IRON EQUITY PREMIUM INCOME FUND

The objective of the IRON Equity Premium Income Fund seeks to provide superior risk-adjusted total returns relative to the CBOE S&P 500® Buy-Write Index (BXMSM) by utilizing an actively managed options overlay strategy on the underlying exchange traded index fund.

Unique features of the Fund

  • The Fund utilizes an exchange traded index fund to maintain the core equity exposure thus eliminating the need for holding individual stocks and associated single name risks.
  • The Fund will write call options that are out-of-the-money, range from approximately 30 to 60 calendar days to expiration, and with less than 50 percent probability of being called away.
  • The number of written call options may correspond to a fully covered underlying position thus avoiding margin and additional options’ leverage.
  • The Fund does not utilize put options and hence maintains a true covered call structure.

Disclosure

Option writing may limit the amount of capital appreciation, especially in a rapidly rising stock market. The short-term return profile might be unattractive; hence this strategy is not suitable for shorter-term investment horizons. The Fund invests primarily in one or more underlying ETFs. Much of the Fund’s performance depends on the performance of the underlying ETFs, and an investment in the Fund is thus subject to the risks of the underlying ETFs. The Fund and its investors will also indirectly bear a portion of the fees and expenses of the underlying ETFs. These fees are in addition to the Fund’s direct fees and expenses, and may be considered duplicative. No strategy, including option strategies, can eliminate risk.

Fund Philosophy

IRON’s investment philosophy stems from the belief that one can enhance the returns of a broad index portfolio by opportunistically writing and actively managing options on the underlying securities. We believe most option overlay strategies do not fully utilize the driver of performance, the underlying securities, and therefore at times unnecessarily write options on the underlying, thus capping the upside performance.

We believe the strategy’s options decision making process and active management of written options enables the underlying equity portfolio to capture a higher percentage of the upside in stronger market environments while opportunistically collecting option premiums in other market conditions, relative to its Benchmark, over full market cycles

Disclosure

Option writing may limit the amount of capital appreciation, especially in a rapidly rising stock market. The short-term return profile might be unattractive; hence this strategy is not suitable for shorter-term investment horizons. The Fund invests primarily in one or more underlying ETFs. Much of the Fund’s performance depends on the performance of the underlying ETFs, and an investment in the Fund is thus subject to the risks of the underlying ETFs. The Fund and its investors will also indirectly bear a portion of the fees and expenses of the underlying ETFs. These fees are in addition to the Fund’s direct fees and expenses, and may be considered duplicative. No strategy, including option strategies, can eliminate risk.

Fund Process

IRON’s proprietary actively managed options overlay process is consistent and repeatable.

Selecting and Writing Options

  • Our proprietary model takes into account many factors including, but not limited to, the option premium, delta, tenor, and volatility (both implied and realized). With these inputs determined, the portfolio manager will decide which option, if any, should be written. IRON has determined through its proprietary research that it may be more advantageous not to write options on the underlying position to achieve its maximum upside potential during certain market cycles.
  • In general, we aim to write options that expire within 30 to 60 days and have a 30% to 40% probability of being called.
  • The number of option positions may correspond to a fully covered underlying position and the strategy makes no attempt to utilize additional leverage through the number of option contracts.
  • We believe this active management affords the manager two distinct advantages. First, it allows the manager the necessary flexibility to potentially enhance returns by writing and covering multiple options during an option cycle. Second, by having the flexibility to leave the underlying uncovered during certain market environments, we are not limiting the upside of the underlying unlike many rules based passive buy-write indices such as CBOE S&P 500 Buy-Write Index (BXM).

Option Roll Strategies

  • All open call positions are monitored and evaluated for their risk and return characteristics.
  • The strategy actively manages written call positions through the use of IRON’s proprietary roll strategies. During the course of a written option position, the portfolio manager will decide whether to let the option expire, close out the option when an optimal amount of premium can be realized or cover the option to realize upside appreciation of the underlying.


fund-process

Glossary of Terms

Risk Management

Option Risks

  • Option writing may limit the amount of capital appreciation, especially in a rapidly rising stock market.
  • The short-term return profile might be unattractive, hence this strategy is not suitable for shorter-term investment horizons.
  • Written option will not provide downside protection for the underlying position in the event of adverse market movement.

Portfolio Risk Management

  • Our proprietary option overlay methodology limits option moneyness when the underlying trades above the strike price or the option trades “in the money”. This limits the price paid to close the option position and also allows the underlying to participate in capital appreciation to a greater extent, particularly in rising market conditions.
  • By utilizing effective risk management practices, we believe we can enhance the risk-adjusted total return of the portfolio relative to its benchmark.

