Exchange”) and
may be traded on U.S. exchanges other than the Exchange, there can be no
assurance that Shares will trade with any volume, or at all, on any stock
exchange. In stressed market conditions, the liquidity of Shares may begin to
mirror the liquidity of the Fund’s underlying portfolio holdings, which can be
significantly less liquid than Shares, and this could lead to differences
between the market price of the Shares and the underlying value of those Shares.
•Foreign
Investment Risk.
Because
of the Fund’s investment in ADRs, changes in foreign economies and political
climates are more likely to affect the Fund than a fund that invests exclusively
in U.S. companies. There may be less government supervision of foreign markets,
resulting in non-uniform accounting practices and less publicly available
information. The value of foreign investments may be affected by changes in
exchange control regulations, application of foreign tax laws (including
withholding tax), changes in governmental administration or economic or monetary
policy (in this country or abroad) or changed circumstances in dealings between
nations.
•Large-Capitalization
Investing.
The
securities of large cap companies may be relatively mature compared to smaller
companies and therefore subject to slower growth during times of economic
expansion. Large-capitalization companies may also be unable to respond quickly
to new competitive challenges, such as changes in technology and consumer
tastes. The Fund’s performance may be adversely affected if securities of large
cap companies outperform the market as a whole because although the Fund owns
large-cap equities through its Equity Strategy, the Fund also invests in ELNs
with short call option spreads on large cap equities (e.g., the S&P 500).
Because ELNs generate income from premiums on options sold and are subject to
limited upside appreciation given their use of short call option spreads on
large cap equities, the outperformance of, or volatility related to, large cap
companies may adversely impact the ELN’s performance, which in turn may
adversely impact Fund performance.
•Management
Risk. The
Fund is actively managed and may not meet its investment objective based on the
Adviser’s success or failure to implement investment strategies for the Fund.
•Market
Risk. The
trading prices of the securities held by the Fund, as well as the Underlying
Instruments of the ELNs, fluctuate in response to a variety of factors. These
factors include events impacting the entire market or specific market segments,
such as political, market and economic developments, as well as events that
impact specific issuers. The Fund’s NAV and market price, like security and
commodity prices generally, may fluctuate significantly in response to these and
other factors. Local, regional or global events such as war, including Russia’s
invasion of Ukraine, acts of terrorism, spread of infectious diseases or other
public health issues, recessions, rising inflation, or other events could have a
significant negative impact on the Fund and its investments. For example, the
global pandemic caused by COVID-19, a novel coronavirus, and the aggressive
responses taken by many governments, including closing borders, restricting
international and domestic travel, and the imposition of prolonged quarantines
or similar restrictions, has had negative impacts, and in many cases severe
impacts, on markets worldwide. The COVID-19 pandemic has caused prolonged
disruptions to the normal business operations of companies around the world and
the impact of such disruptions is hard to predict. Such events may affect
certain geographic regions, countries, sectors and industries more significantly
than others. Such events could adversely affect the prices and liquidity of the
Fund’s portfolio securities or other instruments and could result in disruptions
in the trading markets. As a result, an investor could lose money over short or
long periods of time.
•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.
•Options
Risk. The
Fund invests in ELNs that utilize call options. Purchasing and selling (writing)
options are speculative activities and entail greater than ordinary investment
risks. The use of options can lead to losses because of adverse movements in the
price or value of the reference asset, which may be magnified by certain
features of the options. Purchasing options involves the payment of premiums,
which may adversely affect the ELNs, and, consequently, the Fund’s performance.
Purchased options may expire worthless resulting in the ELN’s loss of the
premium it paid for the option. When selling an option, the ELN will receive a
premium; however, this premium may not be enough to offset a loss incurred by
the ELN if the price of the underlying asset is above the strike price by an
amount equal to or greater than the premium. In addition, to the extent a
written option that is part of an option spread strategy is exercised, the
corresponding option purchased by the ELN to mitigate losses as part of an
option spread strategy is not expected to offset all losses from the written
option.
•REIT
Investment Risk. Investments
in REITs involve unique risks. REITs may have limited financial resources, may
trade less frequently and in limited volume, and may be more volatile than other
securities. REITs may be affected by changes in the value of their underlying
properties or mortgages or by defaults by their borrowers or tenants.
Furthermore, these entities depend upon specialized management skills, have
limited diversification and are, therefore, subject to risks inherent in
financing a limited number of projects. In addition, the performance of a U.S.
REIT may be affected by changes in the tax laws or by its failure to qualify for
tax-free pass-through of income.
Performance information for the Fund is not
included because the Fund had not yet commenced operations as of the date of
this Prospectus. In the future, performance information for the
Fund will be presented in this section. Updated performance information will be
available on the Fund’s website at www.aptusetfs.com/dubs.
|
|
|
|
|
| |
| Adviser |
Aptus
Capital Advisors, LLC |
| Portfolio
Managers |
John
D. (“JD”) Gardner, CFA, Chief Investment Officer and Managing Member at
the Adviser, has been a portfolio manager of the Fund since its inception
in June 2023.
Mark
Callahan, Portfolio Manager and Head of Trading at the Adviser, has been a
portfolio manager of the Fund since its inception in June
2023.
