PRINCIPAL
EXCHANGE-TRADED FUNDS
The
date of this Prospectus is ________________.
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Fund |
Ticker
Symbol |
Principal
U.S. Listing Exchange |
Principal
Active High Yield ETF |
YLD |
NYSE
Arca |
Principal
Healthcare Innovators ETF |
BTEC |
Nasdaq |
Principal
International Adaptive Multi-Factor ETF |
PXUS |
Cboe
BZX |
Principal
International Multi-Factor ETF |
PDEV |
Nasdaq |
Principal
Investment Grade Corporate Active ETF |
IG |
NYSE
Arca |
Principal
Millennials ETF |
GENY |
Nasdaq |
Principal
Quality ETF |
PSET |
Nasdaq |
Principal
Spectrum Preferred Securities Active ETF |
PREF |
NYSE
Arca |
Principal
Spectrum Tax-Advantaged Dividend Active ETF |
PQDI |
NYSE
Arca |
Principal
Ultra-Short Active Income ETF |
USI |
NYSE
Arca |
Principal
U.S. Large-Cap Adaptive Multi-Factor ETF |
PLRG |
Cboe
BZX |
Principal
U.S. Mega-Cap ETF |
USMC |
Nasdaq |
Principal
U.S. Small-Cap Adaptive Multi-Factor ETF |
PLTL |
Cboe
BZX |
Principal
U.S. Small-Cap Multi-Factor ETF |
PSC |
Nasdaq |
Principal
Value ETF |
PY |
Nasdaq |
Beginning
on November 1, 2021, as permitted by regulations adopted by the Securities and
Exchange Commission, paper copies of the Fund’s annual and semi-annual
shareholder reports will no longer be sent by mail, unless you specifically
request paper copies of the report. Instead, the reports will be made available
on a website, and you will be notified by mail each time a report is posted and
provided with a website link to access the report.
If
you already elected to receive such reports electronically, you will not be
affected by this change and you do not need to take any action. If you have not
previously elected electronic delivery and you own these shares through a
financial intermediary, you may contact your financial intermediary to enroll in
electronic delivery. Please note that not all financial intermediaries may offer
this service. You may elect to receive all future reports in paper free of
charge.
If
you own these shares through a financial intermediary, you may contact your
financial intermediary or follow instructions included with this disclosure to
elect to continue to receive paper copies of reports. Your election to receive
reports in paper will apply to all funds with the Fund complex or to the shares
you own through your financial intermediary.
The
Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
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TABLE
OF CONTENTS |
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FUND
SUMMARIES |
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PRINCIPAL
ACTIVE HIGH YIELD ETF |
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PRINCIPAL
HEALTHCARE INNOVATORS ETF |
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PRINCIPAL
INTERNATIONAL ADAPTIVE MULTI-FACTOR ETF |
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PRINCIPAL
INTERNATIONAL MULTI-FACTOR ETF |
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PRINCIPAL
INVESTMENT GRADE CORPORATE ACTIVE ETF |
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PRINCIPAL
MILLENNIALS ETF |
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PRINCIPAL
QUALITY ETF |
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PRINCIPAL
SPECTRUM PREFERRED SECURITIES ACTIVE ETF |
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PRINCIPAL
SPECTRUM TAX-ADVANTAGED DIVIDEND ACTIVE ETF |
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PRINCIPAL
ULTRA-SHORT ACTIVE INCOME ETF |
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PRINCIPAL
U.S. LARGE-CAP ADAPTIVE MULTI-FACTOR ETF |
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PRINCIPAL
U.S. MEGA-CAP ETF |
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PRINCIPAL
U.S. SMALL-CAP ADAPTIVE MULTI-FACTOR ETF |
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PRINCIPAL
U.S. SMALL-CAP MULTI-FACTOR ETF |
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PRINCIPAL
VALUE ETF |
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ADDITIONAL
INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS |
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PORTFOLIO
HOLDINGS INFORMATION |
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MANAGEMENT
OF THE FUNDS |
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DISTRIBUTOR
AND OTHER FUND SERVICE PROVIDERS |
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PRICING
OF FUND SHARES |
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PURCHASE
AND SALE OF FUND SHARES |
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DIVIDENDS
AND DISTRIBUTIONS |
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FREQUENT
PURCHASES AND REDEMPTIONS |
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TAX
CONSIDERATIONS |
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DISTRIBUTION
PLANS AND INTERMEDIARY COMPENSATION |
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FUND ACCOUNT
INFORMATION |
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UNDERLYING
INDICES |
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APPENDIX A
- DESCRIPTION OF BOND RATINGS |
A |
APPENDIX B
- FINANCIAL HIGHLIGHTS |
B |
ADDITIONAL
INFORMATION |
C |
PRINCIPAL
ACTIVE HIGH YIELD ETF (f/k/a Principal Active Income ETF)
Objective:
The
Fund seeks to provide a high level of current income.
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 or the example below.
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
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Management
Fees |
0.39% |
Other
Expenses |
— |
Total
Annual Fund Operating Expenses (1) |
0.39% |
(1)
The investment management agreement (the “Management Agreement”) between the
Fund and Principal Global Investors, LLC (“PGI”) provides that, for the duration
of the Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan (if or
when such fees are imposed), brokerage commissions and other expenses connected
to the execution of portfolio transactions, interest expense, taxes, acquired
fund fees and expenses, litigation expenses and other extraordinary
expenses.
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. The Example also assumes that your investment has a 5% return each
year and that the Fund’s operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
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1
year |
3
years |
5
years |
10
years |
Principal
Active High Yield ETF |
$40 |
$125 |
$219 |
$493 |
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 Fund
shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the example, affect the Fund’s performance.
During the most recent fiscal year, the Fund's portfolio turnover rate was 10.6%
of the average value of its portfolio.
Principal
Investment Strategies
The
Fund is an actively managed exchange-traded fund (“ETF”) that seeks to achieve
its investment objective by investing, under normal circumstances, at least 80%
of its net assets, plus any borrowings for investment purposes, in
below-investment grade (commonly known as "junk" or “high yield”) fixed income
securities, such as bonds and bank loans. “Below investment grade” securities
are rated Ba1 or lower by Moody’s Investors Service, Inc. and BB+ or lower by
S&P Global Ratings. If securities are rated differently by the rating
agencies, the highest rating is used. If the security has been rated by only one
of those agencies, that rating will determine whether the security is below
investment grade. If the security has not been rated by either of those
agencies, those selecting such investments will determine whether the security
is of a quality comparable to those rated below investment grade.
The
Fund invests in U.S. treasury bills, bonds, and other obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities,
investment grade bank loans (also known as senior floating rate interests), and
preferred securities. The Fund’s investments include securities of foreign
issuers, including those located in developing or emerging markets. Under normal
circumstances, the Fund maintains an average portfolio duration that is within
±25% of the duration of the Bloomberg Barclays US Corporate High Yield 2% Issuer
Capped Index, which as of June 30, 2021 was 3.83 years. The Fund is not managed
to a particular maturity.
The
Fund invests in derivatives, including currency swaps and credit default swaps,
for hedging purposes and to manage fixed-income exposure in an effort to
increase or decrease, in an efficient manner, exposures to certain sectors or
individual issuers. A derivative is a financial arrangement, the value of which
is derived from, or based on, a traditional security, asset, or market
index.
Principal
Risks
The
value of your investment in the Fund changes with the value of the Fund's
investments. Many factors affect that value, and it is possible to lose money by
investing in the Fund. An investment in the Fund is not a deposit of a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The principal risks of investing in the Fund are listed
below in alphabetical order and not in order of significance.
Bank
Loans Risk. Changes
in economic conditions are likely to cause issuers of bank loans (also known as
senior floating rate interests) to be unable to meet their obligations. In
addition, the value of the collateral securing the loan (if any) may decline,
causing a loan to be substantially unsecured. Underlying credit agreements
governing the bank loans, reliance on market makers, priority of repayment and
overall market volatility may harm the liquidity of loans.
Derivatives
Risk. Derivatives
may not move in the direction anticipated by the portfolio manager. Transactions
in derivatives may increase volatility, cause the liquidation of portfolio
positions when not advantageous to do so and result in disproportionate losses
that may be substantially greater than a fund's initial investment.
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Credit
Default Swaps .
Credit default swaps involve special risks in addition to those associated with
swaps generally because they are difficult to value, are highly susceptible to
liquidity and credit risk, and generally pay a return to the party that has paid
the premium only in the event of an actual default by the issuer of the
underlying obligation (as opposed to a credit downgrade or other indication of
financial difficulty). The protection “buyer” in a credit default contract may
be obligated to pay the protection “seller” an up-front payment or a periodic
stream of payments over the term of the contract provided generally that no
credit event on a reference obligation has occurred. If a credit event occurs,
the seller generally must pay the buyer the “par value” (i.e., full notional
value) of the swap in exchange for an equal face amount of deliverable
obligations of the reference entity described in the swap, or the seller may be
required to deliver the related net cash amount, if the swap is cash settled.
The Fund may be either the buyer or seller in the transaction.
•
Currency
Contracts .
Derivatives related to currency contracts involve the specific risk of
government action through exchange controls that would restrict the ability of
the fund to deliver or receive currency.
•
Swaps
.
Swaps involve specific risks, including: the imperfect correlation between the
change in market value of the instruments held by the fund and the price of the
swap; possible lack of a liquid secondary market for a swap and the resulting
inability to close a swap when desired; counterparty risk; and if the fund has
insufficient cash, it may have to sell securities from its portfolio to meet
daily variation margin requirements.
Emerging
Markets Risk. Investments
in emerging markets may have more risk than those in developed markets because
the emerging markets are less developed and more illiquid. Emerging markets can
also be subject to increased social, economic, regulatory, and political
uncertainties and can be extremely volatile. The U.S. Securities and Exchange
Commission, the U.S. Department of Justice, and other U.S. authorities may be
limited in their ability to pursue bad actors in emerging markets, including
with respect to fraud.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate, credit quality, and
liquidity risks. The market value of fixed-income securities generally declines
when interest rates rise, and increased interest rates may adversely affect the
liquidity of certain fixed-income securities. Moreover, an issuer of
fixed-income securities could default on its payment obligations due to
increased interest rates or for other reasons.
Foreign
Currency Risk.
Risks of investing in securities denominated in, or that trade in, foreign
(non-U.S.) currencies include changes in foreign exchange rates and foreign
exchange restrictions.
Foreign
Securities Risk.
The risks of foreign securities include loss of value as a result of: political
or economic instability; nationalization, expropriation or confiscatory
taxation; settlement delays; and limited government regulation (including less
stringent reporting, accounting, and disclosure standards than are required of
U.S. companies).
Hedging
Risk .
A fund that implements a hedging strategy using derivatives and/or securities
could expose the fund to the risk that can arise when a change in the value of a
hedge does not match a change in the value of the asset it hedges. In other
words, the change in value of the hedge could move in a direction that does not
match the change in value of the underlying asset, resulting in a risk of loss
to the fund.
High
Yield Securities Risk.
High yield fixed-income securities (commonly referred to as "junk bonds") are
subject to greater credit quality risk than higher rated fixed-income securities
and should be considered speculative.
Market
Trading Risks. The
Fund faces numerous market trading risks, including the potential lack of an
active market for Fund shares, losses from trading in secondary markets, and
disruption to the activities of market makers, authorized participants, or other
participants and in the creation/redemption process of the Fund. ANY OF THESE
FACTORS MAY LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO
NAV.
Portfolio
Duration Risk.
Portfolio duration is a measure of the expected life of a fixed-income security
and its sensitivity to changes in interest rates. The longer a fund's average
portfolio duration, the more sensitive the fund will be to changes in interest
rates, which means funds with longer average portfolio durations may be more
volatile than those with shorter durations.
