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HAUS |
Home
Appreciation U.S. REIT ETF |
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listed
on Cboe BZX Exchange, Inc. |
PROSPECTUS
February
13, 2022
(As
Supplemented February 25, 2022)
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.
Investment
Objective
The
Home Appreciation U.S. REIT ETF (the “Fund”) seeks total return.
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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Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
Management
Fees |
0.60% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses1 |
0.00% |
Total
Annual Fund Operating Expenses |
0.60% |
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1
Estimated for the current fiscal year.
Expense
Example
This
Example is intended to help you compare the cost of investing in the Fund with
the cost of investing in other funds. The Example assumes that you invest
$10,000 in the Fund for the time periods indicated and then 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:
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 total annual
fund operating expenses or in the expense example above, 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 in publicly-traded real estate investment
trusts (“REITs”) that derive their revenue from ownership and/or management of
residential properties.
The
Fund defines a “residential REIT” as a REIT that generates at least 75% of its
revenue from the following categories of property that are located in the U.S.
(“Residential REITs”):
1.Multifamily
housing;
2.Single-family
rental housing; or
3.Senior
housing (a senior housing REIT must generate at least 50% of its revenue from
ownership and/or management of senior housing real estate).
Armada
ETF Advisors LLC (the “Sub-Adviser”), the Fund’s investment sub-adviser, will
filter the Residential REITs by utilizing the following criteria:
1.The
Residential REIT must be classified as an owner/operator of residential
properties as defined by the National Association of Real Estate Investment
Trusts, a leading producer and sponsor of research on REIT investment;
2.The
Residential REIT must be listed on a U.S. exchange or the Toronto Stock
Exchange; and
3.The
Residential REIT must have (i) a minimum market capitalization of US$100
million, (ii) 90-day average trading volume of $1 million over the most recent
30-day period and (iii) a minimum free-float of at least 20%.
Only
Residential REITs meeting the above criteria will be selected for the Fund.
Additionally, in selecting investments for the Fund, the Sub-Adviser considers:
(i) publicly available information that Residential REITs file periodically,
such as financial results; (ii) economic developments that may affect a
Residential REIT’s future financial results, such as changes in interest rates,
rents, inflation, and economic growth; and (iii) market developments that may
affect the availability of loan or equity financing for Residential REITs and
thus their long-term stability. The Sub-Adviser will weigh the Fund’s investment
in each Residential REIT with flexible weights. The Sub-Adviser uses flexible
weightings, as opposed to fixed weightings, because fixed weightings may force
the Sub-Adviser to act without regard to the then-current market or
company-specific conditions which could result in unnecessary trading and
expenses to the Fund. Flexible weighting avoids forced selling of Residential
REITs that are outperforming and avoids forced purchases.
The
objective of this flexible weighting strategy is to balance the benefits of
broader diversification through equal weights with the benefits of allocating a
larger share of the Fund’s portfolio to more liquid issuers. The Sub-Adviser
will decide the flexible weights based on market conditions and expected
performance of the individual Residential REITs and will adjust the weightings
when it believes doing so is in the best interest of the Fund. Flexible weights
have the potential to incorporate expected performance of the Residential REITs
and, if expectations are accurate, flexible weights can incorporate
forward-looking performance. Flexible weightings are limited to 10% of the
Fund’s portfolio at the upper bound, with a lower bound of 0% (which will apply
to those few companies whose risk or return profile has worsened to a degree
where exclusion from the Fund’s portfolio outweighs the benefit of inclusion).
The Sub-Adviser intends to review portfolio allocation at least monthly. The
Sub-Adviser expects the Fund will hold positions in approximately 25 Residential
REITs under normal market conditions
Under
normal circumstances, the Fund will invest at least 80% of its net assets (plus
any borrowings for investment purposes) in Residential REITs. The remainder of
the Fund’s net assets (plus any borrowings for investment purposes) typically
will be invested in U.S. real estate-related securities that are traded on a
U.S. exchange (“Real Estate-Related Securities”). Real Estate-Related Securities
may include preferred, common or convertible securities (including warrants)
issued by builders or other real estate development or management companies,
Residential REITs that receive less than 75% of their income from the categories
specified to meet the definition for Residential REITs, as well as REITs with
student housing, manufactured housing, self-storage, and mortgages or any debt
securities from these issuers, or backed by residential real estate. The Fund
may also invest in ETFs predominantly investing in Real Estate-Related
Securities and other securities or derivatives related to U.S. real estate,
specifically swap agreements and options.
The
Fund will concentrate its investments (i.e.,
hold more than 25% of its total assets) in the real estate industry. The Fund is
deemed to be non-diversified under the Investment Company Act of 1940, as
amended (the “1940 Act”), which means that it may invest a greater percentage of
its assets in the securities of a single issuer or a smaller number of issuers
than if it was a diversified fund.
Principal
Risks of Investing in the Fund
The
principal risks of investing in the Fund are summarized below. As with any
investment, there is a risk that you could lose all or a portion of your
principal 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 objective. 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—Principal Risks of Investing in the
Fund.”
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 they appear.
Concentration
Risk.
The Fund’s investments will be concentrated in the real estate industry. As a
result, the value of Shares may rise and fall more than the value of shares that
invest in securities of companies in a broader range of industries.
Convertible
Securities Risk. Convertible
securities rank senior to the issuer’s common stock, but may be subordinate to
senior debt obligations. In part, the total return for a convertible security
may depend upon the performance of the underlying stock into which it can be
converted. Convertible securities are also subject to counterparty risk which is
the likelihood or probability that one of the parties involved in an agreement,
or participating in a transaction, might default on its contractual obligation.
Further, there is a risk that no suitable counterparties will be willing to
enter into, or continue to enter into, transactions with the Fund which could
affect the Fund’s performance.
Cybersecurity
Risk. With
the increased use of technologies such as the Internet to conduct business, the
Fund is susceptible to operational, information security, and related risks.
Cyber incidents affecting the Fund or its service providers may cause
disruptions and impact business operations, potentially resulting in financial
losses, interference with the Fund’s ability to calculate its NAV, impediments
to trading, the inability of shareholders to transact business, violations of
applicable privacy and other laws, regulatory fines, penalties, reputational
damage, reimbursement or other compensation costs, or additional compliance
costs.
Debt
Securities Risk. The
Fund invests in debt securities, such as bonds and certain asset-backed
securities, that involve certain risks, including:
Call
Risk. During
periods of falling interest rates, an issuer of a callable bond held by the Fund
may “call” or repay the security prior to its stated maturity, and the Fund may
have to reinvest the proceeds at lower interest rates, resulting in a decline in
the Fund’s income.
Event
Risk. Event
risk is the risk that corporate issuers may undergo restructurings, such as
mergers, leveraged buyouts, takeovers, or similar events financed by increased
debt. As a result of the added debt, the credit quality and market value of a
company’s bonds and/or other debt securities may decline
significantly.
Extension
Risk. When
interest rates rise, certain obligations will be repaid by the obligor more
slowly than anticipated, causing the value of these securities to
fall.