Brad
Rapking, CFA, Portfolio Manager and Analyst at the Adviser, has been
portfolio manager of the Fund since its inception in June
2023. |
The
Fund issues and redeems Shares at NAV only in Creation Units. Only APs may
acquire Shares directly from the Fund, and only APs may tender their Shares for
redemption directly to the Fund, at NAV. APs must be a member or participant of
a clearing agency registered with the SEC and must execute a Participant
Agreement that has been agreed to by the Distributor (defined below), and that
has been accepted by the Fund’s transfer agent, with respect to purchases and
redemptions of Creation Units. Once created, Shares trade in the secondary
market in quantities less than a Creation Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Shares are listed for trading on the secondary market on the Exchange and can be
bought and sold throughout the trading day like other publicly traded
securities.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the bid-ask spread on
your transactions. 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.
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an IRA
or other tax-advantaged account. Distributions on investments made through
tax-deferred arrangements may be taxed later upon withdrawal of assets from
those accounts.
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.
The
Fund’s investment objective has been adopted as a non-fundamental investment
policy and may be changed without shareholder approval upon written notice to
shareholders.
Principal
Investment Strategy
The
Fund will provide at least 60 days’ prior written notice to shareholders of a
change in the Fund’s policy of investing at least 80% of its net assets (plus
any borrowings for investment purposes) in the type of investments suggested by
the Fund’s name.
The
ELNs in which the Fund invests are prepaid at the time they are assumed by the
Fund. There is no continuing payment obligation for the Fund.
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. Examples of temporary defensive investments
include short-term U.S. government securities, commercial paper, bank
obligations, repurchase agreements, money market fund shares, and other money
market instruments. The Fund also may invest in these types of defensive
investments 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.
This
section provides additional information regarding the principal risks described
in the Fund Summary. As in the Fund Summary, the principal risks below are
presented in alphabetical order to facilitate finding particular risks and
comparing them with other funds. Each risk described below is considered a
“principal risk” of investing in the Fund, regardless of the order in which it
appears. Each of the factors below could have a negative impact on the Fund’s
performance and trading prices.
•Counterparty
Risk. Counterparty
risk includes the possibility that a party to a transaction involving the Fund
will fail to meet its obligations. This could cause the Fund to lose the benefit
of the transaction or prevent the Fund from selling or buying other securities
to implement its investment strategy.
•Depositary
Receipt Risk.
Depositary
Receipts involve risks similar to those associated with investments in foreign
securities, such as changes in political or economic conditions of other
countries and changes in the exchange rates of foreign currencies. Depositary
Receipts listed on U.S. exchanges are issued by banks or trust companies and
entitle the holder to all dividends and capital gains that are paid out on the
underlying foreign shares (“Underlying Shares”). When the Fund invests in
Depositary Receipts as a substitute for an investment directly in the Underlying
Shares, the Fund is exposed to the risk that the Depositary Receipts may not
provide a return that corresponds precisely with that of the Underlying Shares.
•ELNs
Risk. Investing
in ELNs may be more costly to a Fund than if the Fund had invested in the
Underlying Instruments directly. Investments in ELNs often have risks similar to
the Underlying Instruments, which include market risk and large-capitalization
investing risk. The Underlying Instruments of the ELN involve the use of options
under the terms defined in the ELN itself. Due to the utilization of options and
depending on the terms of the ELN, the ELN may be sensitive to leverage risk.
That leverage risk is limited to the change in the value of the ELN and its
terms. Investments in ELNs allow for enhanced yield but are subject to limited
upside appreciation potential based on movements of a single underlying
reference asset, basket of stocks, or index of equity securities. The Fund’s
losses from investing in an ELN is limited to the principal amount that the Fund
invested in such ELN. In addition, since ELNs are in note form, ELNs are also
subject to certain debt securities risks, such as credit or counterparty risk.
Should the prices of the Underlying Instruments move in an unexpected manner, a
Fund may not achieve the anticipated benefits of an investment in an ELN, and
may realize losses, which could be significant and could include the entire
principal
investment.
Investments in ELNs are also subject to liquidity risk, meaning that ELNs may be
difficult to sell and value. A lack of liquidity may also cause the value of the
ELN to decline. In addition, ELNs may exhibit price behavior that does not
correlate with the Underlying Instruments. ELN investments are subject to the
risk that issuers and/or counterparties will fail to make payments when due or
default completely. Prices of these investments may be adversely affected if any
of the issuers or counterparties it is invested in are subject to an actual or
perceived deterioration in their credit quality. If the ELN is held to maturity,
the issuer would pay to the purchaser the Underlying Instrument’s value at
maturity with any necessary adjustments. The holder of an ELN that is linked to
a particular underlying security or instrument may be entitled to receive
dividends paid in connection with that underlying equity security, but typically
does not receive voting rights as it would if it directly owned the underlying
equity security. Unlike a direct investment in equity securities, ELNs typically
involve a term or expiration date, potentially increasing the Fund’s turnover
rate, transaction costs and tax liability.
•ETF
Risks.
The
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
•APs,
Market Makers, and Liquidity Providers Concentration Risk.
The Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the business or
significantly reduce their business activities and no other entities step
forward to perform their functions.
•Costs
of Buying or Selling Shares.