Volatility is often perceived as risk. But in an option writing program, volatility may be considered as a reward.

    • Market risk: The Fund seeks to monetize market risks by writing and rolling options more frequently, and thus lowering the volatility of portfolio returns and generating higher option premiums. The written option premiums can potentially offset partial losses on the underlying equities during market selloff.
    • Option risk: A written option can trade in-the-money when the underlying equity price moves above option’s strike price. This moneyness increases nonlinearly as the underlying price appreciates and/or changes in the prevailing implied volatility of underlying price. Also, option price variation is generally higher closer to expiration (due to gamma effect) and underlying price closer to the strike price. An option’s risk increases as the depth of moneyness (in-the-money) increases because the written option is capping the underlying ability to participate in price appreciation. The Fund’s risk management approach quantifies an option’s risk, monitors constantly, and seeks to eliminate it based on a set of quantitative criteria thus allowing the underlying to participate in prevailing price appreciation condition.
    • Call risk: An in-the-money option on a stock is settled by the underlying stock at expiration. As a result, the underlying stock undergoes a (100%) turnover and triggers a tax event (capital gains). This call risk increases with increasing depth of moneyness, particularly before expiration. The Fund evaluates the probabilities of the underlying being exercised and seeks to minimize this risk by proactively closing the written option position.
    • Dividend risk: It may be optimal to exercise an option before the stock goes ex-dividend. Consequently, a written option can be subjected to dividend risk. This risk is more pronounced when the underlying price is closer to option’s strike price and the dividend payout meets or exceeds the premium of the option. When a written option is exercised, it leads to underlying turnover and triggers a taxable event. The Fund’s options risk management approach evaluates this dividend risk and seeks to eliminate this risk by proactively unwinding in-the-money written options.

Disclosure

Option writing may limit the amount of capital appreciation, especially in a rapidly rising stock market. The short-term return profile might be unattractive; hence this strategy is not suitable for shorter-term investment horizons. The Fund invests primarily in one or more underlying ETFs. Much of the Fund’s performance depends on the performance of the underlying ETFs, and an investment in the Fund is thus subject to the risks of the underlying ETFs. The Fund and its investors will also indirectly bear a portion of the fees and expenses of the underlying ETFs. These fees are in addition to the Fund’s direct fees and expenses, and may be considered duplicative. No strategy, including option strategies, can eliminate risk.

Fund Fit

Where can the Fund fit in your portfolio?

  • Potential to reduce volatility of core equity exposures in an overall portfolio.
  • Seeks to enhance total returns and risk-adjusted returns from core equities.
  • Potential to generate additional premium income.

Disclosure

Option writing may limit the amount of capital appreciation, especially in a rapidly rising stock market. The short-term return profile might be unattractive; hence this strategy is not suitable for shorter-term investment horizons. The Fund invests primarily in one or more underlying ETFs. Much of the Fund’s performance depends on the performance of the underlying ETFs, and an investment in the Fund is thus subject to the risks of the underlying ETFs. The Fund and its investors will also indirectly bear a portion of the fees and expenses of the underlying ETFs. These fees are in addition to the Fund’s direct fees and expenses, and may be considered duplicative. No strategy, including option strategies, can eliminate risk.

ADJUST/REDUCE CREDIT EXPOSURE ON A MEASURED BASIS

  • Buy protection on a highly liquid and cost efficient basis on the credit market via the North American High Yield Credit Default Swap Index (CDX).
  • Sell liquid creditr positions on a measured, disciplined basis and hold cash and cash equivalents.

Very Conservative Use of Derivatives

  • We do not increase our net high yield exposure beyond 100%
  • We do not decrease out net high yield exposure below 0%
  • We do require cash or treasury collateral to protect against counterparty risk.

Liquid Securities

  • Enables team to quickly and cost-effectively adjust exposure.

Diversification

  • Diversify holdings across wide range of securities
  • Diversified investment approach: two-tier/ relative value analysis reveals a total view of the high yield market, providing effective risk diversification and risk mitigation to portfolio

Compliance & Operational Oversight

  • Independent Oversight Provided by the Fund’s Administrator (Huntington Asset Services)
  • Additional oversight provided by IRON Financial’s Compliance Department

DAILY PRICING

as of 11/22/2017

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Performance Since Inception

Past performance does not guarantee future results. The performance data quoted represents past performance. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. For performance information current to the most recent month end, please call 1-877-322-0575.