Derivatives
Risk. The
Fund’s derivative investments have risks, including the imperfect correlation
between the value of such instruments and the underlying assets or index; the
loss of principal, including the potential loss of amounts greater than the
initial amount invested in the derivative instrument; the possible default of
the other party to the transaction; and illiquidity of the derivative
investments. If a counterparty becomes bankrupt or otherwise fails to perform
its obligations under a derivative contract due to financial difficulties, the
Fund may experience significant delays in obtaining any recovery under the
derivative contract in a bankruptcy or other reorganization proceeding. The
derivatives used by the Fund may give rise to a form of leverage. Leverage
magnifies the potential for gain and the risk of loss. Certain of the Fund’s
transactions in derivatives could also affect the amount, timing, and character
of distributions to shareholders, which may result in the Fund realizing more
short-term capital gain and ordinary income subject to tax at ordinary income
tax rates than it would if it did not engage in such transactions, which may
adversely impact the Fund’s after-tax returns.
◦Swap
Agreements Risk.
Swap agreements are entered into primarily with major global financial
institutions for a specified period, which may range from one day to more than
six months. In a standard swap transaction, two parties agree to exchange the
return (or differentials in rates of return) earned or realized on particular
predetermined reference assets or underlying securities or instruments. The
gross return to be exchanged or swapped between the parties is calculated based
on a notional amount or the return on or change in value of a particular dollar
amount invested in a basket of securities representing a particular sector or
index. Swap agreements are particularly subject to counterparty credit,
liquidity,
valuation,
correlation, and leverage risk. Swap agreements could result in losses if
interest rates or credit quality changes are not correctly anticipated by the
Fund, if the reference index, security, or investments do not perform as
expected, or if the counterparty defaults.
◦Options
Risk. Options
enable the Fund to purchase exposure that is significantly greater than the
premium paid. Consequently, the value of such options can be volatile, and a
small investment in options can have a large impact on the performance of the
Fund. The Fund risks losing all or part of the cash paid (premium) for
purchasing options. Even a small decline in the value of a reference asset
underlying call options or a small increase in the value of a reference asset
underlying put options can result in the entire investment in such options being
lost. Additionally, the value of the option may be lost if the Sub-Adviser fails
to exercise such option at or prior to its expiration.
ETF
Risk.
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration Risk.
The
Fund has a limited number of financial institutions that are authorized to
purchase and redeem Shares directly from the Fund (known as “Authorized
Participants” or “APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become unable to
process creation and/or redemption orders and no other APs step forward to
perform these services; or (ii) market makers and/or liquidity providers exit
the business or significantly reduce their business activities and no other
entities step forward to perform their functions.
◦Cash
Redemption Risk.
The Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. For example, the Fund
may not be able to redeem in-kind certain securities held by the Fund (e.g.,
derivative instruments and bonds that cannot be broken up beyond certain minimum
sizes needed for transfer and settlement). In such a case, the Fund may be
required to sell or unwind portfolio investments to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to recognize a capital
gain that it might not have recognized if it had made a redemption in-kind. As a
result, the Fund may have less cash efficiency and pay out higher annual capital
gain distributions to shareholders than if the in-kind redemption process was
used.
◦Costs
of Buying or Selling Shares. Due
to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small
investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant
◦Trading.
Although Shares are listed on a national securities exchange, such as 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.
Equity
Market Risk. Common
stocks are generally exposed to greater risk than other types of securities,
such as preferred stock and debt obligations, because common stockholders
generally have inferior rights to receive payment from specific issuers. 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, or sectors in which the Fund invests.
General
Market Risk.
Economies and financial markets throughout the world are becoming increasingly
interconnected, which increases the likelihood that events or conditions in one
country or region will adversely impact markets or issuers in other countries or
regions. Securities in the Fund’s portfolio may underperform in comparison to
securities in the general financial markets, a particular financial market, or
other asset classes, due to a number of factors, including inflation (or
expectations for inflation), interest rates, global demand for particular
products or resources, natural disasters or events, pandemic diseases,
terrorism, regulatory events, and government controls.
Management
Risk. The
Fund is actively-managed and may not meet its investment objective based on the
Sub-Adviser’s success or failure to implement investment strategies for the
Fund.
New
Adviser Risk. The
Sub-Adviser is a newly registered investment adviser and has not previously
served as an adviser or sub-adviser to an investment company. As a result, there
is no long-term track record against which an investor may judge the Sub-Adviser
and it is possible that the Sub-Adviser may not achieve the Fund’s intended
investment objective. Further, the Sub-Adviser has no prior experience managing
an ETF which may limit its effectiveness in managing the Fund.
New
Fund Risk. The
Fund is a recently organized management investment company with no operating
history. As a result, prospective investors do not have a track record or
history on which to base their investment decisions.
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 smaller number of issuers than
if it was a diversified fund. As a result, a decline in the value of an
investment in a single issuer or a smaller number of issuers could cause the
Fund’s overall value to decline to a greater degree than if the Fund held a more
diversified portfolio.
Other
Investment Companies Risk.
The Fund will incur higher and duplicative expenses when it invests in ETFs and
other investment companies. By investing in another investment company, the Fund
becomes a shareholder of that investment company and bears its proportionate
share of the fees and expenses of the other investment company. There is also
the risk that the Fund may suffer losses due to the investment practices of the
underlying funds as the Fund will be subject to substantially the same risks as
those associated with the direct ownership of securities held by such investment
companies. ETFs may be less liquid than other investments, and thus their share
values more volatile than the values of the investments they hold. Investments
in ETFs are also subject to the “ETF Risks” described above.
Real
Estate Securities Risk.
Adverse
economic, business or political developments affecting real estate could have a
major effect on the value of the Fund’s investments in Residential REITs and
Real Estate-Related Securities. Investing
in Residential REITs and Real Estate-Related Securities may subject the Fund to
risks associated with the direct ownership of real estate. Changes in interest
rates may also affect the value of the Fund’s investment in Residential REITs
and Real Estate-Related Securities. Real estate investments are dependent upon
specialized management skills, have limited diversification and are, therefore,
subject to risks inherent in operating and financing a limited number of
projects. Real estate investments are also subject to heavy cash flow dependency
and defaults by borrowers. Real estate companies may be adversely affected by
the recent pandemic spread of the novel coronavirus known as COVID-19, which has
led to decreased economic activity, widespread business and other closures and
rapid increases in unemployment that may cause increased defaults on rent, loans
or other obligations and increase the probability of an economic recession or
depression. Political or regulatory pressures may restrict the eviction of real
estate tenants in default. Highly-leveraged real estate companies are
particularly vulnerable to the effects of an economic downturn (including an
economic downturn caused by the COVID-19 pandemic).
Recent
Market Events Risk.