Investors buying or selling Shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers, as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of Shares. In addition, secondary market investors will also incur the cost of
the difference between the price at which an investor is willing to buy Shares
(the “bid” price) and the price at which an investor is willing to sell Shares
(the “ask” price). This difference in bid and ask prices is often referred to as
the “spread” or “bid-ask spread.” The bid-ask spread varies over time for Shares
based on trading volume and market liquidity, and the spread is generally lower
if Shares have more trading volume and market liquidity and higher if Shares
have little trading volume and market liquidity. Further, a relatively small
investor base in the Fund, asset swings in the Fund, and/or increased market
volatility may cause increased bid-ask spreads. Due to the costs of buying or
selling Shares, including bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
•Shares
May Trade at Prices Other Than NAV.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. Although it is expected that the market price of Shares will
approximate the Fund’s NAV, there may be times when the market price of Shares
is more than the NAV intra-day (premium) or less than the NAV intra-day
(discount) due to supply and demand of Shares or during periods of market
volatility. This risk is heightened in times of market volatility or periods of
steep market declines. The market price of Fund shares during the trading day,
like the price of any exchange-traded security, includes a “bid-ask” spread
charged by the exchange specialist, market makers or other participants that
trade the Fund shares. In times of severe market disruption, the bid-ask spread
can increase significantly. At those times, Fund shares are most likely to be
traded at a discount to NAV, and the discount is likely to be greatest when the
price of Fund shares is falling fastest, which may be the time that you most
want to sell your Fund shares. The Adviser believes that, under normal market
conditions, large market price discounts or premiums to NAV will not be
sustained because of arbitrage opportunities.
•Trading.
Although Shares are listed for trading on the Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading
market
for such Shares will develop or be maintained. Trading in Shares may be halted
due to market conditions or for reasons that, in the view of the Exchange, make
trading in Shares inadvisable. In addition, trading in Shares on the Exchange is
subject to trading halts caused by extraordinary market volatility pursuant to
Exchange “circuit breaker” rules, which temporarily halt trading on the Exchange
when a decline in the S&P 500®
Index during a single day reaches certain thresholds (e.g.,
7%, 13%, and 20%). Additional rules applicable to the Exchange may halt trading
in Shares when extraordinary volatility causes sudden, significant swings in the
market price of Shares. There can be no assurance that Shares will trade with
any volume, or at all, on any stock exchange. In stressed market conditions, the
liquidity of Shares may begin to mirror the liquidity of the Fund’s underlying
portfolio holdings, which can be significantly less liquid than Shares, and this
could lead to differences between the market price of the Shares and the
underlying value of those Shares.
•Foreign
Investment Risk.
Investments in ADRs that provide exposure to non-U.S. companies involve certain
risks that may not be present with investments in U.S. companies. For example,
investments in non-U.S. companies 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.
Securities of non-U.S. companies may be subject to different accounting,
auditing, financial reporting and investor protection standards than those of
U.S. companies. Investments tied to non-U.S. companies may be subject to
withholding or other taxes and may be subject to additional trading, settlement,
custodial, and operational risks. Because legal systems differ, there is also
the possibility that it will be difficult to obtain or enforce legal judgments
in certain countries. Since foreign exchanges may be open on days when the Fund
does not price their Shares, the value of the securities in the Fund’s
portfolios may change on days when shareholders will not be able to purchase or
sell 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.
•Large-Capitalization
Investing.
The
securities of large cap companies may be relatively mature compared to smaller
companies and therefore subject to slower growth during times of economic
expansion. Large-capitalization companies may also be unable to respond quickly
to new competitive challenges, such as changes in technology and consumer
tastes. The Fund’s performance may be adversely affected if securities of large
cap companies outperform the market as a whole because although the Fund owns
large-cap equities through its Equity Strategy, the Fund also invests in ELNs
with short call option spreads on large cap equities (e.g., the S&P 500).
Because ELNs generate income from premiums on options sold and are subject to
limited upside appreciation given their use of short call option spreads on
large cap equities, the outperformance of, or volatility related to, large cap
companies may adversely impact the ELN’s performance, which in turn may
adversely impact Fund performance.
•Management
Risk. The
Fund is actively managed and may not meet its investment objective based on the
Adviser’s success or failure to implement investment strategies for the Fund.
•Market
Risk. The
trading prices of the securities held by the Fund, as well as the Underlying
Instruments of the ELNs, fluctuate in response to a variety of factors. These
factors include events impacting the entire market or specific market segments,
such as political, market and economic developments, as well as events that
impact specific issuers. The Fund’s NAV and market price, like security and
commodity prices generally, may fluctuate significantly in response to these and
other factors. Local, regional or global events such as war, including Russia’s
invasion of Ukraine, acts of terrorism, spread of infectious diseases or other
public health issues, recessions, rising inflation, or other events could have a
significant negative impact on the Fund and its investments. For example, the
global pandemic caused by COVID-19, a novel coronavirus, and the aggressive
responses taken by many governments, including closing borders, restricting
international and domestic travel, and the imposition of prolonged quarantines
or similar restrictions, has had negative impacts, and in many cases severe
impacts, on markets worldwide. The COVID-19 pandemic has caused prolonged
disruptions to the normal business operations of companies around the world and
the impact of such disruptions is hard to predict. Such events may affect
certain geographic regions, countries, sectors and industries more significantly
than others. Such events could adversely affect the prices and liquidity of the
Fund’s
portfolio securities or other instruments and could result in disruptions in the
trading markets. As a result, an investor could lose money over short or long
periods of time.