Preferred
Securities Risk. Because
preferred securities have a lower priority claim on assets or earnings than
senior bonds and other debt instruments in a company's capital structure, they
are subject to greater credit and liquidation risk than more senior debt
instruments. In addition, preferred securities are subject to other risks, such
as limited or no voting rights, deferring or skipping distributions, interest
rate risk, and redeeming the security prior to any stated maturity
date.
Redemption
and Large Transaction Risk. Ownership
of the fund's shares may be concentrated in one or a few large investors (such
as funds of funds, institutional investors, and asset allocation programs) that
may redeem or purchase shares in large quantities. These transactions may cause
the fund to sell securities to meet redemptions or to invest additional cash at
times it would not otherwise do so, which may result in increased transaction
costs, increased expenses, changes to expense ratios, and adverse effects to
fund performance. Such transactions may also accelerate the realization of
taxable income if sales of portfolio securities result in gains.
U.S.
Government Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
Performance
The
following information provides some indication of the risks of investing in the
Fund. Past performance (before and after taxes) is not necessarily an indication
of how the Fund will perform in the future. You may get updated performance
information online at www.principaletfs.com.
The
bar chart shows the investment returns of the Fund’s shares for each full
calendar year of operations for 10 years (or, if shorter, the life of the Fund).
The table shows for the last one, five, and ten calendar year periods (or, if
shorter, the life of the Fund), how the Fund’s average annual total returns
compare with those of one or more broad measures of market performance.
Life
of Fund returns are measured from the date the Fund's shares were first sold
(July 8, 2015).
Prior
to September 1, 2021, the Fund was known as the Principal Active Income ETF, and
the objective and strategy of the Fund differed from its current objective and
strategy. Accordingly, performance of the Fund for periods prior to September 1,
2021 may not be representative of the performance the Fund would have achieved
had the Fund been following its current objective and strategy.
Total
Returns as of December 31 (1)
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Highest
return for a quarter during the period of the bar chart
above: |
Q2
2020 |
12.56% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q1
2020 |
(19.62)% |
(1)
The
year-to-date return as of June 30, 2021 is 6.42%.
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Average
Annual Total Returns (Based on NAV)
For
the periods ended December 31, 2020)1) |
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1 Year |
5
Year |
Life
of Fund |
Return
Before Taxes |
2.23% |
7.20% |
5.18% |
Return
After Taxes on Distributions |
0.30% |
5.09% |
3.09% |
Return
After Taxes on Distributions and Sale of Fund Shares |
1.22% |
4.70% |
3.10% |
Bloomberg
U.S. Corporate High Yield 2% Issuer Capped Index (reflects no deductions
for fees, expenses or taxes) |
7.03% |
8.57% |
6.48% |
(1)
Prior
to September 1, 2021, the Fund was known as the Principal Active Income
ETF, and the objective and strategy of the Fund differed from its current
objective and strategy. Accordingly, performance of the Fund for periods
prior to September 1, 2021 may not be representative of the performance
the Fund would have achieved had the Fund been following its current
objective and strategy. |
After-tax
returns are calculated using the historical highest individual federal marginal
income tax rates and do not reflect the impact of state and local taxes. Actual
after-tax returns depend on an investor’s tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold
their Fund shares through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
Investment
Advisor and Portfolio Managers
Principal
Global Investors, LLC
•
Mark
P. Denkinger (since 2021), Portfolio Manager
•
Joshua
Rank (since 2021), Portfolio Manager
•
Darrin
E. Smith (since 2021), Portfolio Manager
Purchase
and Sale of Fund Shares
The
Fund issues and redeems Shares at net asset value (“NAV”) only with authorized
participants ("APs") who have entered into agreements with the Fund’s
distributor and only in blocks of 50,000 Shares (each block of Shares is called
a "Creation Unit"), or multiples thereof ("Creation Unit Aggregations"), in
exchange for the deposit or delivery of a basket of securities that the Fund
specifies each day. Except when aggregated in Creation Units, the Shares are not
redeemable securities of the Fund. Typically, the basket of assets will be made
up of securities, but may include a cash component. (See "Purchase and
Redemption of Creation Units" in the Statement of Additional Information for
more information.)
Shares
of the Fund are listed for trading on NYSE Arca, Inc. Individual Shares may only
be bought and sold in the secondary market through a broker or dealer at a
market price. Because Shares trade at market prices rather than NAV, Shares may
trade at prices greater than NAV (at a premium), at NAV, or less than NAV (at a
discount). An investor may incur costs attributable to the difference between
the highest price a buyer is willing to pay to purchase Shares (bid) and the
lowest price a seller is willing to accept for Shares (ask) when buying or
selling Shares on the secondary market (the bid-ask spread).
You
can access recent information, including information on the Fund’s net asset
value, market price, premiums and discounts, and bid-ask spreads at
www.principaletfs.com.
Tax
Information
The
Fund’s distributions you receive are generally subject to federal income tax as
ordinary income or capital gain and may also be subject to state and local
taxes, unless you are tax-exempt or your account is tax-deferred in which case
your distributions would be taxed when withdrawn from the tax-deferred account.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
PRINCIPAL
HEALTHCARE INNOVATORS ETF
Objective:
The
Fund seeks to provide investment results that closely correspond, before
expenses, to the performance of the Nasdaq US Health Care Innovators Index (the
"Index").
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 or the example below.
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
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Management
Fees |
0.42% |
Other
Expenses |
—% |
Total
Annual Fund Operating Expenses (1) |
0.42% |
(1)
The
investment management agreement (the “Management Agreement”) between the Fund
and Principal Global Investors, LLC (“PGI”) provides that, for the duration of
the Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan (if or
when such fees are imposed), brokerage commissions and other expenses connected
to the execution of portfolio transactions, interest expense, taxes, acquired
fund fees and expenses, litigation expenses and other extraordinary
expenses.
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. The Example also assumes that your investment has a 5% return each
year and that the Fund’s operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
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1
year |
3
years |
5
years |
10
years |
Principal
Healthcare Innovators ETF |
$43 |
$135 |
$235 |
$530 |
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 Fund
shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the example, affect the Fund’s performance.
During the most recent fiscal year, the Fund's portfolio turnover rate was 36.1%
of the average value of its portfolio.
Principal
Investment Strategies
Under
normal circumstances, the Fund invests at least 80% of its net assets, plus any
borrowings for investment purposes, in equity securities of companies that
compose the Index at the time of purchase. The Index uses a quantitative model
designed to identify equity securities (emphasizing growth stock) in the Nasdaq
US Benchmark Index (the "Parent Index") that are small and medium capitalization
U.S. healthcare companies. Most of the companies in the Index are "early-stage
companies" within the healthcare equipment and supplies, pharmaceuticals,
biotechnology, and life sciences industries that are not yet consistently
profitable. Examples include companies developing products and services and
companies in the pre-marketing stage seeking regulatory approvals.
To
be eligible for the Index, a security must be a component of the Parent Index,
and each security must be classified as Health Care according to Industry
Classification Benchmark (ICB). Securities are ranked based upon their market
capitalization, and the least liquid securities are excluded. The Index employs
a modified market capitalization weighting methodology; final eligible
securities receive a maximum weight of 3%, and all excess weight is distributed
proportionally across the remaining index securities.
The
Index is rebalanced semi-annually. Additionally, throughout the year securities
that become ineligible for the Index are removed and not replaced. The Fund will
make corresponding changes to its portfolio shortly after Index changes are made
public. As of June 30, 2021, the Index included 303 components, and the Parent
Index included 2,960 components. More detailed information about the Index
methodology is provided in the prospectus under Underlying Indices.
The
Fund employs a passive investment approach designed to attempt to track the
performance of the Index. In seeking its objective, the Fund typically employs a
"full replication" strategy which involves investing in all the securities that
make up the Index, in the same approximate proportions as the Index. The Fund
can, however, use a “sampling” methodology to purchase a subset of the
securities in the Index in an effort to hold a portfolio of securities with
generally the same risk and return characteristics of the Index. The Fund can
also invest in securities not included in the Index that the Advisor believes
will help the fund track the Index.
The
Fund will not concentrate its investments (invest more than 25% of its assets)
in a particular industry except to the extent the Index is so concentrated.
Given the present composition of the Index, the Fund expects to concentrate its
investments in one or more industries within the healthcare sector. As of June
30, 2021, the Fund’s investments were concentrated in the biotech and life
sciences industry and the health care equipment and services industry.
Principal
Risks
The
value of your investment in the Fund changes with the value of the Fund's
investments. Many factors affect that value, and it is possible to lose money by
investing in the Fund. An investment in the Fund is not a deposit of a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The principal risks of investing in the Fund are listed
below in alphabetical order and not in order of significance.
Equity
Securities Risk. A
variety of factors can negatively impact the value of equity securities held by
a fund, including a decline in the issuer’s financial condition, unfavorable
performance of the issuer's sector or industry, or changes in response to
overall market and economic conditions. A fund's principal market segment(s)
(such as market capitalization or style) may underperform other market segments
or the equity markets as a whole.
•Growth
Style Risk.
Growth investing entails that risk that if growth companies do not increase
their earnings at a rate expected by investors, the market price of their stock
may decline significantly, even if earnings show an absolute increase. Growth
company stocks also typically lack the dividend yield that can lessen price
declines in market downturns.
•
Smaller
Companies Risk. Investments
in smaller companies may involve greater risk and price volatility than
investments in larger, more mature companies. Smaller companies may have limited
product lines, markets or financial resources, lack the competitive strength of
larger companies, have less experienced managers or depend on a few key
employees. Their securities often are less widely held and trade less frequently
and in lesser quantities, and their market prices often fluctuate more, than
securities of larger companies.
Index
Fund Risk.
Index funds use a passive investment approach and generally do not attempt to
manage market volatility, use defensive strategies, or reduce the effect of any
long-term periods of poor investment performance. Therefore, the Fund may hold
securities that present risks that an investment advisor researching individual
securities might seek to avoid. An index fund has operating and other expenses
while an index does not. As a result, over time, index funds tend to
underperform the index. The correlation between fund performance and index
performance may also be affected by the type of passive investment approach used
by a fund (sampling or replication), changes in securities markets, changes in
the composition of the index, and the timing of purchases and sales of fund
shares. Errors or delays in compiling or rebalancing the Index may impact the
performance of the Fund and increase transaction costs.
Industry
Concentration Risk. A
fund that concentrates investments in a particular industry or group of
industries has greater exposure than other funds to market, economic and other
factors affecting that industry or group of industries.
•
Healthcare
Sector Risk. Given
the present composition of the Index, the Fund expects to have more than 25% of
its assets invested in one or more industries within the healthcare sector. A
fund that invests in securities of companies in the healthcare sector (which
includes companies involved in several industries, including biotechnology
research and production, drugs and pharmaceuticals and health care equipment and
services) is subject to the direct risks of investing in such companies. These
companies are subject to extensive competition (due to, among others, generic
drug sales or the loss of patent protection), product liability litigation and
increased government regulation. Research and development costs of bringing new
drugs to market are substantial, and there is no guarantee that a proposed
product will ever come to market. Such companies are heavily dependent on patent
and intellectual property rights, the loss or impairment of which may adversely
affect profitability. Healthcare facility operators may be affected by the
demand for services, efforts by government or insurers to limit rates,
restriction of government financial assistance and competition from other
providers.
Market
Trading Risks. The
Fund faces numerous market trading risks, including the potential lack of an
active market for Fund shares, losses from trading in secondary markets, and
disruption to the activities of market makers, authorized participants, or other
participants and in the creation/redemption process of the Fund. ANY OF THESE
FACTORS MAY LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO
NAV.