U.S. and international markets have experienced significant periods of
volatility in recent years and months due to a number of economic, political and
global macro factors including the impact of COVID-19 as a global pandemic,
which has resulted in a public health crisis, disruptions to business operations
and supply chains, stress on the global healthcare system, growth concerns in
the U.S. and overseas, staffing shortages and the inability to meet consumer
demand, and widespread concern and uncertainty. The global
recovery
from COVID-19 is proceeding at slower than expected rates due to the emergence
of variant strains and may last for an extended period of time. Continuing
uncertainties regarding interest rates, political events, rising government debt
in the U.S. and trade tensions also contribute to market
volatility.
REIT
Risk. A
REIT is a company that owns or finances income-producing real estate and meets
certain requirements under the Internal Revenue Code of 1986, as amended (the
“Code”), as more fully described in the Fund’s Statement of Additional
Information (“SAI”). Through its investments in REITs, the Fund is subject to
the risks of investing in the real estate market, including decreases in
property revenues, increases in interest rates, increases in property taxes and
operating expenses, legal and regulatory changes, a lack of credit or capital,
defaults by borrowers or tenants, environmental problems and natural
disasters.
REITs
are subject to additional risks, including those related to adverse governmental
actions; declines in property value and the real estate market; the potential
failure to qualify for tax-free pass through of income; and exemption from
registration as an investment company. REITs are dependent upon specialized
management skills and may invest in relatively few properties, a small
geographic area, or a small number of property types. As a result, investments
in REITs may be volatile. To the extent the Fund invests in REITs concentrated
in specific geographic areas or property types, the Fund may be subject to a
greater loss as a result of adverse developments affecting such area or property
types. REITs are pooled investment vehicles with their own fees and expenses and
the Fund will indirectly bear a proportionate share of those fees and
expenses.
Residential
Mortgage-Backed Securities (“RMBS”) Risk. RMBS
are subject to the risks generally associated with fixed-income securities and
mortgage-backed securities. Delinquencies and defaults by borrowers in payments
on the underlying mortgages, and the related losses, are affected by general
economic conditions, the borrower’s equity in the mortgaged property and the
borrower’s financial circumstances. The risks associated with RMBS are greater
for those in the Alt-A and subprime first lien mortgage sectors than those in
the prime first lien mortgage sectors, but the risks exist for all RMBS.
Subprime loans are loans made to borrowers with weakened credit histories or
with a lower capacity to make timely payments on their loans. Therefore, RMBS
backed by subprime loans may suffer significantly greater declines in value due
to defaults or the increased risk of default.
Performance
Performance
information for the Fund is not included because the Fund has not completed a
full calendar year of operations as of the date of this Prospectus. When such
information is included, this section will provide some indication of the risks
of investing in the Fund by showing changes in the Fund’s performance history
from year to year and showing how the Fund’s average annual total returns
compare with those of a broad measure of market performance. Although past
performance of the Fund is no guarantee of how it will perform in the future,
historical performance may give you some indication of the risks of investing in
the Fund. Updated performance information will be available on the Fund’s
website at
www.armadaetfs.com
Management
Investment
Adviser
Toroso
Investments, LLC (“Toroso” or the “Adviser”) serves as investment adviser to the
Fund.
Sub-Adviser
Armada
ETF Advisors LLC serves as investment sub-adviser to the Fund.
Portfolio
Managers
Alfred
C. Otero, Portfolio Manager for the Sub-Adviser, is primarily responsible for
the day-to-day management of the Fund’s portfolio and has been a portfolio
manager of the Fund since its inception in February 2022.
Michael
Venuto, Chief Investment Officer for the Adviser, has been a portfolio manager
of the Fund since its inception in February 2022.
Charles
A. Ragauss, CFA, Portfolio Manager for the Adviser, has been a portfolio manager
of the Fund since its inception in February 2022.
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities (the “Deposit Securities”) and/or a designated amount of U.S.
cash.
Shares
are listed on a national securities exchange, such as the Exchange, and
individual Shares may only be bought and sold in the secondary market through
brokers at market prices, rather than NAV. Because Shares trade at market prices
rather than NAV, Shares may trade at a price greater than NAV (premium) or less
than NAV (discount).
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. This difference in bid and ask
prices is often referred to as the “bid-ask spread.”
When
available, 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.armadaetfs.com.
Tax
Information
Fund
distributions are generally taxable to shareholders 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, Sub-Adviser or their
affiliates may pay Intermediaries for certain activities related to the Fund,
including participation in activities that are designed to make Intermediaries
more knowledgeable about exchange-traded products, including the Fund, or for
other activities, such as marketing, educational training, or other initiatives
related to the sale or promotion of Shares. These payments may create a conflict
of interest by influencing the Intermediary and your salesperson to recommend
the Fund over another investment. Any such arrangements do not result in
increased Fund expenses. Ask your salesperson or visit the Intermediary’s
website for more information.
Investment
Objective
The
Fund seeks total return.
An
investment objective is fundamental if it cannot be changed without the consent
of the holders of a majority of the outstanding Shares. The Fund’s investment
objective has not been adopted as a fundamental investment policy and therefore
may be changed without the consent of the Fund’s shareholders upon approval by
the Board of Trustees (the “Board”) of the Tidal ETF Trust (the “Trust”) and
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.
The
Fund is an actively-managed ETF that seeks to achieve its investment objective
by investing in publicly-traded REITs that derive their revenue from ownership
and/or management of residential properties.
The
Fund defines a Residential REIT as a REIT that generates at least 75% of its
revenue from the following categories of property that are located in the U.S.:
1.Multifamily
housing;
2.Single-family
rental housing; or
3.Senior
housing (a senior housing REIT must generate at least 50% of its revenue from
ownership and/or management of senior housing real estate).
The
Sub-Adviser will filter the Residential REITs by utilizing the following
criteria:
1.The
Residential REIT must be classified as an owner/operator of residential
properties as defined by the National Association of Real Estate Investment
Trusts, a leading producer and sponsor of research on REIT investment;
2.The
Residential REIT must be listed on a U.S. exchange or the Toronto Stock
Exchange; and
3.The
Residential REIT must have (i) a minimum market capitalization of US$100
million, (ii) 90-day average trading volume of $1 million over the most recent
30-day period and (iii) a minimum free-float of at least 20%.
Only
Residential REITs meeting the above criteria will be selected for the Fund.
Additionally, in selecting investments for the Fund, the Sub-Adviser considers:
(i) publicly available information that Residential REITs file periodically,
such as financial results; (ii) economic developments that may affect a
Residential REIT’s future financial results, such as changes in interest rates,
rents, inflation, and economic growth; and (iii) market developments that may
affect the availability of loan or equity financing for Residential REITs and
thus their long-term stability. The Sub-Adviser will weigh the Fund’s investment
in each Residential REIT with flexible weights. The Sub-Adviser uses flexible
weightings, as opposed to fixed weightings, because fixed weightings may force
the Sub-Adviser to act without regard to the then-current market or
company-specific conditions which could result in unnecessary trading and
expenses to the Fund. Flexible weighting avoids forced selling of Residential
REITs that are outperforming and avoids forced purchases.