Beginning
in the first quarter of 2020, financial markets in the United States and around
the world experienced extreme and, in many cases, unprecedented volatility and
severe losses due to the global pandemic caused by COVID-19, a novel
coronavirus. The pandemic resulted in a wide range of social and economic
disruptions, including closed borders, voluntary or compelled quarantines of
large populations, stressed healthcare systems, reduced or prohibited domestic
or international travel, and supply chain disruptions affecting the United
States and many other countries. Some sectors of the economy and individual
issuers have experienced particularly large losses as a result of these
disruptions, and such disruptions may continue for an extended period of time or
reoccur in the future to a similar or greater extent. In response, the U.S.
government and the Federal Reserve have taken extraordinary actions to support
the domestic economy and financial markets. Many countries, including the U.S.,
are subject to few restrictions related to the spread of COVID-19. It is unknown
how long circumstances related to the pandemic will persist, whether they will
reoccur in the future, whether efforts to support the economy and financial
markets will be successful, and what additional implications may follow from the
pandemic. The impact of these events and other epidemics or pandemics in the
future could adversely affect Fund performance.
•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.
•Options
Risk.
The Fund invests in ELNs that utilize call options. Purchasing and selling
(writing) options are speculative activities and entail greater than ordinary
investment risks. The use of options can lead to losses because of adverse
movements in the price or value of the reference asset, which may be magnified
by certain features of the options. Purchasing options involves the payment of
premiums, which may adversely affect the ELNs, and, consequently, the Fund’s
performance. Purchased options may expire worthless resulting in the ELN’s loss
of the premium it paid for the option. When selling an option, the ELN will
receive a premium; however, this premium may not be enough to offset a loss
incurred by the ELN if the price of the underlying asset is above the strike
price by an amount equal to or greater than the premium. In addition, to the
extent a written option that is part of an option spread strategy is exercised,
the corresponding option purchased by the ELN to mitigate losses as part of an
option spread strategy is not expected to offset all losses from the written
option.
•REIT
Investment Risk.
Investments in REITs involve unique risks. REITs may have limited financial
resources, may trade less frequently and in limited volume, and may be more
volatile than other securities. In addition, to the extent the Fund holds
interests in REITs, it is expected that investors in the Fund will bear two
layers of asset-based management fees and expenses (directly at a Fund level and
indirectly at the REIT level). The risks of investing in REITs include certain
risks associated with the direct ownership of real estate and the real estate
industry in general. These include risks related to general, regional and local
economic conditions; fluctuations in interest rates and property tax rates;
shifts in zoning laws, environmental regulations and other governmental action
such as the exercise of eminent domain; cash flow dependency; increased
operating expenses; lack of availability of mortgage funds; losses due to
natural disasters; overbuilding; losses due to casualty or condemnation; changes
in property values and rental rates; and other factors.
In
addition to these risks, residential/diversified REITs and commercial equity
REITs may be affected by changes in the value of the underlying property owned
by the trusts, while mortgage REITs may be affected by the quality of any credit
extended. Further, REITs are dependent upon management skills and generally may
not be diversified. REITs are also subject to heavy cash flow dependency,
defaults by borrowers and self-liquidation. In addition, U.S. REITs could
possibly fail to qualify for the beneficial tax treatment available to REITs
under the Code, or to maintain their exemptions from registration under the 1940
Act. A REIT that fails to comply with such tax requirements may be subject
to U.S. federal income taxation, which may affect the value of the REIT and the
characterization of the REIT’s distributions. A REIT that successfully maintains
its qualification may still become subject to U.S. federal, state and local
taxes,
including
excise, penalty, franchise, payroll, mortgage recording, and transfer taxes,
both directly and indirectly through its subsidiaries.
Information
about the Fund’s daily portfolio holdings will be available at
www.aptusetfs.com/dubs. 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
(“SAI”).
Aptus
serves as the Fund’s investment adviser and has overall responsibility for the
general management of the Fund. Aptus is a registered investment adviser with
offices located at 265 Young Street Fairhope, Alabama 36532. Aptus provides
investment advisory services to separately managed accounts, as well as to the
Fund. Aptus also arranges for transfer agency, custody, fund administration, and
all other related services necessary for the Fund to operate. For the services
it provides to the Fund, the Fund pays the Adviser a unified management fee,
which is calculated daily and paid monthly, at an annual rate of 0.39% based on
the Fund’s average daily net assets.
Under
the Investment Advisory Agreement, the Adviser has agreed to pay all expenses of
the Fund except for the fee paid to the Adviser pursuant to the Investment
Advisory Agreement, interest charges on any borrowings, 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 any distribution plan
adopted pursuant to Rule 12b-1 under the 1940 Act.
The
basis for the Board of Trustees’ approval of the Fund’s Investment Advisory
Agreement will be available in the Fund’s first Annual or Semi-Annual Report to
Shareholders.
Manager
of Managers Structure
The
Fund and the Adviser have applied for an exemptive order from the SEC permitting
the Adviser (subject to certain conditions and the Board’s approval) to select
or change sub-advisers without obtaining shareholder approval. The order will
also permit the Adviser to materially amend the terms of agreements with a
sub-adviser (including an increase in the fee paid by the Adviser to the
sub-adviser (and not paid by the Fund)) or to continue the employment of a
sub-adviser after an event that would otherwise cause the automatic termination
of services with Board approval, but without shareholder approval. Shareholders
will be notified of any sub-adviser changes.