You should carefully consider the investment objectives, risks, and charges and expenses of the fund carefully before investing. Investing involves risk, including loss of principal. Given the significant differences between separately managed accounts and mutual funds, investors should consider the differences in expenses, tax implications and the overall objectives between separately managed accounts and mutual funds before investing. Past performance of the strategy/separately managed account is not indicative of future performance of the fund.

The Fund’s prospectus and Summary Prospectus contains this and other information about the Fund, and should be read carefully before investing. You may obtain a current copy of the Fund’s prospectus or Summary Prospectus by calling 1-877-322-0575 or you can download a prospectus or summary prospectus in the Literature section of this website www.ironfunds.com.

Performance data current to the most recent month end may be obtained by calling our toll-free number. Of course there can be no assurance that the funds will achieve their objectives or that their investment strategies will be successful. No investment strategy, including a total return strategy, can ensure a profit or protect against loss.

An option is a  financial derivative that represents a contract sold by one party to another party. The contract offers the buyer the right, but not the obligation, to buy or sell a security or other financial asset at an agreed-upon price during a certain period of time or on a specific date

Option writing may limit the amount of capital appreciation, especially in a rapidly rising stock market. The short-term return profile might be unattractive; hence this strategy is not suitable for shorter-term investment horizons. The Fund invests primarily in one or more underlying ETFs. Much of the Fund’s performance depends on the performance of the underlying ETFs, and an investment in the Fund is thus subject to the risks of the underlying ETFs. The Fund and its investors will also indirectly bear a portion of the fees and expenses of the underlying ETFs. These fees are in addition to the Fund’s direct fees and expenses, and may be considered duplicative. No strategy, including option strategies, can eliminate risk.

Distributed by Unified Financial Securities, LLC. (Member FINRA)

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Option Roll Characteristics as of 06.30.2017

Source: IRON Financial. SPY=SPDR S&P 500 ETF, which is an exchange traded index fund that tracks the S&P 500. CALLX invests more than 80%  of its assets in the underlying equity, SPY. VIX=CBOE Volatility Index.  Shows the market’s expectation of 30-day volatility and is a widely used measure of market risk. Blue line indicates option roll Out-of-the-Money. See additional disclosure below.

Past performance does not guarantee future results. The performance data quoted represents past performance. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. For performance information current to the most recent month end, please call 1-877-322-0575. No investment strategy, including an absolute return strategy, can ensure a profit or protect against loss. Additionally, investing in a total return strategy may result in underperformance during a bull market. Diversification does not ensure a profit or guarantee against loss. Rolling Option: A contract that offers a buyer the right to purchase something at a future date, as well as the choice to extend that right, for a fee. Rolling options are most commonly used in real estate construction and development. They allow builders to reduce the risk of buying and holding large tracts of land before they know if anyone will be interested in purchasing whatever they construct. Out-of-the-money: A call option with a strike price that is higher than the market price of the underlying asset, or a put option with a strike price that is lower than the market price of the underlying asset. An out of the money option has no intrinsic value, but only possesses extrinsic or time value. Option Moneyness: A description of a derivative relating its strike price to the price of its underlying asset. Moneyness describes the intrinsic value of an option in its current state. The strike price is the price at which a derivative can be exercised, and refers to the price of the derivative’s underlying asset.  In a call option, the strike price is the price at which the option holder can purchase the underlying security. 

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Option Premium Characteristics as of 06.30.2017

Source: IRON Financial. BXM= CBOE S&P 500 Buy-Write Index.  Chart indicates option premium of BXM and CALLX over time. Option Premium: The income received by an investor who sells or “writes” an option contract to another party.

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Fund Information

1 Figures are reported in the Fund’s current Prospectus.

Total Annual Fund Operating Expenses do not correlate to the ratio of Expenses to Average Net Asset found in the “Financial Highlights” section of this prospectus.  The Fund’s financial highlights reflect the operating expenses of the Fund and do not include the effect of Acquired Fund Fees and Expenses.  Without the Fees and Expenses of Acquired Funds, the Total Annual Fund Operating Expenses would be 1.46% for the Investor Class and 1.11% for the Institutional Class.

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Distributions

Distribution Schedule

The Fund distributes income four times per year and capital gains once a year in December.

Distribution History

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Related News & insights

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management team

 - Ted Connolly

Ted Connolly

Portfolio Manager

 - Aaron Izenstark

Aaron Izenstark

Co-Portfolio Manager

 - Dr. Ramesh Poola, Ph.D., CFA

Dr. Ramesh Poola, Ph.D., CFA

Co-Portfolio Manager

 - Joe Fanaro

Joe Fanaro

Co-Portfolio Manager