Redemption
and Large Transaction Risk. Ownership
of the fund's shares may be concentrated in one or a few large investors (such
as funds of funds, institutional investors, and asset allocation programs) that
may redeem or purchase shares in large quantities. These transactions may cause
the fund to sell securities to meet redemptions or to invest additional cash at
times it would not otherwise do so, which may result in increased transaction
costs, increased expenses, changes to expense ratios, and adverse effects to
fund performance. Such transactions may also accelerate the realization of
taxable income if sales of portfolio securities result in gains.
Performance
The
following information provides some indication of the risks of investing in the
Fund. Past performance (before and after taxes) is not necessarily an indication
of how the Fund will perform in the future. You may get updated performance
information online at www.principaletfs.com.
The
bar chart shows the investment returns of the Fund’s shares for each full
calendar year of operations for 10 years (or, if shorter, the life of the Fund).
The table shows for the last one, five, and ten calendar year periods (or, if
shorter, the life of the Fund), how the Fund’s average annual total returns
compare with those of one or more broad measures of market performance.
Life
of Fund returns are measured from the date the Fund's shares were first sold
(August 19, 2016).
Total
Returns as of December 31 (1)
|
|
|
|
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
2020 |
40.76% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
2018 |
(24.91)% |
(1)
The
year-to-date return as of June 30, 2021 is 3.64%.
|
|
|
|
|
|
|
|
|
Average
Annual Total Returns (Based on NAV)
For
the periods ended December 31, 2020 |
|
1 Year |
Life
of Fund |
Return
Before Taxes |
52.52% |
21.70% |
Return
After Taxes on Distributions |
52.30% |
21.64% |
Return
After Taxes on Distributions and Sale of Fund Shares |
31.10% |
17.63% |
Nasdaq
US Health Care Innovators Index (reflects no deductions for fees, expenses
or taxes) |
52.77% |
22.20% |
After-tax
returns are calculated using the historical highest individual federal marginal
income tax rates and do not reflect the impact of state and local taxes. Actual
after-tax returns depend on an investor’s tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold
their Fund shares through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
Investment
Advisor and Portfolio Managers
Principal
Global Investors, LLC
•Jeffrey
A. Schwarte (since 2016), Portfolio Manager
•Aaron
J. Siebel (since 2020), Portfolio Manager
Purchase
and Sale of Fund Shares
The
Fund issues and redeems Shares at net asset value (“NAV”) only with authorized
participants ("APs") who have entered into agreements with the Fund’s
distributor and only in blocks of 50,000 Shares (each block of Shares is called
a "Creation Unit"), or multiples thereof ("Creation Unit Aggregations"), in
exchange for the deposit or delivery of a basket of securities that the Fund
specifies each day. Except when aggregated in Creation Units, the Shares are not
redeemable securities of the Fund. Typically, the basket of assets will be made
up of securities, but may include a cash component. (See "Purchase and
Redemption of Creation Units" in the Statement of Additional Information for
more information.)
Shares
of the Fund are listed for trading on The Nasdaq Stock Market LLC. Individual
Shares may only be bought and sold in the secondary market through a broker or
dealer at a market price. Because Shares trade at market prices rather than NAV,
Shares may trade at prices greater than NAV (at a premium), at NAV, or less than
NAV (at a discount). An investor may incur costs attributable to the difference
between the highest price a buyer is willing to pay to purchase Shares (bid) and
the lowest price a seller is willing to accept for Shares (ask) when buying or
selling Shares on the secondary market (the bid-ask spread).
You
can access recent information, including information on the Fund’s net asset
value, market price, premiums and discounts, and bid-ask spreads at
www.principaletfs.com.
Tax
Information
The
Fund’s distributions you receive are generally subject to federal income tax as
ordinary income or capital gain and may also be subject to state and local
taxes, unless you are tax-exempt or your account is tax-deferred in which case
your distributions would be taxed when withdrawn from the tax-deferred
account.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
PRINCIPAL
INTERNATIONAL ADAPTIVE MULTI-FACTOR ETF
Objective:
The
Fund seeks long-term growth of capital.
Fees
and Expenses of the Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund ("Shares"). You may pay other fees, such as brokerage
commissions and other fees to financial intermediaries, which are not reflected
in the table or the example below.
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your investment)
|
|
|
|
|
|
Management
Fees |
0.24% |
Other
Expenses |
—% |
Total
Annual Fund Operating Expenses (1) |
0.24% |
(1)
The investment management agreement (the “Management Agreement”) between the
Fund and Principal Global Investors, LLC (“PGI”) provides that, for the duration
of the Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan (if or
when such fees are imposed), brokerage commissions and other expenses connected
to the execution of portfolio transactions, interest expense, taxes, acquired
fund fees and expenses, litigation expenses and other extraordinary
expenses.
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. The Example also assumes that your investment has a 5% return each
year and that the Fund’s operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
1
year |
3
years |
Principal
International Adaptive Multi-Factor ETF |
$25 |
$77 |
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 Fund
shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the example, affect the Fund’s performance.
This is a new fund and does not have a portfolio turnover rate to
disclose.
Principal
Investment Strategies
Under
normal circumstances, the Fund invests at least 40% of its net assets, plus any
borrowings for investment purposes, in securities of foreign companies. The fund
invests in securities regardless of market capitalization size (small, medium or
large).
For
security selection and portfolio construction, Principal Global Investors, LLC
("PGI") uses a proprietary quantitative model. The model is designed to identify
and rank equity securities in the MSCI World Ex-U.S. Index (the "Index") that
correspond to factor categories including the following:
•
Value
companies - securities with low prices relative to their fundamental value,
measured by such metrics as earnings yield, free cash flow yield, and sales
yield.
•
Higher
quality companies – securities ranked based on metrics such as return on equity,
sales growth, earnings growth, and balance sheet measures of quality (such as
lower debt and accruals).
•
Higher
momentum companies - securities ranked by evaluating recent performance.
•
Lower
volatility companies – identified using the last 12-month standard deviation of
returns (in other words, how much such returns vary).
The
model incorporates a proprietary rules-based methodology that identifies the
current market risk regime as “lower,” “higher and increasing,” or “higher and
decreasing” and then weights securities within and among the factor categories
based on the prevailing market regime. During "higher and decreasing" market
risk environments, the model is expected to correspond more closely to the
weights used in the Index itself; however, in other regimes, the model’s
selection and weighting is expected to differ from the Index in an effort to
outperform the Index returns after fees and expenses. In "lower" risk
environments, the model is expected to allocate more to value, quality, and
momentum stocks, while de-emphasizing lower volatility stocks, whereas in
"higher and increasing" risk environments the model is expected to allocate more
to lower volatility stocks, as well as quality and momentum stocks, while
de-emphasizing value stocks. For certain securities, the model assigns weights
equal to that of the Index in all risk regimes.
PGI
expects to review the risk environment weekly. In circumstances where the risk
environment does not change, the Fund's holdings are expected to be rebalanced
semi-annually. Fund holdings will be rebalanced more frequently in the event of
market risk regime shifts, which will result in increased portfolio turnover.
PGI expects to review the model and risk environment regularly, and adjustments
to the model and Fund holdings may be made at PGI's discretion. The Fund’s
strategies may result in the active and frequent trading of the Fund’s portfolio
securities.
Principal
Risks
The
value of your investment in the Fund changes with the value of the Fund's
investments. Many factors affect that value, and it is possible to lose money by
investing in the Fund. An investment in the Fund is not a deposit of a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The principal risks of investing in the Fund are listed
below in alphabetical order and not in order of significance.
Equity
Securities Risk. A
variety of factors can negatively impact the value of equity securities held by
a fund, including a decline in the issuer’s financial condition, unfavorable
performance of the issuer's sector or industry, or changes in response to
overall market and economic conditions. A fund's principal market segment(s)
(such as market capitalization or style) may underperform other market segments
or the equity markets as a whole.
•
Growth
Style Risk. Growth
investing entails that risk that if growth companies do not increase their
earnings at a rate expected by investors, the market price of their stock may
decline significantly, even if earnings show an absolute increase. Growth
company stocks also typically lack the dividend yield that can lessen price
declines in market downturns.
•
Smaller
Companies Risk. Investments
in smaller companies may involve greater risk and price volatility than
investments in larger, more mature companies. Smaller companies may have limited
product lines, markets or financial resources, lack the competitive strength of
larger companies, have less experienced managers or depend on a few key
employees. Their securities often are less widely held and trade less frequently
and in lesser quantities, and their market prices often fluctuate more, than
securities of larger companies.
•
Value
Style Risk. Value
investing entails the risk that value stocks may continue to be undervalued by
the market for extended periods, including the entire period during which the
stock is held by a fund, or the events that would cause the stock price to
increase may not occur as anticipated or at all. Moreover, a stock that appears
to be undervalued actually may be appropriately priced at a low level and
therefore would not be profitable for the fund.
Foreign
Currency Risk. Risks
of investing in securities denominated in, or that trade in, foreign (non-U.S.)
currencies include changes in foreign exchange rates and foreign exchange
restrictions.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
High
Portfolio Turnover Risk .
High portfolio turnover (more than 100%) caused by the active and frequent
trading portfolio securities may result in accelerating the realization of
taxable gains and losses, lower fund performance, and increased brokerage
costs.
Market
Trading Risks. The
Fund faces numerous market trading risks, including the potential lack of an
active market for Fund shares, losses from trading in secondary markets, and
disruption to the activities of market makers, authorized participants, or other
participants and in the creation/redemption process of the Fund. ANY OF THESE
FACTORS MAY LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO
NAV.
Model
Risk. Because
PGI uses quantitative models to select and hold securities, the Fund may hold
securities that present risks that an investment advisor researching individual
securities might seek to avoid. Moreover, models may be predictive in nature and
depend heavily on the accuracy and reliability of historical data that is
supplied by others and may be incorrect or incorrectly input. The Fund bears the
risk that the quantitative models used will not be successful in identifying
trends or in determining the size and direction of investment positions that
will enable the Fund to achieve its investment objective.
Momentum
Style Risk. Momentum
can turn quickly, and stocks that previously exhibited high momentum may not
experience continued positive momentum. Momentum securities may be more volatile
than a broad cross-section of securities or the overall stock market. The Fund
may experience losses if momentum stops, reverses or otherwise behaves
differently than predicted. In addition, there may be periods when momentum
style is out of favor, during which the investment performance of the Fund may
suffer to the extent it employs momentum style methodology.
Redemption
and Large Transaction Risk. Ownership
of the fund's shares may be concentrated in one or a few large investors (such
as funds of funds, institutional investors, and asset allocation programs) that
may redeem or purchase shares in large quantities. These transactions may cause
the fund to sell securities to meet redemptions or to invest additional cash at
times it would not otherwise do so, which may result in increased transaction
costs, increased expenses, changes to expense ratios, and adverse effects to
fund performance. Such transactions may also accelerate the realization of
taxable income if sales of portfolio securities result in gains.
Performance
No
performance information is shown because the Fund has not yet had a calendar
year of performance. The Fund’s performance is benchmarked against the MSCI
World Ex-U.S. Index. Performance information provides an indication of the risks
of investing in the Fund. Past performance (before and after taxes) is not
necessarily an indication of how the Fund will perform in the future. You may
get updated performance information online at www.principaletfs.com.
Investment
Advisor and Portfolio Managers
Principal
Global Investors, LLC
•
Jeffrey
A. Schwarte (since 2021), Portfolio Manager
•
Aaron
J. Siebel (since 2021), Portfolio Manager
Purchase
and Sale of Fund Shares
The
Fund issues and redeems Shares at net asset value (“NAV”) only with authorized
participants who have entered into agreements with the Fund’s distributor and
only in blocks of 100,000 Shares (each block of Shares is called a "Creation
Unit"), or multiples thereof ("Creation Unit Aggregations"), in exchange for the
deposit or delivery of a basket of securities that the Fund specifies each day.