Mark
Callahan is a Portfolio Manager and the Head of Trading at Aptus and has been
with Aptus since 2019. In his role as Portfolio Manager, Mr. Callahan has been
focused on derivative management, timing, hedging, and trading. Prior to joining
Aptus, Mr. Callahan enjoyed a nearly 12-year career on the Sell-Side as an
Institutional Equity and Derivatives Trader, as well as a Transition Manager.
Mr. Callahan holds a BBA in Finance from the University of Oklahoma, and a MSc.
of Real Estate from the University of Texas at Arlington.
JD
Gardner, CFA, CMT, is the Managing Member and Chief Investment Officer at Aptus
and has been with Aptus since founding the firm in 2013. Prior to Aptus, Mr.
Gardner was a research analyst at Cornerstone Investment Management and an
Associated Person for a commodity trading advisor. Mr. Gardner previously held
roles in wealth and asset management for UBS and Morgan Stanley.
Brad
Rapking, CFA, is a Portfolio Manager and Analyst at Aptus and joined the firm in
2020. In his role as Portfolio Manager, Mr. Rapking is focused on portfolio
construction, fundamental research, idea generation and buy/sell decisions. Mr.
Rapking graduated from Xavier University in 2015 with a BSBA in Finance. Mr.
Rapking is a CFA Charterholder and a member of the CFA Institute and CFA Society
of Alabama. Prior to joining Aptus, Mr. Rapking was an Equity Analyst for the
Driehaus Capital Value Equities team responsible for fundamental research and
idea generation in the Small Cap Value, Micro Cap Value, and International Small
Cap Value
strategies.
Mr. Rapking has more than five years of experience in institutional equity
research, trading and operations.
The
Fund issues and redeems Shares at NAV only in Creation Units. Only APs may
acquire Shares directly from the Fund, and only APs may tender their Shares for
redemption directly to the Fund, at NAV. APs must be a member or participant of
a clearing agency registered with the SEC and must execute a Participant
Agreement that has been agreed to by the Distributor (defined below), and that
has been accepted by the Fund’s transfer agent, with respect to purchases and
redemptions of Creation Units. Once created, Shares trade in the secondary
market in quantities less than a Creation Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Shares are listed for trading on the secondary market on the Exchange and can be
bought and sold throughout the trading day like other publicly traded
securities.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the bid-ask spread on
your transactions. In addition, because secondary market transactions occur at
market prices, you may pay more than NAV when you buy Shares and receive less
than NAV when you sell those Shares.
Shares
are held in book-entry form, which means that no stock certificates are issued.
The Depository Trust Company (“DTC”) or its nominee is the record owner of all
outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial owner of Shares, you
are not entitled to receive physical delivery of stock certificates or to have
Shares registered in your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other securities that you hold in book entry or
“street name” through your brokerage account.
The
Fund imposes no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly with the Fund, are an essential part of the ETF process and help
keep Share trading prices in line with NAV. As such, the Fund accommodates
frequent purchases and redemptions by APs. However, the Board has also
determined that frequent purchases and redemptions for cash may increase
tracking error and portfolio transaction costs and may lead to the realization
of capital gains. To minimize these potential consequences of frequent purchases
and redemptions, the Fund employs fair value pricing and may impose transaction
fees on purchases and redemptions of Creation Units to cover the custodial and
other costs incurred by the Fund in effecting trades. In addition, the Fund and
the Adviser reserve the right to reject any purchase order at any time.
The
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (“NYSE”), generally 4:00 p.m. Eastern time, each day
the NYSE is open for business. The NAV is calculated by dividing the Fund’s net
assets by its Shares outstanding.
In
calculating its NAV, the Fund generally values its assets on the basis of market
quotations, last sale prices, or estimates of value furnished by a pricing
service or brokers who make markets in such instruments. 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).
The
Adviser has been designated by the Board as the valuation designee for the Fund
pursuant to Rule 2a-5 under the 1940 Act. In its capacity as valuation designee,
the Adviser has adopted procedures and methodologies to fair value Fund
securities whose market prices are not “readily available” or are deemed to be
unreliable. For example, such circumstances may arise when: (i) a security has
been de-listed or has had its trading halted or suspended; (ii) a security’s
primary pricing source is unable or unwilling to provide a price; (iii) a
security’s primary trading market is closed during regular market hours; or (iv)
a security’s value is materially affected by events occurring after the close of
the security’s primary trading market. The Board has appointed the Adviser as
the Fund’s valuation designee to perform all fair valuations of the Fund’s
portfolio investments, subject to the Board’s oversight. Accordingly, the
Adviser has established procedures for its fair valuation of the Fund’s
portfolio investments. Generally, when fair valuing a security held by the Fund,
the Adviser will take into account all reasonably available information that may
be relevant to a particular valuation including, but not limited to, fundamental
analytical data regarding the issuer, information relating to the issuer’s
business, recent trades or offers of the security, general and/or specific
market conditions and the specific facts giving rise to the need to fair value
the security. Fair value determinations are made in good faith and in accordance
with the fair value methodologies established by the Adviser. Due to the
subjective and variable nature of determining the fair value of a security or
other investment, there can be no assurance that the Adviser’s fair value will
match or closely correlate to any market quotation that subsequently becomes
available or the price quoted or published by other sources. In addition, the
Fund may not be able to obtain the fair value assigned to the security upon the
sale of such security.
Section 12(d)(1)
of the 1940 Act restricts investments by registered investment companies in the
securities of other investment companies, including Shares. 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 set forth in
Rule 12d1-4 under the 1940 Act, including that such investment companies enter
into an agreement with the Fund.