The
objective of this flexible weighting strategy is to balance the benefits of
broader diversification through equal weights with the benefits of allocating a
larger share of the Fund’s portfolio to more liquid issuers. The Sub-Adviser
will decide the flexible weights based on market conditions and expected
performance of the individual Residential REITs and will adjust the weightings
when it believes doing so is in the best interest of the Fund. Flexible weights
have the potential to incorporate expected performance of the Residential REITs
and, if expectations are accurate, flexible weights can incorporate
forward-looking performance. Flexible weightings are limited to 10% of the
Fund’s portfolio at the upper bound, with a lower bound of 0% (which will apply
to those few companies whose risk or return profile has worsened to a degree
where exclusion from the Fund’s portfolio outweighs the benefit of inclusion).
The Sub-
Adviser
intends to review portfolio allocation at least monthly. The Sub-Adviser expects
the Fund will hold positions in approximately 25 Residential REITs under normal
market conditions.
Under
normal circumstances, the Fund will invest at least 80% of its net assets (plus
any borrowings for investment purposes) in Residential REITs. The remainder of
the Fund’s net assets (plus any borrowings for investment purposes) typically
will be invested in Real Estate-Related Securities. Real Estate-Related
Securities may include preferred, common or convertible securities (including
warrants) issued by builders or other real estate development or management
companies, Residential REITs that receive less than 75% of their income from the
categories specified to meet the definition for Residential REITs, as well as
REITs with student housing, manufactured housing, self-storage, and mortgages or
any debt securities from these issuers, or backed by residential real estate.
The Fund may also invest in ETFs predominantly investing in Real Estate-Related
Securities and other securities or derivatives related to U.S. real estate,
specifically swap agreements and options.
The
Fund will concentrate its investments (i.e.,
hold more than 25% of its total assets) in the real estate industry. The Fund is
deemed to be non-diversified under the 1940 Act, which means that it may invest
a greater percentage of its assets in the securities of a single issuer or a
smaller number of issuers than if it was a diversified fund.
Temporary
Defensive Strategies
For
temporary defensive purposes during adverse market, economic, political or other
conditions, the Fund may invest in cash or cash equivalents or short-term
instruments such as commercial paper, money market mutual funds, or short-term
U.S. government securities. Taking a temporary defensive position may result in
the Fund not achieving its investment objective.
Manager
of Managers Structure
The
Fund and the Adviser have received exemptive relief from the SEC permitting the
Adviser (subject to certain conditions and the approval of the Trust’s Board) to
change or select new unaffiliated sub-advisers without obtaining shareholder
approval. The relief also permits the Adviser to materially amend the terms of
agreements with an unaffiliated sub-adviser (including an increase in the fee
paid by the Adviser to the unaffiliated sub-adviser (and not paid by the Fund))
or to continue the employment of an unaffiliated 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
unaffiliated sub-adviser changes. The Adviser has the ultimate responsibility,
subject to oversight by the Board, to oversee a sub-adviser and recommend their
hiring, termination and replacement.
Principal
Risks of Investing in the Fund
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 NAV per share, trading
price, yield, total return and/or ability to meet its investment objectives. The
following risks could affect the value of your performance in the
Fund:
Concentration
Risk.
The Fund’s investments will be concentrated in the real estate industry. As a
result, the value of Shares may rise and fall more than the value of shares that
invest in securities of companies in a broader range of industries.
Convertible
Securities Risk. Convertible
securities rank senior to the issuer’s common stock, but may be subordinate to
senior debt obligations. In part, the total return for a convertible security
may depend upon the performance of the underlying stock into which it can be
converted. Convertible securities are also subject to counterparty risk which is
the likelihood or probability that one of the parties involved in an agreement,
or participating in a transaction, might default on its contractual obligation.
Further, there is a risk that no suitable counterparties will be willing to
enter into, or continue to enter into, transactions with the Fund which could
affect the Fund’s performance.
Cybersecurity
Risk.
With the increased use of technologies such as the Internet to conduct business,
the Fund is susceptible to operational, information security, and related risks.
In general, cyber incidents can result from deliberate attacks or unintentional
events. Cyber attacks include, but are not limited to, gaining unauthorized
access to digital systems (e.g., through “hacking” or malicious software coding)
for purposes of misappropriating assets or sensitive information, corrupting
data, or causing operational disruption. Cyber attacks may also be carried out
in a manner that does not require gaining unauthorized access, such as causing
denial-of-service attacks on websites (i.e., efforts to make network services
unavailable to intended users). Cyber incidents affecting the Fund or its
service providers have the ability to cause disruptions and impact business
operations, potentially resulting in financial losses, interference with the
Fund’s ability to calculate its NAV, impediments to trading, the inability of
shareholders to transact business, violations of applicable privacy and other
laws, regulatory fines, penalties, reputational damage, reimbursement or other
compensation costs, or additional compliance costs. Similar adverse consequences
could result from cyber incidents affecting issuers of securities in which the
Fund invests, counterparties with which the Fund engages in transactions,
governmental and other regulatory authorities, exchange and other financial
market operators, banks, brokers, dealers, insurance companies and other
financial institutions (including financial intermediaries and service providers
for shareholders) and other parties. In addition, substantial costs may be
incurred in order to prevent any cyber incidents in the future. While the Fund’s
service providers have established business continuity plans in the event of,
and risk management systems to prevent, such cyber incidents, there are inherent
limitations in such plans and systems including the possibility that certain
risks have not been identified. Furthermore, the Fund cannot control the cyber
security plans and systems put in place by their service providers or any other
third parties whose operations may affect the Fund or its shareholders. As a
result, the Fund and its shareholders could be negatively impacted.
Debt
Securities Risk. The
Fund invests in debt securities, such as bonds and certain asset-backed
securities, that involve certain risks, including:
Call
Risk. During
periods of falling interest rates, an issuer of a callable bond held by the Fund
may “call” or repay the security before its stated maturity, and the Fund may
have to reinvest the proceeds in securities with lower yields, which would
result in a decline in the Fund’s income, or in securities with greater risks or
with other less favorable features.
Event
Risk. Event
risk is the risk that corporate issuers may undergo restructurings, such as
mergers, leveraged buyouts, takeovers, or similar events financed by increased
debt. As a result of the added debt, the credit quality and market value of a
company’s bonds and/or other debt securities may decline
significantly.
Extension
Risk. When
interest rates rise, certain obligations will be repaid by the obligor more
slowly than anticipated, causing the value of these securities to fall. Rising
interest rates tend to extend the duration of securities, making them more
sensitive to future changes in interest rates. The value of longer-term
securities generally changes more in response to changes in interest rates than
the value of shorter-term securities. As a result, in a period of rising
interest rates, securities may exhibit additional volatility and may lose
value.