Except when aggregated in Creation Units, the Shares are not redeemable
securities of the Fund. Typically, the basket of assets will be made up of
securities, but may include a cash component. (See "Purchase and Redemption of
Creation Units" in the Statement of Additional Information for more
information.)
Shares
of the Fund are listed for trading on Cboe BZX Exchange, Inc. Individual Shares
may only be bought and sold in the secondary market through a broker or dealer
at a market price. Because Shares trade at market prices rather than NAV, Shares
may trade at prices greater than NAV (at a premium), at NAV, or less than NAV
(at a discount). An investor may incur costs attributable to the difference
between the highest price a buyer is willing to pay to purchase Shares (bid) and
the lowest price a seller is willing to accept for Shares (ask) when buying or
selling Shares on the secondary market (the bid-ask spread).
You
can access recent information, including information on the Fund's net asset
value, market price, premiums and discounts, and bid-ask spreads at
www.principaletfs.com.
Tax
Information
The
Fund’s distributions you receive are generally subject to federal income tax as
ordinary income or capital gain and may also be subject to state and local
taxes, unless you are tax-exempt or your account is tax-deferred in which case
your distributions would be taxed when withdrawn from the tax-deferred
account.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
PRINCIPAL
INTERNATIONAL MULTI-FACTOR ETF
Objective:
The Fund seeks to provide investment results that
closely correspond, before expenses, to the performance of the Nasdaq Developed
Select Leaders Core Index (the "Index").
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 or the example below.
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
|
|
|
|
|
|
Management
Fees |
0.25% |
Other
Expenses |
—% |
Total
Annual Fund Operating Expenses (1) |
0.25% |
(1)
The investment management agreement (the “Management Agreement”) between the
Fund and Principal Global Investors, LLC (“PGI”) provides that, for the duration
of the Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan (if or
when such fees are imposed), brokerage commissions and other expenses connected
to the execution of portfolio transactions, interest expense, taxes, acquired
fund fees and expenses, litigation expenses and other extraordinary
expenses.
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. The Example also assumes that your investment has a 5% return each
year and that the Fund’s operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal
International Multi-Factor ETF |
$26 |
$80 |
$141 |
$318 |
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 Fund
shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the example, affect the Fund’s performance.
During the most recent fiscal year, the Fund's portfolio turnover rate was [ ]
of the average value of its portfolio.
Principal
Investment Strategies
Under
normal circumstances, the Fund invests at least 80% of its net assets, plus any
borrowings for investment purposes, in equity securities of companies that
compose the Index at the time of purchase. The Index uses a quantitative model
designed to identify equity securities of companies in the Nasdaq Developed
Market Ex-US Ex Korea Large Mid Cap Index (the "Parent Index") that exhibit
potential for high degrees of value, quality growth and strong
momentum.
The
Parent Index is composed of developed foreign market equity securities of
issuers that have medium and large market capitalizations. The Index includes
securities in the top 50% of the Parent Index by market capitalization, or (if
not in the top 50% by market cap) the top 50% by rank (discussed below). To
determine the rankings of securities in the bottom 50% by market cap, a
currency-neutral approach is used (each currency maintains similar weight as the
initial universe of stocks).
Securities
are ranked according to three factors:
•The
Shareholder Yield (Value) Factor ranks securities based on the collective
financial impact on a company's shareholders from the return of free cash flow
through cash dividends, stock repurchases, and debt reduction. This factor is
designed to identify securities with low prices relative to their fundamental
value.
•The
Pricing Power (Quality Growth) Factor ranks securities based on consistent sales
growth, earnings quality and growth, and profitability, while taking price
volatility into account.
•The
Momentum Factor ranks securities by evaluating price momentum over multiple
horizons to determine sustainability.
The
Index uses modified market-cap weighting to give greater weight to securities
that rank higher.
The
Index is rebalanced semi-annually. Additionally, throughout the year securities
that become ineligible for the Index are removed and not replaced. The Fund will
make corresponding changes to its portfolio shortly after the Index changes are
made public. As of June 30, 2021, the Index included 581 components, and the
Parent Index included 1,064 components. More detailed information about the
Index methodology is provided in the prospectus under Underlying Indices.
The
Fund employs a passive investment approach designed to attempt to track the
performance of the Index. In seeking its objective, the Fund typically employs a
"full replication" strategy which involves investing in all the securities that
make up the Index, in the same approximate proportions as the Index. The Fund
can, however, use a “sampling” methodology to purchase a subset of the
securities in the Index in an effort to hold a portfolio of securities with
generally the same risk and return characteristics of the Index. The Fund can
also purchase securities not included in the Index that the advisor believes
will help the fund track the Index.
The
Fund will not concentrate its investments (invest more than 25% of its assets)
in a particular industry except to the extent the Index is so
concentrated.
Principal
Risks
The
value of your investment in the Fund changes with the value of the Fund's
investments. Many factors affect that value, and it is possible to lose money by
investing in the Fund. An investment in the Fund is not a deposit of a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The principal risks of investing in the Fund are listed
below in alphabetical order and not in order of significance.
Equity
Securities Risk.
A variety of factors can negatively impact the value of equity securities held
by a fund, including a decline in the issuer’s financial condition, unfavorable
performance of the issuer's sector or industry, or changes in response to
overall market and economic conditions. A fund's principal market segment(s)
(such as market capitalization or style) may underperform other market segments
or the equity markets as a whole.
•Growth
Style Risk.
Growth investing entails that risk that if growth companies do not increase
their earnings at a rate expected by investors, the market price of their stock
may decline significantly, even if earnings show an absolute increase. Growth
company stocks also typically lack the dividend yield that can lessen price
declines in market downturns.
•Medium
Market Capitalization Companies.
Investments in medium sized companies may involve greater risk and price
volatility than investments in larger, more mature companies.
•Value
Style Risk.
Value investing entails the risk that value stocks may continue to be
undervalued by the market for extended periods, including the entire period
during which the stock is held by a fund, or the events that would cause the
stock price to increase may not occur as anticipated or at all. Moreover, a
stock that appears to be undervalued actually may be appropriately priced at a
low level and therefore would not be profitable for the fund.
Foreign
Currency Risk.
Risks of investing in securities denominated in, or that trade in, foreign
(non-U.S.) currencies include changes in foreign exchange rates and foreign
exchange restrictions.
Foreign
Securities Risk.
The risks of foreign securities include loss of value as a result of: political
or economic instability; nationalization, expropriation or confiscatory
taxation; settlement delays; and limited government regulation (including less
stringent reporting, accounting, and disclosure standards than are required of
U.S. companies).
Index
Fund Risk.
Index funds use a passive investment approach and generally do not attempt to
manage market volatility, use defensive strategies, or reduce the effect of any
long-term periods of poor investment performance. Therefore, the Fund may hold
securities that present risks that an investment advisor researching individual
securities might seek to avoid. An index fund has operating and other expenses
while an index does not. As a result, over time, index funds tend to
underperform the index. The correlation between fund performance and index
performance may also be affected by the type of passive investment approach used
by a fund (sampling or replication), changes in securities markets, changes in
the composition of the index, and the timing of purchases and sales of fund
shares. Errors or delays in compiling or rebalancing the Index may impact the
performance of the Fund and increase transaction costs.
Industry
Concentration Risk.
A fund that concentrates investments in a particular industry or group of
industries has greater exposure than other funds to market, economic and other
factors affecting that industry or group of industries.
Market
Trading Risks. The
Fund faces numerous market trading risks, including the potential lack of an
active market for Fund shares, losses from trading in secondary markets, and
disruption to the activities of market makers, authorized participants, or other
participants and in the creation/redemption process of the Fund. ANY OF THESE
FACTORS MAY LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO
NAV.
Momentum
Style Risk. Momentum
can turn quickly, and stocks that previously exhibited high momentum may not
experience continued positive momentum. Momentum securities may be more volatile
than a broad cross-section of securities or the overall stock market. The Fund
may experience losses if momentum stops, reverses or otherwise behaves
differently than predicted. In addition, there may be periods when momentum
style is out of favor, during which the investment performance of the Fund may
suffer to the extent it employs momentum style methodology.
Redemption
and Large Transaction Risk. Ownership
of the fund's shares may be concentrated in one or a few large investors (such
as funds of funds, institutional investors, and asset allocation programs) that
may redeem or purchase shares in large quantities. These transactions may cause
the fund to sell securities to meet redemptions or to invest additional cash at
times it would not otherwise do so, which may result in increased transaction
costs, increased expenses, changes to expense ratios, and adverse effects to
fund performance. Such transactions may also accelerate the realization of
taxable income if sales of portfolio securities result in gains.
Performance
The
following information provides some indication of the risks of investing in the
Fund. Past performance (before and after taxes) is not necessarily an indication
of how the Fund will perform in the future. You may get updated performance
information online at www.principaletfs.com.
The
bar chart shows the investment returns of the Fund’s shares for each full
calendar year of operations for 10 years (or, if shorter, the life of the Fund).
The table shows for the last one, five, and ten calendar year periods (or, if
shorter, the life of the Fund), how the Fund’s average annual total returns
compare with those of one or more broad measures of market performance.
Life
of Fund returns are measured from the date the Fund's shares were first sold
(July 23, 2019).
Total
Returns as of December 31 (1)
|
|
|
|
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q4
2020 |
16.70% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q1
2020 |
(21.61)% |
(1)
The
year-to-date return as of June 30, 2021 is 11.56%
|
|
|
|
|
|
|
|
|
Average
Annual Total Returns (Based on NAV)
For
the periods ended December 31, 2020 |
|
1 Year |
Life
of Fund |
Return
Before Taxes |
9.67% |
11.97% |
Return
After Taxes on Distributions |
8.80% |
11.13% |
Return
After Taxes on Distributions and Sale of Fund Shares |
5.64% |
8.81% |
Nasdaq
Developed Select Leaders Core Index |
10.06% |
12.38% |
After-tax
returns are calculated using the historical highest individual federal marginal
income tax rates and do not reflect the impact of state and local taxes. Actual
after-tax returns depend on an investor’s tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold
their Fund shares through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
Investment
Advisor and Portfolio Managers
Principal
Global Investors, LLC
•Jeffrey
A. Schwarte (since 2019), Portfolio Manager
•Aaron
J. Siebel (since 2020), Portfolio Manager
Purchase
and Sale of Fund Shares
The
Fund issues and redeems Shares at net asset value (“NAV”) only with authorized
participants who have entered into agreements with the Fund’s distributor and
only in blocks of 100,000 Shares (each block of Shares is called a "Creation
Unit"), or multiples thereof ("Creation Unit Aggregations"), in exchange for the
deposit or delivery of a basket of securities that the Fund specifies each day.
Except when aggregated in Creation Units, the Shares are not redeemable
securities of the Fund. Typically, the basket of assets will be made up of
securities, but may include a cash component. (See "Purchase and Redemption of
Creation Units" in the Statement of Additional Information for more
information.)
Shares
of the Fund are listed for trading on The Nasdaq Stock Market LLC. Individual
Shares may only be bought and sold in the secondary market through a broker or
dealer at a market price. Because Shares trade at market prices rather than NAV,
Shares may trade at prices greater than NAV (at a premium), at NAV, or less than
NAV (at a discount). An investor may incur costs attributable to the difference
between the highest price a buyer is willing to pay to purchase Shares (bid) and
the lowest price a seller is willing to accept for Shares (ask) when buying or
selling Shares on the secondary market (the bid-ask spread).
You
can access recent information, including information on the Fund’s net asset
value, market price, premiums and discounts, and bid-ask spreads at
www.principaletfs.com.