Householding
is an option available to certain investors of the Fund. Householding is a
method of delivery, based on the preference of the individual investor, in which
a single copy of certain shareholder documents can be delivered to investors who
share the same address, even if their accounts are registered under different
names. Householding for the Fund is available through certain broker-dealers. If
you are interested in enrolling in householding and receiving a single copy of
prospectuses and other shareholder documents, please contact your broker-dealer.
If you are currently enrolled in householding and wish to change your
householding status, please contact your broker-dealer.
Dividends
and Distributions
The
Fund expects to pay out dividends, if any, and distribute any net realized
capital gains to its shareholders at least quarterly. The Fund will declare and
pay capital gain distributions, if any, in cash. Distributions in cash may be
reinvested automatically in additional whole Shares only if the broker through
whom you purchased Shares makes such option available. Your broker is
responsible for distributing the income and capital gain distributions to
you.
Taxes
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax advisor
about the tax consequences of an investment in Shares, including the possible
application
of
foreign, state, and local tax laws. This summary does not apply to Shares held
in an IRA or other tax-qualified plans, which are generally not subject to
current tax. Transactions relating to Shares held in such accounts may, however,
be taxable at some time in the future. This summary is based on current tax
laws, which may change.
The
Fund intends to elect and qualify each year for treatment as a regulated
investment company (“RIC”) under the Code. If it meets certain minimum
distribution requirements, a RIC is not subject to tax at the fund level on
income and gains from investments that are timely distributed to shareholders.
However, the Fund’s failure to qualify as a RIC or to meet minimum distribution
requirements would result (if certain relief provisions were not available) in
fund-level taxation and, consequently, a reduction in income available for
distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA, you need to be aware of the possible tax consequences
when the Fund makes distributions, when you sell your Shares listed on the
Exchange, and when you purchase or redeem Creation Units (APs only).
Taxes
on Distributions
The
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long the Fund owned the investments that generated them,
rather than how long a shareholder has owned his or her Shares. Sales of assets
held by the Fund for more than one year generally result in long-term capital
gains and losses, and sales of assets held by the Fund for one year or less
generally result in short-term capital gains and losses. Distributions of the
Fund’s net capital gain (the excess of net long-term capital gains over net
short-term capital losses) that are reported by the Fund as capital gain
dividends (“Capital Gain Dividends”) will be taxable as long-term capital gains,
which for non-corporate shareholders are subject to tax at reduced rates of up
to 20% (lower rates apply to individuals in lower tax brackets). Distributions
of short-term capital gain will generally be taxable as ordinary income.
Dividends and distributions are generally taxable to you whether you receive
them in cash or reinvest them in additional Shares.
Distributions
reported by the Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided holding period and other requirements are met. “Qualified dividend
income” generally is income derived from dividends paid by U.S. corporations or
certain foreign corporations that are either incorporated in a U.S. possession
or eligible for tax benefits under certain U.S. income tax treaties. In
addition, dividends that the Fund received in respect of stock of certain
foreign corporations may be qualified dividend income if that stock is readily
tradable on an established U.S. securities market. Dividends received by the
Fund from an ETF, a REIT, or an underlying fund taxable as a RIC may be treated
as qualified dividend income generally only to the extent so reported by such
ETF, REIT or underlying fund. Corporate shareholders may be entitled to a
dividends received deduction for the portion of dividends they receive from the
Fund that are attributable to dividends received by the Fund from U.S.
corporations, subject to certain limitations.
Dividends
received by the Fund from an ETF or underlying fund taxable as a RIC may be
treated as qualified dividend income generally only to the extent so reported by
such ETF or underlying fund.
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from the Fund.
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8% tax
on all or a portion of their “net investment income,” which includes interest,
dividends, and certain capital gains (generally including capital gains
distributions and capital gains realized on the sale of Shares). This 3.8% tax
also applies to all or a portion of the undistributed net investment income of
certain shareholders that are estates and trusts.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are
generally
taxable even if they are paid from income or gains earned by the Fund before
your investment (and thus were included in the Shares’ NAV when you purchased
your Shares).
You
may wish to avoid investing in the Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your investment.
If
the Fund’s distributions exceed its earnings and profits, all or a portion of
the distributions made for a taxable year may be recharacterized as a return of
capital to shareholders. A return of capital distribution will generally not be
taxable, but will reduce each shareholder’s cost basis in Shares and result in a
higher capital gain or lower capital loss when the Shares are sold. After a
shareholder’s basis in Shares has been reduced to zero, distributions in excess
of earnings and profits in respect of those Shares will be treated as gain from
the sale of the Shares.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
the Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
Shares by non-U.S. shareholders generally are not subject to U.S. taxation,
unless you are a nonresident alien individual who is physically present in the
U.S. for 183 days or more per year. The Fund may, under certain circumstances,
report all or a portion of a dividend as an “interest-related dividend” or a
“short-term capital gain dividend,” which would generally be exempt from this
30% U.S. withholding tax, provided certain other requirements are met.
Different tax consequences may result if you are a foreign shareholder engaged
in a trade or business within the United States or if a tax treaty applies.
The
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage (currently 24%) of the taxable distributions and sale proceeds paid
to any shareholder who fails to properly furnish a correct taxpayer
identification number, who has underreported dividend or interest income, or who
fails to certify that the shareholder is not subject to such withholding.