Derivatives
Risk. The
Fund’s derivative investments have risks, including the imperfect correlation
between the value of such instruments and the underlying assets or index; the
loss of principal, including the potential loss of amounts greater than the
initial amount invested in the derivative instrument; the possible default of
the other party to the transaction; and illiquidity of the derivative
investments. If a counterparty becomes bankrupt or otherwise fails to perform
its obligations under a derivative contract due to financial difficulties, the
Fund may experience significant delays in obtaining any recovery under the
derivative contract in a bankruptcy or other reorganization proceeding. The
derivatives used by the Fund may give rise to a form of leverage. Leverage
magnifies the potential for gain and the risk of loss. Certain of the Fund’s
transactions in derivatives could also affect the amount, timing, and character
of distributions to shareholders, which may result in the Fund realizing more
short-term capital gain and ordinary income subject to tax at ordinary income
tax rates than it would if it did not engage in such transactions, which may
adversely impact the Fund’s after-tax returns.
◦Swap
Agreements Risk.
Swap agreements are entered into primarily with major global financial
institutions for a specified period, which may range from one day to more than
six months. In a standard
swap
transaction, two parties agree to exchange the return (or differentials in rates
of return) earned or realized on particular predetermined reference assets or
underlying securities or instruments. The gross return to be exchanged or
swapped between the parties is calculated based on a notional amount or the
return on or change in value of a particular dollar amount invested in a basket
of securities representing a particular sector or index. Swap agreements are
particularly subject to counterparty credit, liquidity, valuation, correlation,
and leverage risk. Swap agreements could result in losses if interest rates or
credit quality changes are not correctly anticipated by the Fund, if the
reference index, security, or investments do not perform as expected, or if the
counterparty defaults.
◦Options
Risk. Options
enable the Fund to purchase exposure that is significantly greater than the
premium paid. Consequently, the value of such options can be volatile, and a
small investment in options can have a large impact on the performance of the
Fund. The Fund risks losing all or part of the cash paid (premium) for
purchasing options. Even a small decline in the value of a reference asset
underlying call options or a small increase in the value of a reference asset
underlying put options can result in the entire investment in such options being
lost. Additionally, the value of the option may be lost if the Sub-Adviser fails
to exercise such option at or prior to its expiration.
ETF
Risks.
◦APs,
Market Makers, and Liquidity Providers Concentration Risk. The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services; or (ii) market makers and/or liquidity providers exit the business or
significantly reduce their business activities and no other entities step
forward to perform their functions.
◦Cash
Redemption Risk.
The Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. For example, the Fund
may not be able to redeem in-kind certain securities held by the Fund (e.g.,
derivative instruments and bonds that cannot be broken up beyond certain minimum
sizes needed for transfer and settlement). In such a case, the Fund may be
required to sell or unwind portfolio investments to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to recognize a capital
gain that it might not have recognized if it had made a redemption in-kind. As a
result, the Fund may have less cash efficiency and pay out higher annual capital
gain distributions to shareholders than if the in-kind redemption process was
used.
◦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 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. 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 the 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 the 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 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 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.
◦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.
Equity
Market Risk. Common
stocks are generally exposed to greater risk than other types of securities,
such as preferred stock and debt obligations, because common stockholders
generally have inferior rights to receive payment from specific issuers. 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, or sectors in which the Fund invests.
General
Market Risk.
Economies and financial markets throughout the world are becoming increasingly
interconnected, which increases the likelihood that events or conditions in one
country or region will adversely impact markets or issuers in other countries or
regions. Securities in the Fund’s portfolio may underperform in comparison to
securities in the general financial markets, a particular financial market or
other asset classes, due to a number of factors, including inflation (or
expectations for inflation), interest rates, global demand for particular
products or resources, natural disasters or events, pandemic diseases,
terrorism, regulatory events, and government controls.
Management
Risk. The
Fund is actively-managed and may not meet its investment objective based on the
Sub-Adviser’s success or failure to implement investment strategies for the
Fund.
New
Adviser Risk.
The Sub-Adviser is a newly registered investment adviser and has not previously
served as an adviser or sub-adviser to an investment company. As a result, there
is no long-term track record against which an investor may judge the Sub-Adviser
and it is possible that the Sub-Adviser may not achieve the Fund’s intended
investment objective. Further, the Sub-Adviser has no prior experience managing
an ETF which may limit its effectiveness in managing the Fund.
New
Fund Risk. The
Fund is a recently organized management investment company with no operating
history. As a result, prospective investors do not have a track record or
history on which to base their investment decisions. There can be no assurance
that the Fund will grow to or maintain an economically viable size.
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 smaller number of issuers than
if it was a diversified fund. As a result, a decline in the value of an
investment in a single issuer or a smaller number of issuers could cause the
Fund’s overall value to decline to a greater degree than if the Fund held a more
diversified portfolio. This may increase the Fund’s volatility and have a
greater impact on the Fund’s performance.
Other
Investment Companies Risk.
The Fund will incur higher and duplicative expenses when it invests in ETFs and
other investment companies. By investing in another investment company, the Fund
becomes a shareholder of that investment company and bears its proportionate
share of the fees and expenses of the other investment company. There is also
the risk that the Fund may suffer losses due to the investment practices of the
underlying funds as the Fund will be subject to substantially the same risks as
those associated with the direct
ownership
of securities held by such investment companies. ETFs may be less liquid than
other investments, and thus their share values more volatile than the values of
the investments they hold. Investments in ETFs are also subject to the “ETF
Risks” described herein.
Real
Estate Securities Risk.
Adverse
economic, business or political developments affecting real estate could have a
major effect on the value of the Fund’s investments in Residential REITs and
Real Estate-Related Securities. Investing
in Residential REITs and Real Estate-Related Securities may subject the Fund to
risks associated with the direct ownership of real estate. Changes in interest
rates may also affect the value of the Fund’s investment in Residential REITs
and Real Estate-Related Securities. Real estate investments are dependent upon
specialized management skills, have limited diversification and are, therefore,
subject to risks inherent in operating and financing a limited number of
projects. Real estate investments are also subject to heavy cash flow dependency
and defaults by borrowers. Real estate companies may be adversely affected by
the recent pandemic spread of the novel coronavirus known as COVID-19, which has
led to decreased economic activity, widespread business and other closures and
rapid increases in unemployment that may cause increased defaults on rent, loans
or other obligations and increase the probability of an economic recession or
depression. Political or regulatory pressures may restrict the eviction of real
estate tenants in default. Highly-leveraged real estate companies are
particularly vulnerable to the effects of an economic downturn (including an
economic downturn caused by the COVID-19 pandemic).
Recent
Market Events Risk.