Tax
Information
The
Fund’s distributions you receive are generally subject to federal income tax as
ordinary income or capital gain and may also be subject to state and local
taxes, unless you are tax-exempt or your account is tax-deferred in which case
your distributions would be taxed when withdrawn from the tax-deferred
account.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
PRINCIPAL
INVESTMENT GRADE CORPORATE ACTIVE ETF
Objective: The
Fund seeks to provide current income and, as a secondary objective, capital
appreciation.
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 or the example below.
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
|
|
|
|
|
|
Management
Fees |
0.19% |
Other
Expenses |
—% |
Total
Annual Fund Operating Expenses (1) |
0.19% |
(1)
The investment management agreement (the “Management Agreement”) between the
Fund and Principal Global Investors, LLC (“PGI”) provides that, for the duration
of the Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan (if or
when such fees are imposed), brokerage commissions and other expenses connected
to the execution of portfolio transactions, interest expense, taxes, acquired
fund fees and expenses, litigation expenses and other extraordinary
expenses.
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. The Example also assumes that your investment has a 5% return each
year and that the Fund’s operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal
Investment Grade Corporate Active ETF |
$19 |
$61 |
$107 |
$243 |
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 Fund
shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the example, affect the Fund’s performance.
During the most recent fiscal year, the Fund's portfolio turnover rate was 73.3%
of the average value of its portfolio.
Principal
Investment Strategies
The
Fund is an actively managed exchange-traded fund (“ETF”) that seeks to achieve
its investment objective by investing, under normal circumstances, at least 80%
of its net assets, plus any borrowings for investment purposes, in investment
grade corporate bonds and other fixed income securities at the time of purchase.
“Investment grade” securities are rated BBB- or higher by S&P Global Ratings
("S&P Global") or Baa3 or higher by Moody's Investors Service, Inc.
("Moody's") or, if unrated, of comparable quality in the opinion of those
selecting such investments. If the security has been rated by only one of those
agencies, that rating will determine whether the security is investment grade.
If securities are rated differently by the rating agencies, the
highest rating is used.
The
fixed income securities in which the Fund invests include foreign
securities, corporate securities ,
securities issued or guaranteed by the U.S. government or its agencies and
instrumentalities, and securities
issued or guaranteed by foreign governments payable in U.S. dollars .
The portfolio is not managed to a particular maturity. Under normal
circumstances, the Fund maintains an average portfolio duration that is within
+/- 10% of the duration of the Bloomberg Barclays U.S. Corporate Investment
Grade Bond Index, which as of June 30, 2021 was 8.72 years. The Fund actively
trades securities.
The
Fund utilizes exchange-traded and over-the-counter derivative strategies. A
derivative is a financial arrangement, the value of which is derived from, or
based on, a traditional security, asset, or market index. Specifically, the Fund
invests in treasury futures for hedging or to otherwise manage fixed income
exposure, as well as credit default swaps, including buying and selling on
individual securities and/or baskets of securities, to efficiently manage
exposures to certain sectors or individual issuers.
Principal
Risks
The
value of your investment in the Fund changes with the value of the Fund's
investments. Many factors affect that value, and it is possible to lose money by
investing in the Fund. An investment in the Fund is not a deposit of a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The principal risks of investing in the Fund are listed
below in alphabetical order and not in order of significance.
Counterparty
Risk. Counterparty
risk is the risk that the counterparty to a contract or other obligation will be
unable or unwilling to honor its obligations.
Derivatives
Risk.
Derivatives may not move in the direction anticipated by the portfolio manager.
Transactions in derivatives may increase volatility, cause the liquidation of
portfolio positions when not advantageous to do so and result in
disproportionate losses that may be substantially greater than a fund's initial
investment.
•Credit
Default Swaps.
Credit default swaps involve special risks in addition to those associated with
swaps generally because they are difficult to value, are highly susceptible to
liquidity and credit risk, and generally pay a return to the party that has paid
the premium only in the event of an actual default by the issuer of the
underlying obligation (as opposed to a credit downgrade or other indication of
financial difficulty). The protection “buyer” in a credit default contract may
be obligated to pay the protection “seller” an up-front payment or a periodic
stream of payments over the term of the contract provided generally that no
credit event on a reference obligation has occurred. If a credit event occurs,
the seller generally must pay the buyer the “par value” (i.e., full notional
value) of the swap in exchange for an equal face amount of deliverable
obligations of the reference entity described in the swap, or the seller may be
required to deliver the related net cash amount, if the swap is cash settled.
The Fund may be either the buyer or seller in the transaction.
•Futures.
These derivative instruments involve specific risks, including: the imperfect
correlation between the change in market value of the instruments held by the
fund and the price of the instruments; possible lack of a liquid secondary
market for an instrument and the resulting inability to close it when desired;
counterparty risk; and if the fund has insufficient cash, it may have to sell
securities from its portfolio to meet any applicable daily variation margin
requirements.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate, credit quality, and
liquidity risks. The market value of fixed-income securities generally declines
when interest rates rise, and increased interest rates may adversely affect the
liquidity of certain fixed-income securities. Moreover, an issuer of
fixed-income securities could default on its payment obligations due to
increased interest rates or for other reasons.
Foreign
Securities Risk.
The risks of foreign securities include loss of value as a result of: political
or economic instability; nationalization, expropriation or confiscatory
taxation; settlement delays; and limited government regulation (including less
stringent reporting, accounting, and disclosure standards than are required of
U.S. companies).
Hedging
Risk.
A
fund that implements a hedging strategy using derivatives and/or securities
could expose the fund to the risk that can arise when a change in the value of a
hedge does not match a change in the value of the asset it hedges. In other
words, the change in value of the hedge could move in a direction that does not
match the change in value of the underlying asset, resulting in a risk of loss
to the fund.
Market
Trading Risks. The
Fund faces numerous market trading risks, including the potential lack of an
active market for Fund shares, losses from trading in secondary markets, and
disruption to the activities of market makers, authorized participants, or other
participants and in the creation/redemption process of the Fund. ANY OF THESE
FACTORS MAY LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO
NAV.
Portfolio
Duration Risk. Portfolio
duration is a measure of the expected life of a fixed-income security and its
sensitivity to changes in interest rates. The longer a fund's average portfolio
duration, the more sensitive the fund will be to changes in interest rates,
which means funds with longer average portfolio durations may be more volatile
than those with shorter durations.
Redemption
and Large Transaction Risk. Ownership
of the fund's shares may be concentrated in one or a few large investors (such
as funds of funds, institutional investors, and asset allocation programs) that
may redeem or purchase shares in large quantities. These transactions may cause
the fund to sell securities to meet redemptions or to invest additional cash at
times it would not otherwise do so, which may result in increased transaction
costs, increased expenses, changes to expense ratios, and adverse effects to
fund performance. Such transactions may also accelerate the realization of
taxable income if sales of portfolio securities result in gains.
U.S.
Government Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S.
Government-Sponsored Securities Risk. Securities
issued by U.S. government-sponsored enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. government.
Performance
The
following information provides some indication of the risks of investing in the
Fund. Past performance (before and after taxes) is not necessarily an indication
of how the Fund will perform in the future. You may get updated performance
information online at www.principaletfs.com.
The
bar chart shows the investment returns of the Fund’s shares for each full
calendar year of operations for 10 years (or, if shorter, the life of the Fund).
The table shows for the last one, five, and ten calendar year periods (or, if
shorter, the life of the Fund), how the Fund’s average annual total returns
compare with those of one or more broad measures of market performance.
Life
of Fund returns are measured from the date the Fund's shares were first sold
(April 18, 2018).
Total
Returns as of December 31 (1)
|
|
|
|
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
2020 |
10.29% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q1
2020 |
(5.22)% |
(1)
The
year-to-date return as of June 30, 2021 is (1.14)%.
|
|
|
|
|
|
|
|
|
Average
Annual Total Returns (Based on NAV)
For
the periods ended December 31, 2020 |
|
1 Year |
Life
of Fund |
Return
Before Taxes |
10.91% |
9.12% |
Return
After Taxes on Distributions |
8.95% |
6.90% |
Return
After Taxes on Distributions and Sale of Fund Shares |
6.62% |
6.11% |
Bloomberg
U.S. Corporate Investment Grade Bond Index (reflects no deductions for
fees, expenses or taxes) |
9.87% |
8.90% |
After-tax
returns are calculated using the historical highest individual federal marginal
income tax rates and do not reflect the impact of state and local taxes. Actual
after-tax returns depend on an investor’s tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold
their Fund shares through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
Investment
Advisor and Portfolio Managers
Principal
Global Investors, LLC
•
Matt
Minnetian (since 2020), Portfolio Manager
Purchase
and Sale of Fund Shares
The
Fund issues and redeems Shares at net asset value (“NAV”) only with authorized
participants ("APs") who have entered into agreements with the Fund’s
distributor and only in blocks of 50,000 Shares (each block of Shares is called
a "Creation Unit"), or multiples thereof ("Creation Unit Aggregations"), in
exchange for the deposit or delivery of a basket of securities that the Fund
specifies each day. Except when aggregated in Creation Units, the Shares are not
redeemable securities of the Fund. Typically, the basket of assets will be made
up of securities, but may include a cash component. (See "Purchase and
Redemption of Creation Units" in the Statement of Additional Information for
more information.)
Shares
of the Fund are listed for trading on NYSE Arca, Inc. Individual Shares may only
be bought and sold in the secondary market through a broker or dealer at a
market price. Because Shares trade at market prices rather than NAV, Shares may
trade at prices greater than NAV (at a premium), at NAV, or less than NAV (at a
discount). An investor may incur costs attributable to the difference between
the highest price a buyer is willing to pay to purchase Shares (bid) and the
lowest price a seller is willing to accept for Shares (ask) when buying or
selling Shares on the secondary market (the bid-ask spread).
You
can access recent information, including information on the Fund’s net asset
value, market price, premiums and discounts, and bid-ask spreads at
www.principaletfs.com.
Tax
Information
The
Fund’s distributions you receive are generally subject to federal income tax as
ordinary income or capital gain and may also be subject to state and local
taxes, unless you are tax-exempt or your account is tax-deferred in which case
your distributions would be taxed when withdrawn from the tax-deferred account.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
PRINCIPAL
MILLENNIALS ETF
Objective:
The Fund seeks to provide investment results that
closely correspond, before expenses, to the performance of the Nasdaq Global
Millennial Opportunity Index (the "Index").
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 or the example below.
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
|
|
|
|
|
|
Management
Fees |
0.45% |
Other
Expenses |
—% |
Total
Annual Fund Operating Expenses (1) |
0.45% |
(1)
The
investment management agreement (the “Management Agreement”) between the Fund
and Principal Global Investors, LLC (“PGI”) provides that, for the duration of
the Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan (if or
when such fees are imposed), brokerage commissions and other expenses connected
to the execution of portfolio transactions, interest expense, taxes, acquired
fund fees and expenses, litigation expenses and other extraordinary
expenses.
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. The Example also assumes that your investment has a 5% return each
year and that the Fund’s operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal
Millennials ETF |
$46 |
$144 |
$252 |
$567 |
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 Fund
shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the example, affect the Fund’s performance.
During the most recent fiscal year, the Fund's portfolio turnover rate was 47.4%
of the average value of its portfolio.
Principal
Investment Strategies
Under
normal circumstances, the Fund invests at least 80% of its net assets, plus any
borrowings for investment purposes, in equity securities of companies that
compose the Index at the time of purchase. The Index uses a quantitative model
designed to identify equity securities of companies in the Nasdaq Global Index
(the "Parent Index") that are impacted by the spending and lifestyle activities
of the Millennial generation, which refers to people born from 1980 to the
mid-2000s. The Index may include U.S. and foreign (including emerging market)
securities. The Index may include equity securities of different market
capitalizations (small, medium, or large) and styles (growth or value) and is
weighted based upon market capitalization and exposure to Millennials. Market
segments with the greatest Millennial exposure are likely to include, without
limitation, consumer goods (including fashion and apparel), social media and
e-commerce, and digital media and technology.