Taxes
When Shares are Sold on the Exchange
Provided
that a shareholder holds Shares as capital assets, any capital gain or loss
realized upon a sale of Shares generally is treated as a long-term capital gain
or loss if Shares have been held for more than one year and as a short-term
capital gain or loss if Shares have been held for one year or less. However, any
capital loss on a sale of Shares held for six months or less is treated as
long-term capital loss to the extent of Capital Gain Dividends paid with respect
to such Shares. Any loss realized on a sale will be disallowed to the extent
Shares of the Fund are acquired, including through reinvestment of dividends,
within a 61-day period beginning 30 days before and ending 30 days after the
disposition of Shares. The ability to deduct capital losses may be limited.
The
cost basis of Shares of the Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Code. The difference between the
selling price and the cost basis of Shares generally determines the amount of
the capital gain or loss realized on the sale or exchange of Shares. Contact the
broker through whom you purchased your Shares to obtain information with respect
to the available cost basis reporting methods and elections for your account.
Taxes
on Purchases and Redemptions of Creation Units
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered, plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The
Internal Revenue Service may assert, however, that a loss that is realized upon
an exchange of securities for Creation Units may not be currently deducted under
the rules governing “wash
sales”
(for an AP who does not mark-to-market its holdings), or on the basis that there
has been no significant change in economic position. APs exchanging securities
should consult their own tax advisor with respect to whether the wash sales rule
applies and when a loss might be deductible.
The
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. The Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in-kind. As a result, the Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
Taxation
of Complex Investments
Certain
of the Fund’s investments may be subject to complex provisions of the Code that,
among other things, may affect the Fund’s ability to qualify as a RIC, affect
the character of gains and losses realized by the Fund (e.g.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer losses. These rules could therefore
affect the character, amount and timing of distributions to shareholders. These
provisions also may require the Fund to mark to market certain types of
positions in its portfolio (i.e.,
treat them as if they were closed out) which may cause the Fund to recognize
income without the Fund receiving cash with which to make distributions in
amounts sufficient to enable the Fund to satisfy the RIC distribution
requirements for avoiding income and excise taxes. The Fund intends to monitor
its transactions, intends to make appropriate tax elections, and intends to make
appropriate entries in its books and records to mitigate the effect of these
rules and preserve the Fund’s qualification for treatment as a RIC. To the
extent the Fund invests in an ETF or underlying fund that is taxable as a RIC,
the rules applicable to the tax treatment of complex securities will also apply
to such ETF or underlying fund that also invests in such complex securities and
investments.
The
Fund may invest in U.S. REITs. “Qualified REIT dividends” (i.e.,
ordinary REIT dividends other than capital gain dividends and portions of REIT
dividends designated as qualified dividend income eligible for capital gain tax
rates) are eligible for a 20% deduction by non-corporate taxpayers. This
deduction, if allowed in full, equates to a maximum effective tax rate of 29.6%
(37% top rate applied to income after 20% deduction). Distributions by the Fund
to its shareholders that are attributable to qualified REIT dividends received
by the Fund and which the Fund properly reports as “section 199A dividends,” are
treated as “qualified REIT dividends” in the hands of non-corporate
shareholders. A section 199A dividend is treated as a qualified REIT dividend
only if the shareholder receiving such dividend holds the dividend-paying RIC
shares for at least 46 days of the 91-day period beginning 45 days before the
shares become ex-dividend, and is not under an obligation to make related
payments with respect to a position in substantially similar or related
property. The Fund is permitted to report such part of its dividends as section
199A dividends as are eligible, but is not required to do so.
REITs
in which the Fund invests often do not provide complete and final tax
information to the Fund until after the time that the Fund issues a tax
reporting statement. As a result, the Fund may at times find it necessary to
reclassify the amount and character of its distributions to you after it issues
your tax reporting statement. When such reclassification is necessary, the Fund
(or a financial intermediary, such as a broker, through which a shareholder owns
Shares) will send you a corrected, final Form 1099-DIV to reflect the
reclassified information. If you receive a corrected Form 1099-DIV, use the
information on this corrected form, and not the information on the previously
issued tax reporting statement, in completing your tax returns.
Investments
in REIT equity securities may require the Fund to accrue and distribute income
not yet received. To generate sufficient cash to make the requisite
distributions, the Fund may be required to sell securities in its portfolio
(including when it is not advantageous to do so) that it otherwise would have
continued to hold. The Fund’s investments in REIT equity securities may at other
times result in the Fund’s receipt of cash in excess of the REIT’s earnings; if
the Fund distributes these amounts, these distributions could constitute a
return of capital to the Fund’s shareholders for federal income tax purposes.
Dividends paid by a REIT, other than capital gain distributions, will generally
be taxable as ordinary income up to the amount of the REIT’s current and
accumulated earnings and profits. Capital gain dividends paid by a REIT to the
Fund will be treated as long-term capital gains by the Fund and, in turn, may be
distributed by the Fund to shareholders as a capital gain distribution.
Dividends received by the Fund from a REIT generally will not constitute
qualified dividend income
or
qualify for the dividends received deduction. If a REIT is operated in a manner
such that it fails to qualify as a REIT, an investment in the REIT would become
subject to double taxation, meaning the taxable income of the REIT would be
subject to federal income tax at the regular corporate rate without any
deduction for dividends paid to shareholders and the dividends would be taxable
to shareholders as ordinary income (or possibly as qualified dividend income) to
the extent of the REIT’s current and accumulated earnings and profits.