U.S. and international markets have experienced significant periods of
volatility in recent years and months due to a number of economic, political and
global macro factors including the impact of COVID-19 as a global pandemic and
related public health crisis, 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 particular, the global
spread of COVID-19 has resulted in disruptions to business operations and supply
chains, stress on the global healthcare system, growth concerns in the U.S. and
overseas, staffing shortages and the inability to meet consumer demand, and
widespread concern and uncertainty. The global recovery from COVID-19 is
proceeding at slower than expected rates due to the emergence of variant strains
and may last for an extended period of time. Health crises and related
political, social and economic disruptions caused by the spread of COVID-19 may
also exacerbate other pre-existing political, social and economic risks in
certain countries. These developments, as well as other events, could result in
further market volatility and negatively affect financial asset prices, the
liquidity of certain securities and the normal operations of securities
exchanges and other markets, despite government efforts to address market
disruptions. As a result, the risk environment remains elevated. The Adviser and
the Sub-Adviser will monitor developments and seek to manage the Fund in a
manner consistent with achieving the Fund’s investment objective, but there can
be no assurance that they will be successful in doing so.
REIT
Risk. A
REIT is a company that owns or finances income-producing real estate and meets
certain requirements under the Code, as more fully described in the Fund’s SAI.
Through its investments in REITs, the Fund is subject to the risks of investing
in the real estate market, including decreases in property revenues, increases
in interest rates, increases in property taxes and operating expenses, legal and
regulatory changes, a lack of credit or capital, defaults by borrowers or
tenants, environmental problems and natural disasters.
REITs
are subject to additional risks, including those related to adverse governmental
actions; declines in property value and the real estate market; the potential
failure to qualify for tax-free pass through of income; and exemption from
registration as an investment company. REITs are dependent upon specialized
management skills and may invest in relatively few properties, a small
geographic area, or a small number of property types. As a result, investments
in REITs may be volatile. To the extent the Fund invests in REITs concentrated
in specific geographic areas or property types, the Fund may be subject to a
greater loss as a result of adverse developments affecting such area or property
types. REITs are pooled investment vehicles with their own fees and expenses and
the Fund will indirectly bear a proportionate share of those fees and
expenses.
RMBS
Risk.
RMBS are subject to the risks generally associated with debt securities and
mortgage-backed securities. Credit risk on RMBS arises from losses due to
delinquencies and defaults by borrowers in payments on the underlying mortgages.
The rate of delinquencies and defaults on RMBS and the amount of the resulting
losses
depend
on a number of factors, including general economic conditions, particularly
those in the area where the related mortgaged property is located, the level of
the borrower’s equity in the mortgaged property and the individual financial
circumstances of the borrower. The risks associated with RMBS are greater for
those in the Alt-A and subprime first lien mortgage sectors than those in the
prime first lien mortgage sectors, but the risks exist for all RMBS. Subprime
loans are loans made to borrowers with weakened credit histories or with a lower
capacity to make timely payments on their loans, and generally have higher
default rates than loans that meet government underwriting requirements.
Therefore, RMBS backed by subprime loans may suffer significantly greater
declines in value due to defaults or the increased risk of default.
Information
about the Fund’s daily portfolio holdings will be available on the Fund’s
website at www.armadaetfs.com. A complete description of the Fund’s policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is
available in the Fund’s SAI.
Investment
Adviser
Toroso
Investments, LLC, located at 898 N. Broadway, Suite 2, Massapequa, New York
11758, is an SEC-registered investment adviser and a Delaware limited liability
company. Toroso was founded in March 2012 and is dedicated to understanding,
researching and managing assets within the expanding ETF universe. Toroso serves
as investment adviser to the Fund and has overall responsibility for the general
management and administration of the Fund pursuant to an investment advisory
agreement with the Trust, on behalf of the Fund (the “Advisory Agreement”). The
Adviser also arranges for sub-advisory, transfer agency, custody, fund
administration, and all other related services necessary for the Fund to
operate. As of December 31, 2021, Toroso had assets under management of
approximately $8.2 billion and served as the investment adviser or sub-adviser
for 47 registered funds.
The
Adviser provides oversight of the Sub-Adviser and is responsible for reviewing
of the Sub-Adviser’s performance. The Adviser is also responsible for trading
portfolio securities for the Fund, including selecting broker-dealers to execute
purchase and sale transactions. 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 0.60% of the Fund’s average daily net
assets.
Under
the Advisory Agreement, the Adviser has agreed to pay all expenses incurred by
the Fund except for interest charges on any borrowings, dividends and other
expenses on securities sold short, taxes, brokerage commissions and other
expenses incurred in placing orders for the purchase and sale of securities and
other investment instruments, acquired fund fees and expenses, accrued deferred
tax liability, extraordinary expenses, distribution fees and expenses paid by
the Fund under any distribution plan adopted pursuant to Rule 12b-1 under the
1940 Act, and the unified management fee payable to the Adviser (collectively,
the “Excluded Expenses”).
Investment
Sub-Adviser
Armada
ETF Advisors LLC, a Delaware limited liability company, located at 2 Enterprise
Drive, Suite 406, Shelton, Connecticut 06484, serves as investment sub-adviser
to the Fund pursuant to a sub-advisory agreement between the Adviser and the
Sub-Adviser (the “Sub-Advisory Agreement”). The Sub-Adviser is responsible for
the day-to-day management of the Fund’s portfolio, including determining the
securities purchased and sold by the Fund, subject to the supervision of the
Adviser and the Board. The Sub-Adviser is a newly-formed investment adviser
founded in January 2022. For its services, the Sub-Adviser is paid a fee by the
Adviser, which fee is calculated daily and paid monthly, at an annual rate of
0.02% of the Fund’s average daily net assets. The Sub-Adviser has agreed to
assume the Adviser’s obligation to pay all expenses incurred by the Fund, except
for the sub-advisory fee payable to the Sub-Adviser and Excluded Expenses. Such
expenses incurred by the Fund and paid by the Sub-Adviser include fees charged
by Tidal ETF Services, LLC, the Fund’s administrator and an affiliate of the
Adviser. See the section of the SAI titled “Administrator” for additional
information about the Fund’s administrator.
A
discussion regarding the basis for the Board’s approval of the Fund’s Advisory
and Sub-Advisory Agreements will be available in the Fund’s next annual or
semi-annual report to shareholders.
Portfolio
Managers
The
following individuals (each, a “Portfolio Manager”) have served as portfolio
managers of the Fund since its inception in 2022. Mr. Otero is primarily
responsible for the day-to-day management of the Fund, and Mr. Venuto and Mr.
Ragauss oversee trading and execution for the Fund.
Alfred
C. Otero, Portfolio Manager for the Sub-Adviser
Mr.
Otero joined the Sub-Adviser in February 2022. Until January 31, 2021, Mr. Otero
served as a REIT Portfolio Manager at EII Capital Management (EII). He
originally joined EII in 1996 as a research analyst on the U.S. REIT investment
team and became head of the U.S. REIT business in 2004 with responsibility for
all U.S. dedicated investment strategies. Mr. Otero became a co-portfolio
manager for all global-listed property strategies in 2008 and held that role
through 2017 when he became an advisor to EII. He rejoined the firm on a
full-time basis in 2019 and worked closely with other portfolio managers and
EII’s investment committee to shape portfolio strategy and construction. From
1992 until 1996, he served as a Vice-President of Investments for Mutual of
America Capital Management Corp., based in New York, where he was responsible
for debt and equity real estate investments, venture capital, and the firm’s
inaugural entrance into the equity REIT market. Mr. Otero is a graduate of the
University of Notre Dame with an MBA (1992) and a BBA (1989) in Finance.