To
be eligible for the Index, a security must be a component of the Parent Index.
However, an exchange-listed security that is not a component of the Parent Index
may be eligible if it otherwise meets all of the eligibility criteria. Each
security's exposure to Millennials is determined using a proprietary, multi-step
research process. Each company is identified as having low, medium, or high
exposure to Millennials based on the materiality of the company's exposure to
Millennial-related themes and the potential role of Millennials in driving
long-term growth. To be eligible for the Index, a security must have high or
medium exposure to Millennials. "Medium exposure" means that Millennials-related
products, technologies, services and solutions are an important factor of the
company's business model, strategy and research and development, and are
material to sales and/or growth. "High exposure" means that Millennials-related
products, technologies, services and solutions are core to the company's
business model, strategy and research and development, and are material to sales
and/or growth. Securities of companies having high exposure to Millennials
receive 70% of the weight of the index, and securities of companies having
medium exposure to Millennials receive 30% of the weight of the index.
The
Index is rebalanced annually. Additionally, throughout the year securities that
become ineligible for the Index are removed and not replaced. The Fund will make
corresponding changes to its portfolio shortly after Index changes are made
public. As of June 30, 2021, the Index included 131 components, and the Parent
Index included 9,003 components. More detailed information about the Index
methodology is provided in the prospectus under Underlying Indices.
The
Fund employs a passive investment approach designed to attempt to track the
performance of the Index. In seeking its objective, the Fund typically employs a
"full replication" strategy which involves investing in all the securities that
make up the Index, in the same approximate proportions as the Index. The Fund
can, however, use a “sampling” methodology to purchase a subset of the
securities in the Index in an effort to hold a portfolio of securities with
generally the same risk and return characteristics of the Index. The Fund can
also invest in securities not included in the Index that the advisor believes
will help the fund track the Index.
The
Fund will not concentrate its investments (invest more than 25% of its assets)
in a particular industry except to the extent the Index is so concentrated. As
of June 30, 2021, the Fund’s investments were concentrated in the media and
entertainment industry and the retailing industry, and the Fund invested
significantly in the communication services sector.
Principal
Risks
The
value of your investment in the Fund changes with the value of the Fund's
investments. Many factors affect that value, and it is possible to lose money by
investing in the Fund. An investment in the Fund is not a deposit of a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The principal risks of investing in the Fund are listed
below in alphabetical order and not in order of significance.
Emerging
Markets Risk. Investments
in emerging markets may have more risk than those in developed markets because
the emerging markets are less developed and more illiquid. Emerging markets can
also be subject to increased social, economic, regulatory, and political
uncertainties and can be extremely volatile. The U.S. Securities and Exchange
Commission, the U.S. Department of Justice, and other U.S. authorities may be
limited in their ability to pursue bad actors in emerging markets, including
with respect to fraud.
Equity
Securities Risk. A
variety of factors can negatively impact the value of equity securities held by
a fund, including a decline in the issuer’s financial condition, unfavorable
performance of the issuer's sector or industry, or changes in response to
overall market and economic conditions. A fund's principal market segment(s)
(such as market capitalization or style) may underperform other market segments
or the equity markets as a whole.
•Growth
Style Risk.
Growth investing entails that risk that if growth companies do not increase
their earnings at a rate expected by investors, the market price of their stock
may decline significantly, even if earnings show an absolute increase. Growth
company stocks also typically lack the dividend yield that can lessen price
declines in market downturns.
•
Smaller
Companies Risk. Investments
in smaller companies may involve greater risk and price volatility than
investments in larger, more mature companies. Smaller companies may have limited
product lines, markets or financial resources, lack the competitive strength of
larger companies, have less experienced managers or depend on a few key
employees. Their securities often are less widely held and trade less frequently
and in lesser quantities, and their market prices often fluctuate more, than
securities of larger companies.
•Value
Style Risk. Value
investing entails the risk that value stocks may continue to be undervalued by
the market for extended periods, including the entire period during which the
stock is held by a fund, or the events that would cause the stock price to
increase may not occur as anticipated or at all. Moreover, a stock that appears
to be undervalued actually may be appropriately priced at a low level and
therefore would not be profitable for the fund.
Foreign
Currency Risk. Risks
of investing in securities denominated in, or that trade in, foreign (non-U.S.)
currencies include changes in foreign exchange rates and foreign exchange
restrictions.
Foreign
Securities Risk.
The risks of foreign securities include loss of value as a result of: political
or economic instability; nationalization, expropriation or confiscatory
taxation; settlement delays; and limited government regulation (including less
stringent reporting, accounting, and disclosure standards than are required of
U.S. companies).
Index
Fund Risk.
Index funds use a passive investment approach and generally do not attempt to
manage market volatility, use defensive strategies, or reduce the effect of any
long-term periods of poor investment performance. Therefore, the Fund may hold
securities that present risks that an investment advisor researching individual
securities might seek to avoid. An index fund has operating and other expenses
while an index does not. As a result, over time, index funds tend to
underperform the index. The correlation between fund performance and index
performance may also be affected by the type of passive investment approach used
by a fund (sampling or replication), changes in securities markets, changes in
the composition of the index, and the timing of purchases and sales of fund
shares. Errors or delays in compiling or rebalancing the Index may impact the
performance of the Fund and increase transaction costs.
Industry
and Sector Risks Related to Investing in Companies with Millennial
Exposure. The
Fund invests in companies with millennial exposure, which are likely to include
companies involved in producing or distributing clothing and apparel, food
(including restaurants), and consumer staples, as well as companies involved in
the provision of social networks and social media, digital media, live events
and entertainment, travel and transportation services, financial services and
investments, housing and housing services and educational services. Such
companies may be affected by changes in consumers’ disposable income, consumer
preferences, social trends and marketing campaigns. Millennial companies
generally face a high degree of competition and potentially rapid product
obsolescence. The customers and/or suppliers of millennial companies may be
concentrated in a particular country, region or industry. Any adverse event
affecting one of these countries, regions or industries could have a negative
impact on millennial companies. Millennial companies may participate in
monopolistic practices that could make them subject to higher levels of
regulatory scrutiny and/or potential break ups in the future, which could
severely impact the viability of these companies.
Industry
Concentration Risk. A
fund that concentrates investments in a particular industry or group of
industries has greater exposure than other funds to market, economic and other
factors affecting that industry or group of industries.
•
Communication
Services Sector Risks .
Companies in the communications sector may be affected by industry competition,
substantial capital requirements, government regulation, cyclical revenues and
earnings, obsolescence of communications products and services due to
technological advancement, a potential decrease in the discretionary income of
targeted individuals, and changing consumer tastes and interests.
•
Consumer
Goods and Consumer Services Sectors Risk .
The Fund invests in securities of companies in the consumer services and
consumers goods sectors to the extent the Index is composed of such securities.
Such companies are particularly subject to risks related to performance of the
overall global economy, interest rates, competition, government regulation, and
consumer confidence. Success depends heavily on disposable income and consumer
spending, and is also impacted by consumer interest and marketing campaigns.
Companies in these sectors may be subject to severe competition, which may have
an adverse impact on their profitability. Changes in demographics and consumer
tastes can affect the demand for, and success of, consumer goods and
services
in the marketplace.
•
Media
and Entertainment Industries Risk .
Companies engaged in the design, production or distribution of goods or services
for the media industry may become obsolete quickly. Media companies are subject
to risks that include cyclical revenues and earnings, a decrease in the
discretionary income of targeted individuals, changing consumer tastes and
interests, fierce competition in the industry, and the potential for increased
government regulation. Additionally, intellectual property rights are very
important to many media companies, and the expiration of intellectual property
rights or other events that adversely affect a media company’s intellectual
property rights may materially and adversely affect the value of its
securities.
Market
Trading Risks. The
Fund faces numerous market trading risks, including the potential lack of an
active market for Fund shares, losses from trading in secondary markets, and
disruption to the activities of market makers, authorized participants, or other
participants and in the creation/redemption process of the Fund. ANY OF THESE
FACTORS MAY LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO
NAV.
Redemption
and Large Transaction Risk. Ownership
of the fund's shares may be concentrated in one or a few large investors (such
as funds of funds, institutional investors, and asset allocation programs) that
may redeem or purchase shares in large quantities. These transactions may cause
the fund to sell securities to meet redemptions or to invest additional cash at
times it would not otherwise do so, which may result in increased transaction
costs, increased expenses, changes to expense ratios, and adverse effects to
fund performance. Such transactions may also accelerate the realization of
taxable income if sales of portfolio securities result in gains.
Performance
The
following information provides some indication of the risks of investing in the
Fund. Past performance (before and after taxes) is not necessarily an indication
of how the Fund will perform in the future. You may get updated performance
information online at www.principaletfs.com.
The
bar chart shows the investment returns of the Fund’s shares for each full
calendar year of operations for 10 years (or, if shorter, the life of the Fund).
The table shows for the last one, five, and ten calendar year periods (or, if
shorter, the life of the Fund), how the Fund’s average annual total returns
compare with those of one or more broad measures of market performance.
Life
of Fund returns are measured from the date the Fund's shares were first sold
(August 19, 2016).
Total
Returns as of December 31 (1)
|
|
|
|
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
2020 |
35.13% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q1
2020 |
(23.30)% |
(1)
The
year-to-date return as of June 30, 2021 is 15.00%
|
|
|
|
|
|
|
|
|
Average
Annual Total Returns (Based on NAV)
For
the periods ended December 31, 2020 |
|
1 Year |
Life
of Fund |
Return
Before Taxes |
41.00% |
22.19% |
Return
After Taxes on Distributions |
40.53% |
21.91% |
Return
After Taxes on Distributions and Sale of Fund Shares |
24.23% |
17.95% |
Nasdaq
Global Millennial Opportunity Index (NTR) (reflects withholding taxes on
foreign dividends, but no deduction for fees, expenses, or other
taxes) |
41.67% |
22.46% |
After-tax
returns are calculated using the historical highest individual federal marginal
income tax rates and do not reflect the impact of state and local taxes. Actual
after-tax returns depend on an investor’s tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold
their Fund shares through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
Investment
Advisor and Portfolio Managers
Principal
Global Investors, LLC
•Jeffrey
A. Schwarte (since 2016), Portfolio Manager
•Aaron
J. Siebel (since 2020), Portfolio Manager
Purchase
and Sale of Fund Shares
The
Fund issues and redeems Shares at net asset value (“NAV”) only with authorized
participants ("APs") who have entered into agreements with the Fund’s
distributor and only in blocks of 50,000 Shares (each block of Shares is called
a "Creation Unit"), or multiples thereof ("Creation Unit Aggregations"), in
exchange for the deposit or delivery of a basket of securities that the Fund
specifies each day. Except when aggregated in Creation Units, the Shares are not
redeemable securities of the Fund. Typically, the basket of assets will be made
up of securities, but may include a cash component. (See "Purchase and
Redemption of Creation Units" in the Statement of Additional Information for
more information.)
Shares
of the Fund are listed for trading on The Nasdaq Stock Market LLC. Individual
Shares may only be bought and sold in the secondary market through a broker or
dealer at a market price. Because Shares trade at market prices rather than NAV,
Shares may trade at prices greater than NAV (at a premium), at NAV, or less than
NAV (at a discount). An investor may incur costs attributable to the difference
between the highest price a buyer is willing to pay to purchase Shares (bid) and
the lowest price a seller is willing to accept for Shares (ask) when buying or
selling Shares on the secondary market (the bid-ask spread).
You
can access recent information, including information on the Fund’s net asset
value, market price, premiums and discounts, and bid-ask spreads at
www.principaletfs.com.