If
positions held by the Fund were treated as “straddles” for federal income tax
purposes, or the Fund’s risk of loss with respect to a position was otherwise
diminished as set forth in Treasury Regulations, dividends on stocks that are a
part of such positions would not constitute qualified dividend income subject to
such favorable income tax treatment. In addition, generally, straddles are
subject to certain rules that may affect the amount, character and timing of the
Fund’s gains and losses with respect to straddle positions by requiring, among
other things, that: (1) any loss realized on disposition of one position of a
straddle may not be recognized to the extent that the Fund has unrealized gains
with respect to the other position in such straddle; (2) the Fund’s holding
period in straddle positions be suspended while the straddle exists (possibly
resulting in a gain being treated as short-term capital gain rather than
long-term capital gain); (3) the losses recognized with respect to certain
straddle positions that are part of a mixed straddle and that are not subject to
Section 1256 of the Code be treated as 60% long-term and 40% short-term capital
loss; (4) losses recognized with respect to certain straddle positions that
would otherwise constitute short-term capital losses be treated as long-term
capital losses; and (5) the deduction of interest and carrying charges
attributable to certain straddle positions may be deferred.
Foreign
Taxes
Dividends
and interest received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax treaties
between certain countries and the U.S. may reduce or eliminate such taxes.
Foreign tax credits, if any, received by the Fund as a result of an investment
in another RIC (including an ETF which is taxable as a RIC) will not be passed
through to you unless the Fund qualifies as a “qualified fund-of-funds” under
the Code. If the Fund is a “qualified fund-of-funds” it will be eligible to file
an election with the Internal Revenue Service that will enable the Fund to pass
along these foreign tax credits to its shareholders. The Fund will be treated as
a “qualified fund-of-funds” under the Code if at least 50% of the value of the
Fund’s total assets (at the close of each quarter of the Fund’s taxable year) is
represented by interests in other RICs. Each Fund does not expect to satisfy the
requirements for passing through to its shareholders any share of foreign taxes
paid by the Fund, with the result that shareholders will not include such taxes
in their gross incomes and will not be entitled to a tax deduction or credit for
such taxes on their own tax returns.
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.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in each Fund. It is not a substitute for
personal tax advice. You also may be subject to state and local tax on Fund
distributions and sales of Shares. Consult your personal tax advisor about the
potential tax consequences of an investment in Shares
under
all applicable tax laws. For more information, please see the section entitled
“Federal Income Taxes” in the SAI.
The
Distributor, Quasar Distributors, LLC, a wholly-owned subsidiary of Foreside
Financial Group, LLC (d/b/a ACA Group), is a broker-dealer registered with the
SEC. The Distributor distributes Creation Units for the Fund on an agency basis
and does not maintain a secondary market in Shares. The Distributor has no role
in determining the policies of the Fund or the securities that are purchased or
sold by the Fund. The Distributor’s principal address is 111 East Kilbourn
Avenue, Suite 2200, Milwaukee, Wisconsin 53202.
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, the Fund is authorized to
pay an amount up to 0.25% of its average daily net assets each year for certain
distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Fund, and there are no plans to impose
these fees. However, in the event Rule 12b-1 fees are charged in the future,
because the fees are paid out of the Fund’s assets, over time these fees will
increase the cost of your investment and may cost you more than certain other
types of sales charges.
The
Fund is new and therefore does not have any information regarding how often
Shares traded on the Exchange at a price above (i.e.,
at a premium) or below (i.e.,
at a discount) the NAV of the Fund.
Shares
of the Trust are not sponsored, endorsed, or promoted by the Exchange. The
Exchange makes no representation or warranty, express or implied, to the owners
of the shares of the Fund. The Exchange is not responsible for, nor has it
participated in, the determination of the timing of, prices of, or quantities of
the shares of the Fund to be issued, or in the determination or calculation of
the equation by which the shares are redeemable.
The
Exchange has no obligation or liability to owners of the shares of the Fund in
connection with the administration, marketing, or trading of the shares of the
Fund. 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 shares of the Fund or any members of the public regarding the
advisability of investing in securities generally or in the Fund
particularly.
Financial
information is not available because the Fund has not commenced operations prior
to the date of this Prospectus.
APTUS
LARGE CAP ENHANCED YIELD ETF
|
|
|
|
|
|
|
|
|
|
|
| |
|
Adviser |
Aptus
Capital Advisors, LLC
265
Young Street
Fairhope,
Alabama 36532 |
Custodian |
U.S.
Bank National Association
1555
North Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212 |
|
Administrator
and Transfer Agent |
U.S.
Bancorp Fund Services, LLC
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Distributor |
Quasar
Distributors, LLC
111
East Kilbourn Avenue, Suite 2200
Milwaukee,
Wisconsin 53202 |
|
Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
342
North Water Street, Suite 830
Milwaukee,
Wisconsin 53202 |
Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue, NW
Washington,
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 and techniques of
the Fund and certain other additional information. A current SAI dated June 10,
2023 is on file with the SEC and is herein incorporated by reference into this
Prospectus. It is legally considered a part of this Prospectus.
Annual/Semi-Annual
Reports: Additional
information about the Fund’s investments will be available in the Fund’s annual
and semi-annual reports to shareholders. In the annual report, 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
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 are available:
•
Free of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
•
Free of charge from the Fund’s website at www.aptusetfs.com.; or