Michael
Venuto, Chief Investment Officer for the Adviser
Mr.
Venuto is a co-founder and has been the Chief Investment Officer of the Adviser
since 2012. Mr. Venuto is an ETF industry veteran with over a decade of
experience in the design and implementation of ETF-based investment strategies.
Previously, he was Head of Investments at Global X Funds where he provided
portfolio optimization services to institutional clients. Before that, he was
Senior Vice President at Horizon Kinetics where his responsibilities included
new business development, investment strategy and client and strategic
initiatives.
Charles
A. Ragauss, CFA, Portfolio Manager for the Adviser
Mr.
Ragauss serves as Portfolio Manager of the Adviser, having joined the Adviser in
September 2020. Mr. Ragauss previously served as Chief Operating Officer and in
other roles at CSat Investment Advisory, L.P. from April 2016 to September 2020.
Previously, Mr. Ragauss was Assistant Vice President at Huntington National Bank
(“Huntington”), where he was Product Manager for the Huntington Funds and
Huntington Strategy Shares ETFs, a combined fund complex of almost $4 billion in
assets under management. At Huntington, he led ETF development bringing to
market some of the first actively managed ETFs. Mr. Ragauss joined Huntington in
2010. Mr. Ragauss attended Grand Valley State University where he received his
Bachelor of Business Administration in Finance and International Business, as
well as a minor in French. He is a member of both the National and West Michigan
CFA societies and holds the CFA designation.
CFA®
is a registered trademark owned by the CFA Institute.
The
Fund’s SAI provides additional information about each Portfolio Manager’s
compensation structure, other accounts that each Portfolio Manager manages, and
each Portfolio Manager’s ownership of 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 (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.
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.
Depository Trust Company (“DTC”) or its nominee is the record owner of all
outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial owner of Shares, you
are not entitled to receive physical delivery of stock certificates or to have
Shares registered in your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other securities that you hold in book-entry or
“street name” through your brokerage account.
Frequent
Purchases and Redemptions of Shares
The
Fund imposes no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly with the Fund, are an essential part of the ETF process and help
keep Share trading prices in line with NAV. As such, the Fund accommodates
frequent purchases and redemptions by APs. However, the Board has also
determined that frequent purchases and redemptions for cash may increase
tracking error and portfolio transaction costs and may lead to the realization
of capital gains. To minimize these potential consequences of frequent purchases
and redemptions, the Fund employs fair value pricing and may impose transaction
fees on purchases and redemptions of Creation Units to cover the custodial and
other costs incurred by the Fund in effecting trades. In addition, the Fund and
the Adviser reserve the right to reject any purchase order at any
time.
Determination
of Net Asset Value
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 for the Fund 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 at fair value estimates under guidelines established
by the Board (as described below).
Fair
Value Pricing
The
Board 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 delisted
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 a security, the Fund 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 included in the Board-adopted valuation procedures. Due to
the subjective and variable nature of fair value pricing, there can
be
no assurance that the Adviser or the Sub-Adviser will be able to obtain the fair
value assigned to the security upon the sale of such security.
Investments
by Other Registered Investment Companies in the Fund
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
an SEC exemptive order issued to the Trust or rule under the 1940 Act, including
that such investment companies enter into an agreement with the
Fund.
Delivery
of Shareholder Documents – Householding
Householding
is an option available to certain investors of the Fund. Householding is a
method of delivery, based on the preference of the individual investor, in which
a single copy of certain shareholder documents can be delivered to investors who
share the same address, even if their accounts are registered under different
names. Householding for the Fund is available through certain broker-dealers. If
you are interested in enrolling in householding and receiving a single copy of
prospectuses and other shareholder documents, please contact your broker-dealer.
If you are currently enrolled in householding and wish to change your
householding status, please contact your broker-dealer.
Dividends
and Distributions
The
Fund intends to pay out dividends and interest income, if any, quarterly, and
distribute any net realized capital gains to its shareholders at least annually.
The
Fund will declare and pay income and 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.
The
Fund intends to qualify each year for treatment as a regulated investment
company (a “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 plan, 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 (institutional
investors only).
The
tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax
Act”) made significant changes to the U.S. federal income tax rules for taxation
of individuals and corporations, generally effective for taxable years beginning
after December 31, 2017. Many of the changes applicable to individuals are
temporary and would apply only to taxable years before January 1, 2026. There
were only minor changes with respect to the specific rules only applicable to
RICs, such as the Fund. The Tax Act, however, also made numerous other changes
to the tax rules that may affect shareholders and the Fund. Subsequent
legislation has modified certain changes to the U.S. federal income tax rules
made by the Tax Act which may, in addition, affect shareholders and the Fund.
You are urged to consult with your own tax advisor regarding how this
legislation affects your investment in the Fund.
Taxes
on Distributions
For
federal income tax purposes, distributions of net investment income are
generally taxable to shareholders as ordinary income or qualified dividend
income. Taxes on distributions of net 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 their 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 to shareholders as long-term capital gains.
Distributions of short-term capital gain will generally be taxable to
shareholders as ordinary income. Dividends and distributions are generally
taxable to you whether you receive them in cash or reinvest them in additional
Shares.
Distributions
reported by the Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided certain holding period and other requirements are met. “Qualified
dividend income” generally is income derived from dividends paid by U.S.
corporations or certain foreign corporations that are either incorporated in a
U.S. possession or eligible for tax benefits under certain U.S. income tax
treaties. In addition, dividends that the Fund receives in respect of stock of
certain foreign corporations may be qualified dividend income if that stock is
readily tradable on an established U.S. securities market. Corporate
shareholders may be entitled to a dividends-received deduction for the portion
of dividends they receive from the Fund that are attributable to dividends
received by the Fund from U.S. corporations, subject to certain limitations.
Shortly
after the close of each calendar year, you will be informed of the character of
any distributions received from the Fund.
In
addition to the federal income tax, certain individuals, trusts, and estates may
be subject to a Net Investment Income (“NII”) tax of 3.8%. The NII tax is
imposed on the lesser of: (i) a taxpayer’s investment income, net of deductions
properly allocable to such income; or (ii) the amount by which such taxpayer’s
modified adjusted gross income exceeds certain thresholds ($250,000 for married
individuals filing jointly, $200,000 for unmarried individuals and $125,000 for
married individuals filing separately). The Fund’s distributions are
includable in a shareholder’s investment income for purposes of this NII
tax. In addition, any capital gain realized by a shareholder upon a sale or
redemption of Fund shares is includable in such shareholder’s investment income
for purposes of this NII tax.
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 to you 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 to you 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. 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.