Tax
Information
The
Fund’s distributions you receive are generally subject to federal income tax as
ordinary income or capital gain and may also be subject to state and local
taxes, unless you are tax-exempt or your account is tax-deferred in which case
your distributions would be taxed when withdrawn from the tax-deferred
account.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
PRINCIPAL
QUALITY ETF
Objective:
The Fund seeks to provide investment results that
closely correspond, before expenses, to the performance of the Nasdaq US Price
Setters Index (the "Index").
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 or the example below.
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
|
|
|
|
|
|
Management
Fees (1) |
0.15% |
Other
Expenses |
—% |
Total
Annual Fund Operating Expenses (2) |
0.15% |
(1)
Fees have been restated to reflect current fees.
(2)
The investment management agreement (the “Management Agreement”) between the
Fund and Principal Global Investors, LLC (“PGI”) provides that, for the duration
of the Management Agreement, PGI will pay all operating expenses of the Fund,
except the Management Fee, payments made under each Series 12b-1 plan (if or
when such fees are imposed), brokerage commissions and other expenses connected
to the execution of portfolio transactions, interest expense, taxes, acquired
fund fees and expenses, litigation expenses and other extraordinary
expenses.
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. The Example also assumes that your investment has a 5% return each
year and that the Fund’s operating expenses remain the same. The calculation of
costs takes into account any applicable contractual fee waivers and/or expense
reimbursements for the period noted in the table above. Although your actual
costs may be higher or lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal
Quality ETF |
$15 |
$48 |
$85 |
$192 |
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 Fund
shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the example, affect the Fund’s performance.
During the most recent fiscal year, the Fund's portfolio turnover rate was
103.7% of the average value of its portfolio.
Principal
Investment Strategies
Under
normal circumstances, the Fund invests at least 80% of its net assets, plus any
borrowings for investment purposes, in equity securities of companies that
compose the Index at the time of purchase. The Index uses a quantitative model
designed to identify equity securities of mid- to large-capitalization companies
in the Nasdaq US Large Mid Cap Index (the "Parent Index") that exhibit higher
quality, growth potential, and pricing power. "Pricing power" refers to the
extent to which a company can raise the prices of its products without reducing
the demand for them.
To
be eligible for the Index, a security must be a component of the Parent Index
and must be a top 550 name by market capitalization. Securities are ranked based
upon eleven factors that include calculations based on earnings per share
("EPS") growth, operating margin, operating margin growth, return volatility,
sales growth, return on equity, and earning quality. The average of the 11
factor scores is taken to create one score used to rank the securities. The top
150 securities by final rank are selected. The Index employs a modified equal
dollar weighting methodology with those in the higher ranking groups receiving
relatively more weight.
The
Index is rebalanced annually. Additionally, throughout the year securities that
become ineligible for the Index are removed and not replaced. The Fund will make
corresponding changes to its portfolio shortly after Index changes are made
public. As of June 30, 2021, the Index included 148 components, and the Parent
Index included 974 components. More detailed information about the Index
methodology is provided in the prospectus under Underlying Indices.
The
Fund employs a passive investment approach designed to attempt to track the
performance of the Index. In seeking its objective, the Fund typically employs a
"full replication" strategy which involves investing in all the securities that
make up the Index, in the same approximate proportions as the Index. The Fund
can, however, use a “sampling” methodology to purchase a subset of the
securities in the Index in an effort to hold a portfolio of securities with
generally the same risk and return characteristics of the Index. The Fund can
also purchase securities not included in the Index that the advisor believes
will help the fund track the Index.
The
Fund will not concentrate its investments (invest more than 25% of its assets)
in a particular industry except to the extent the Index is so concentrated. Due
to the composition of the Index, the Fund invested significantly in one or more
industries within the healthcare sector as of June 30, 2021. The Fund’s
strategies may result in the active and frequent trading of the Fund’s portfolio
securities.
Principal
Risks
The
value of your investment in the Fund changes with the value of the Fund's
investments. Many factors affect that value, and it is possible to lose money by
investing in the Fund. An investment in the Fund is not a deposit of a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The principal risks of investing in the Fund are listed
below in alphabetical order and not in order of significance.
Equity
Securities Risk.
A variety of factors can negatively impact the value of equity securities held
by a fund, including a decline in the issuer’s financial condition, unfavorable
performance of the issuer's sector or industry, or changes in response to
overall market and economic conditions. A fund's principal market segment(s)
(such as market capitalization or style) may underperform other market segments
or the equity markets as a whole.
•Growth
Style Risk. Growth
investing entails that risk that if growth companies do not increase their
earnings at a rate expected by investors, the market price of their stock may
decline significantly, even if earnings show an absolute increase. Growth
company stocks also typically lack the dividend yield that can lessen price
declines in market downturns.
•Medium
Market Capitalization Companies.
Investments in medium sized companies may involve greater risk and price
volatility than investments in larger, more mature companies.
•Value
Style Risk. Value
investing entails the risk that value stocks may continue to be undervalued by
the market for extended periods, including the entire period during which the
stock is held by a fund, or the events that would cause the stock price to
increase may not occur as anticipated or at all. Moreover, a stock that appears
to be undervalued actually may be appropriately priced at a low level and
therefore would not be profitable for the fund.
Healthcare
Sector Risk. A
fund that invests in securities of companies in the healthcare sector (which
includes companies involved in several industries, including biotechnology
research and production, drugs and pharmaceuticals and health care facilities
and services) is subject to the direct risks of investing in such companies.
These companies are subject to extensive competition (due to, among others,
generic drug sales or the loss of patent protection), product liability
litigation and increased government regulation. Research and development costs
of bringing new drugs to market are substantial, and there is no guarantee that
a proposed product will ever come to market. Such companies are heavily
dependent on patent and intellectual property rights, the loss or impairment of
which may adversely affect profitability. Healthcare facility operators may be
affected by the demand for services, efforts by government or insurers to limit
rates, restriction of government financial assistance and competition from other
providers.
High
Portfolio Turnover Risk. High
portfolio turnover (more than 100%) caused by the active and frequent trading
portfolio securities may result in accelerating the realization of taxable gains
and losses, lower fund performance, and increased brokerage costs.
Index
Fund Risk. Index
funds use a passive investment approach and generally do not attempt to manage
market volatility, use defensive strategies, or reduce the effect of any
long-term periods of poor investment performance. Therefore, the Fund may hold
securities that present risks that an investment advisor researching individual
securities might seek to avoid. An index fund has operating and other expenses
while an index does not. As a result, over time, index funds tend to
underperform the index. The correlation between fund performance and index
performance may also be affected by the type of passive investment approach used
by a fund (sampling or replication), changes in securities markets, changes in
the composition of the index, and the timing of purchases and sales of fund
shares. Errors or delays in compiling or rebalancing the Index may impact the
performance of the Fund and increase transaction costs.
Industry
Concentration Risk. A
fund that concentrates investments in a particular industry or group of
industries has greater exposure than other funds to market, economic and other
factors affecting that industry or group of industries.
Market
Trading Risks. The
Fund faces numerous market trading risks, including the potential lack of an
active market for Fund shares, losses from trading in secondary markets, and
disruption to the activities of market makers, authorized participants, or other
participants and in the creation/redemption process of the Fund. ANY OF THESE
FACTORS MAY LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO
NAV.
Redemption
and Large Transaction Risk. Ownership
of the fund's shares may be concentrated in one or a few large investors (such
as funds of funds, institutional investors, and asset allocation programs) that
may redeem or purchase shares in large quantities. These transactions may cause
the fund to sell securities to meet redemptions or to invest additional cash at
times it would not otherwise do so, which may result in increased transaction
costs, increased expenses, changes to expense ratios, and adverse effects to
fund performance. Such transactions may also accelerate the realization of
taxable income if sales of portfolio securities result in gains.
Performance
The
following information provides some indication of the risks of investing in the
Fund. Past performance (before and after taxes) is not necessarily an indication
of how the Fund will perform in the future. You may get updated performance
information online at www.principaletfs.com.
The
bar chart shows the investment returns of the Fund’s shares for each full
calendar year of operations for 10 years (or, if shorter, the life of the Fund).
The table shows for the last one, five, and ten calendar year periods (or, if
shorter, the life of the Fund), how the Fund’s average annual total returns
compare with those of one or more broad measures of market performance.
Life
of Fund returns are measured from the date the Fund's shares were first sold
(March 21, 2016).
Total
Returns as of December 31 (1)
|
|
|
|
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
2020 |
20.69% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q1
2020 |
(19.38)% |
(1)
The
year-to-date return as of June 30, 2021 is 12.76%.
|
|
|
|
|
|
|
|
|
Average
Annual Total Returns (Based on NAV)
For
the periods ended December 31, 2020 |
|
1 Year |
Life
of Fund |
Return
Before Taxes(1) |
16.35% |
15.78% |
Return
After Taxes on Distributions |
15.75% |
15.35% |
Return
After Taxes on Distributions and Sale of Fund Shares |
9.62% |
12.57% |
Nasdaq
US Price Setters Index (reflects no deductions for fees, expenses or
taxes) |
13.26% |
15.48% |
(1)
During
2020, the Fund experienced a one-time gain of approximately $1.13 per
share as the result of a one-time infusion of capital by the Manager due
to an operational error by a third party. If such gain had not been
recognized, the total return amounts expressed in the preceding sentence
would have been lower. |
After-tax
returns are calculated using the historical highest individual federal marginal
income tax rates and do not reflect the impact of state and local taxes. Actual
after-tax returns depend on an investor’s tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold
their Fund shares through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
Investment
Advisor and Portfolio Managers
Principal
Global Investors, LLC
•Jeffrey
A. Schwarte (since 2016), Portfolio Manager
•Aaron
J. Siebel (since 2020), Portfolio Manager
Purchase
and Sale of Fund Shares
The
Fund issues and redeems Shares at net asset value (“NAV”) only with authorized
participants ("APs") who have entered into agreements with the Fund’s
distributor and only in blocks of 50,000 Shares (each block of Shares is called
a "Creation Unit"), or multiples thereof ("Creation Unit Aggregations"), in
exchange for the deposit or delivery of a basket of securities that the Fund
specifies each day. Except when aggregated in Creation Units, the Shares are not
redeemable securities of the Fund. Typically, the basket of assets will be made
up of securities, but may include a cash component. (See "Purchase and
Redemption of Creation Units" in the Statement of Additional Information for
more information.)
Shares
of the Fund are listed for trading on The Nasdaq Stock Market LLC. Individual
Shares may only be bought and sold in the secondary market through a broker or
dealer at a market price. Because Shares trade at market prices rather than NAV,
Shares may trade at prices greater than NAV (at a premium), at NAV, or less than
NAV (at a discount). An investor may incur costs attributable to the difference
between the highest price a buyer is willing to pay to purchase Shares (bid) and
the lowest price a seller is willing to accept for Shares (ask) when buying or
selling Shares on the secondary market (the bid-ask spread).
You
can access recent information, including information on the Fund’s net asset
value, market price, premiums and discounts, and bid-ask spreads at
www.principaletfs.com.
Tax
Information
The
Fund’s distributions you receive are generally subject to federal income tax as
ordinary income or capital gain and may also be subject to state and local
taxes, unless you are tax-exempt or your account is tax-deferred in which case
your distributions would be taxed when withdrawn from the tax-deferred
account.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
PRINCIPAL
SPECTRUM PREFERRED SECURITIES ACTIVE ETF
Objective: The
Fund seeks to provide current income.
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 or the example below.