Under
the Foreign Account Tax Compliance Act (“FATCA”), the Fund may be required to
withhold a generally nonrefundable 30% tax on (i) distributions of investment
company taxable income and (ii) distributions of net capital gain and the gross
proceeds of a sale or redemption of Fund shares paid to (A) certain “foreign
financial institutions” unless such foreign financial institution agrees to
verify, monitor, and report to the Internal Revenue Service (“IRS”) the identity
of certain of its account-holders, among other items (or unless such entity is
otherwise deemed compliant under the terms of an intergovernmental agreement
between the United States and
the
foreign financial institution’s country of residence), and (B) certain
“non-financial foreign entities” unless such entity certifies to the Fund that
it does not have any substantial U.S. owners or provides the name, address, and
taxpayer identification number of each substantial U.S. owner, among other
items. In December 2018, the IRS and Treasury Department released proposed
Treasury Regulations that would eliminate FATCA withholding on Fund
distributions of net capital gain and the gross proceeds from a sale or
redemption of Fund shares. Although taxpayers are entitled to rely on these
proposed Treasury Regulations until final Treasury Regulations are issued, these
proposed Treasury Regulations have not been finalized, may not be finalized in
their proposed form, and are potentially subject to change. This FATCA
withholding tax could also affect the Fund’s return on its investments in
foreign securities or affect a shareholder’s return if the shareholder holds its
Fund shares through a foreign intermediary. You are urged to consult your tax
adviser regarding the application of this FATCA withholding tax to your
investment in the Fund and the potential certification, compliance, due
diligence, reporting, and withholding obligations to which you may become
subject in order to avoid this withholding tax.
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 of the taxable distributions and sale or redemption 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 they are not subject to such withholding.
Taxes
When Shares are Sold on the Exchange
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 are acquired, including through reinvestment of
dividends, within a 61-day period beginning 30 days before and ending 30 days
after the sale of substantially identical Shares.
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 IRS may
assert, however, that a loss that is realized upon an exchange of securities for
Creation Units may not be currently deducted under the rules governing “wash
sales” (for an AP who does not mark-to-market their holdings) or on the basis
that there has been no significant change in economic position. Persons
exchanging securities should consult their own tax advisor with respect to
whether wash sale rules apply and when a loss might be deductible.
Any
capital gain or loss realized upon redemption of Creation Units is generally
treated as long-term capital gain or loss if Shares comprising the Creation
Units have been held for more than one year and as a short-term capital gain or
loss if such Shares have been held for one year or less.
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 REIT Investments
In
general, qualified REIT dividends that an investor receives directly from a REIT
are automatically eligible for the 20% qualified business income deduction. The
IRS has issued final Treasury Regulations that permit a
dividend
or part of a dividend paid by a RIC and reported as a “section 199A dividend” to
be treated by the recipient as a qualified REIT dividend for purposes of the 20%
qualified business income deduction, if certain holding period and other
requirements have been satisfied by the recipient with respect to its Fund
shares.
Qualification
as a REIT under the Code in any particular year is a complex analysis that
depends on a number of factors. There can be no assurance that the entities in
which the Fund invests with the expectation that they will be taxed as a REIT
will qualify as a REIT. An entity that fails to qualify as a REIT would be
subject to a corporate level tax, would not be entitled to a deduction for
dividends paid to its shareholders and would not pass through to its
shareholders the long-term capital gains character of such gains earned by the
entity. If the Fund were to invest in an entity that failed to qualify as a
REIT, such failure could drastically reduce the Fund’s yield on that
investment.
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
treaties or 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 certain qualifying foreign income and similar 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, the Fund will be
entitled to claim a deduction for certain foreign taxes incurred by the Fund.
The Fund (or its administrative agent) 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 foreign, 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.
Foreside
Fund Services, LLC (the “Distributor”), the Fund’s distributor, 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 Three Canal Plaza, Suite 100, Portland, Maine
04101.
The
Board has adopted a Distribution (Rule 12b-1) 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 to pay
distribution fees for the sale and distribution of its Shares.
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 on an ongoing basis, over time
these fees will increase the cost of your investment and may cost you more than
certain other types of sales charges.
When
available, information regarding how often Shares traded on the Exchange at a
price above (i.e., at a premium) or below (i.e., at a discount) the NAV of the
Fund can be found on the Fund’s website at www.armadaetfs.com.
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 Shares to be issued, nor in the determination or
calculation of the equation by which Shares are redeemable. The Exchange has no
obligation or liability to owners of Shares in connection with the
administration, marketing, or trading of Shares.
Without
limiting any of the foregoing, in no event shall the Exchange have any liability
for any lost profits or indirect, punitive, special, or consequential damages
even if notified of the possibility thereof.
The
Adviser, the Sub-Adviser and the Fund make no representation or warranty,
express or implied, to the owners of Shares or any member of the public
regarding the advisability of investing in securities generally or in the Fund
particularly.
This
section would ordinarily include Financial Highlights. The Financial Highlights
table is intended to help you understand the Fund’s performance for the Fund’s
periods of operations. Because the Fund has not yet commenced operations as of
the date of this Prospectus, no Financial Highlights are shown.
Home
Appreciation U.S. REIT ETF
|
|
|
|
|
|
|
|
|
|
|
|
Adviser |
Toroso
Investments, LLC
898
North Broadway, Suite 2
Massapequa,
New York 11758 |
Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
342
N. Water St., Suite 830
Milwaukee,
Wisconsin 53202 |
Sub-Adviser |
Armada
ETF Advisors LLC
2
Enterprise Drive, Suite 406
Shelton,
Connecticut 06484 |
Administrator |
Tidal
ETF Services LLC
898
North Broadway, Suite 2
Massapequa,
New York 11758 |
Distributor
|
Foreside
Fund Services, LLC
Three
Canal Plaza, Suite 100
Portland,
Maine 04101 |
Sub-Administrator,
Fund Accountant, and Transfer Agent
|
U.S.
Bancorp Fund Services, LLC,
doing
business as U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Legal
Counsel |
Godfrey
& Kahn, S.C.
833
East Michigan Street, Suite 1800
Milwaukee,
Wisconsin 53202 |
Custodian
|
U.S.
Bank National Association
1555
North River Center Drive
Milwaukee,
Wisconsin 53212 |
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. A current SAI dated February 13, 2022, as
supplemented from time to time, is on file with the SEC and is herein
incorporated by reference into this Prospectus. It is legally considered a part
of this Prospectus.
Annual/Semi-Annual
Reports: Additional
information about the Fund’s investments will be available in the Fund’s annual
and semi-annual reports to shareholders. In the annual report you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund’s performance after the first fiscal year the Fund is in
operation.
When
available, you can obtain free copies of these documents, request other
information or make general inquiries about the Fund by contacting the Fund at
Home Appreciation U.S. REIT ETF
c/o
U.S. Bank Global Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701 or
calling 800-693-8288.
Shareholder
reports, the Fund’s current Prospectus and SAI and other information about the
Fund will also be available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
•Free
of charge from the Fund’s Internet website at www.armadaetfs.com;
or
•For
a duplicating fee, by e-mail request to publicinfo@sec.gov.
(SEC
Investment Company Act File No. 811-23377)