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
|
|
|
|
|
|
Management
Fees |
0.55% |
Other
Expenses |
—% |
Total
Annual Fund Operating Expenses (1) |
0.55% |
(1)
The investment management agreement (the “Management Agreement”) between the
Fund and Principal Global Investors, LLC (“PGI”) provides that, for the duration
of the Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan (if or
when such fees are imposed), brokerage commissions and other expenses connected
to the execution of portfolio transactions, interest expense, taxes, acquired
fund fees and expenses, litigation expenses and other extraordinary
expenses.
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.
The Example also assumes that your investment has a 5% return each year and that
the Fund’s operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal
Spectrum Preferred Securities Active ETF |
$56 |
$176 |
$307 |
$689 |
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 Fund
shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the example, affect the Fund’s performance.
During the most recent fiscal year, the Fund's portfolio turnover rate was 41.9%
of the average value of its portfolio.
Principal
Investment Strategies
Under
normal circumstances, the Fund invests at least 80% of its net assets, plus any
borrowings for investment purposes, in preferred securities at the time of
purchase. Examples of preferred securities include preferred stock, certain
depositary receipts, and various types of junior subordinated debt (such debt
generally includes the contractual ability to defer payment of interest without
accelerating an immediate default event). In particular, the Fund focuses on
preferred securities known as “$1,000 par preferred securities” which are issued
in large, institutional lot sizes, typically by U.S. and non-U.S. financial
services companies (i.e., banking, insurance and commercial finance companies)
and other corporations. Preferred securities generally pay fixed and floating
rate distributions and are junior to all forms of the company's senior debt, but
may have "preference" over common stock in the payment of distributions and the
liquidation of a company's assets. The Fund may invest its assets in below
investment grade preferred securities (sometimes called “high yield” or "junk")
which are rated at the time of purchase Ba1 or lower by Moody's Investors
Service, Inc. (“Moody’s”) and BB+ or lower by Standard & Poor’s Rating
Service (“S&P”) (if a security is rated differently by the rating
agencies, the highest rating is used; if the security has been rated by only one
of those agencies, that rating will determine whether the security is below
investment grade; If the security has not been rated by either of those
agencies, the Sub-Advisor will determine whether the security is of a quality
comparable to those rated below investment grade).
The
Fund concentrates its investments (invests more than 25% of its net assets) in
securities in one or more industries (i.e., banking, insurance and commercial
finance) within the financial services sector.
Principal
Risks
The
value of your investment in the Fund changes with the value of the Fund's
investments. Many factors affect that value, and it is possible to lose money by
investing in the Fund. An investment in the Fund is not a deposit of a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The principal risks of investing in the Fund are listed
below in alphabetical order and not in order of significance.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate, credit quality, and
liquidity risks. The market value of fixed-income securities generally declines
when interest rates rise, and increased interest rates may adversely affect the
liquidity of certain fixed-income securities. Moreover, an issuer of
fixed-income securities could default on its payment obligations due to
increased interest rates or for other reasons.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
High
Yield Securities Risk. High
yield fixed-income securities (commonly referred to as "junk bonds") are subject
to greater credit quality risk than higher rated fixed-income securities and
should be considered speculative.
Industry
Concentration Risk.
A
fund that concentrates investments in a particular industry or group of
industries has greater exposure than other funds to market, economic and other
factors affecting that industry or group of industries.
•Financial
Services. A
fund concentrating in financial services companies may be more susceptible to
adverse economic or regulatory occurrences affecting financial services
companies. Financial companies may be adversely affected in certain market
cycles, including periods of rising interest rates, which may restrict the
availability and increase the cost of capital, and declining economic
conditions, which may cause credit losses due to financial difficulties of
borrowers. Because many types of financial companies are especially vulnerable
to these economic cycles, the Fund’s investments in these companies may lose
significant value during such periods.
Liquidity
Risk. A
Fund is exposed to liquidity risk when trading volume, lack of a market maker,
or legal restrictions impair the Fund's ability to sell particular securities or
close derivative positions at an advantageous price. Funds with principal
investment strategies that involve certain fixed-income securities, securities
of companies with smaller market capitalizations, foreign securities,
derivatives, high yield bonds and bank loans or securities with substantial
market and/or credit risk tend to have the greatest exposure to liquidity
risk.
Market
Trading Risks. The
Fund faces numerous market trading risks, including the potential lack of an
active market for Fund shares, losses from trading in secondary markets, and
disruption to the activities of market makers, authorized participants, or other
participants and in the creation/redemption process of the Fund. ANY OF THESE
FACTORS MAY LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO
NAV.
Portfolio
Duration Risk. Portfolio
duration is a measure of the expected life of a fixed-income security and its
sensitivity to changes in interest rates. The longer a fund's average portfolio
duration, the more sensitive the fund will be to changes in interest rates,
which means funds with longer average portfolio durations may be more volatile
than those with shorter durations.
Preferred
Securities Risk. Because
preferred securities have a lower priority claim on assets or earnings than
senior bonds and other debt instruments in a company's capital structure, they
are subject to greater credit and liquidation risk than more senior debt
instruments. In addition, preferred securities are subject to other risks, such
as limited or no voting rights, deferring or skipping distributions, interest
rate risk, and redeeming the security prior to any stated maturity
date.
Redemption
and Large Transaction Risk. Ownership
of the fund's shares may be concentrated in one or a few large investors (such
as funds of funds, institutional investors, and asset allocation programs) that
may redeem or purchase shares in large quantities. These transactions may cause
the fund to sell securities to meet redemptions or to invest additional cash at
times it would not otherwise do so, which may result in increased transaction
costs, increased expenses, changes to expense ratios, and adverse effects to
fund performance. Such transactions may also accelerate the realization of
taxable income if sales of portfolio securities result in gains.
Performance
The
following information provides some indication of the risks of investing in the
Fund. Past performance (before and after taxes) is not necessarily an indication
of how the Fund will perform in the future. You may get updated performance
information online at www.principaletfs.com.
The
bar chart shows the investment returns of the Fund’s shares for each full
calendar year of operations for 10 years (or, if shorter, the life of the Fund).
The table shows for the last one, five, and ten calendar year periods (or, if
shorter, the life of the Fund), how the Fund’s average annual total returns
compare with those of one or more broad measures of market performance.
Life
of Fund returns are measured from the date the Fund's shares were first sold
(July 10, 2017).
Total
Returns as of December 31 (1)
|
|
|
|
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
2020 |
12.14% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q1
2020 |
(12.33)% |
(1)
The
year-to-date return as of June 30, 2021 is 1.96%.
|
|
|
|
|
|
|
|
|
Average
Annual Total Returns (Based on NAV)
For
the periods ended December 31, 2020 |
|
1 Year |
Life
of Fund |
Return
Before Taxes |
7.60% |
5.90% |
Return
After Taxes on Distributions |
5.61% |
4.09% |
Return
After Taxes on Distributions and Sale of Fund Shares |
4.42% |
3.86% |
ICE
BofA Merrill Lynch U.S. Investment Grade Institutional Capital Securities
Index (reflects no deductions for fees, expenses or taxes) |
8.21% |
6.70% |
After-tax
returns are calculated using the historical highest individual federal marginal
income tax rates and do not reflect the impact of state and local taxes. Actual
after-tax returns depend on an investor’s tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold
their Fund shares through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
Investment
Advisor
Principal
Global Investors, LLC
Sub-Advisor
and Portfolio Managers
Spectrum
Asset Management, Inc.
•Roberto
Giangregorio (since 2017), Portfolio Manager
•L.
Phillip Jacoby, IV (since 2017), Chief Investment Officer and Portfolio
Manager
•Manu
Krishnan (since 2017), Portfolio Manager
•Mark
A. Lieb (since 2017), President and Chief Executive Officer
•
Satomi
Yarnell (since 2021), Portfolio Manager
Purchase
and Sale of Fund Shares
The
Fund issues and redeems Shares at net asset value (“NAV”) only with authorized
participants ("APs") who have entered into agreements with the Fund’s
distributor and only in blocks of 50,000 Shares (each block of Shares is called
a "Creation Unit"), or multiples thereof ("Creation Unit Aggregations"), in
exchange for the deposit or delivery of a basket of securities that the Fund
specifies each day. Except when aggregated in Creation Units, the Shares are not
redeemable securities of the Fund. Typically, the basket of assets will be made
up of securities, but may include a cash component. (See "Purchase and
Redemption of Creation Units" in the Statement of Additional Information for
more information.)
Shares
of the Fund are listed for trading on NYSE Arca, Inc. Individual Shares may only
be bought and sold in the secondary market through a broker or dealer at a
market price. Because Shares trade at market prices rather than NAV, Shares may
trade at prices greater than NAV (at a premium), at NAV, or less than NAV (at a
discount). An investor may incur costs attributable to the difference between
the highest price a buyer is willing to pay to purchase Shares (bid) and the
lowest price a seller is willing to accept for Shares (ask) when buying or
selling Shares on the secondary market (the bid-ask spread).
You
can access recent information, including information on the Fund’s net asset
value, market price, premiums and discounts, and bid-ask spreads at
www.principaletfs.com.
Tax
Information
The
Fund’s distributions you receive are generally subject to federal income tax as
ordinary income or capital gain and may also be subject to state and local
taxes, unless you are tax-exempt or your account is tax-deferred in which case
your distributions would be taxed when withdrawn from the tax-deferred
account.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
PRINCIPAL
SPECTRUM TAX-ADVANTAGED DIVIDEND ACTIVE ETF
Objective:
The
Fund seeks to provide current income.
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 or the example below.
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
|
|
|
|
|
|
Management
Fees |
0.60% |
Other
Expenses |
—% |
Total
Annual Fund Operating Expenses (1) |
0.60% |
(1)
The
investment management agreement (the “Management Agreement”) between the Fund
and Principal Global Investors, LLC (“PGI”) provides that, for the duration of
the Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan (if or
when such fees are imposed), brokerage commissions and other expenses connected
to the execution of portfolio transactions, interest expense, taxes, acquired
fund fees and expenses, litigation expenses and other extraordinary
expenses.
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.
The Example also assumes that your investment has a 5% return each year and that
the Fund’s operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal
Spectrum Tax-Advantaged Dividend Active ETF |
$61 |
$192 |
$335 |
$750 |
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 Fund
shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the example, affect the Fund’s performance.
During the most recent fiscal year, the Fund's portfolio turnover rate was [ ]
of the average value of its portfolio.
Principal
Investment Strategies
Under
normal circumstances, the Fund invests at least 80% of its net assets, plus any
borrowings for investment purposes, in dividend-paying securities at the time of
purchase. Such securities include, without limitation, preferred securities and
capital securities of U.S. and non-U.S. issuers. The Fund invests significantly
in securities that, at the time of issuance, are eligible to pay dividends that
qualify for favorable U.S. federal income tax treatment, such as dividends
treated as “qualified dividend income” (“QDI”) and qualified dividends from real
estate investment trusts (“REITS”). However, the Fund also invests in securities
that are not eligible for such treatment.
Examples
of preferred securities in which the Fund invests include preferred stock,
certain depositary receipts, and various types of junior subordinated debt. Such
preferred securities generally pay fixed and floating rate distributions and are
junior to all forms of the company's senior debt, but may have "preference" over
common stock in the payment of distributions and the liquidation of a company's
assets. Capital securities are securities issued by financial institutions and
other corporate issuers for purposes of satisfying regulatory capital
requirements of obtaining agency credit. Examples of capital securities in which
the Fund invests include subordinated debt securities, certain preferred
securities, and contingent convertible securities (“Cocos”). Cocos are hybrid
debt securities typically issued by non-US banking institutions that have
contractual equity conversion or principal write-down features that are
triggered by regulatory capital thresholds or regulatory actions calling into
question the issuing banking institution’s continued viability as a
going-concern if the conversion trigger were not exercised. The Fund defines
"dividend-paying securities" to include preferred and capital securities that
make payments and distributions that are treated as dividends for U.S. federal
income tax purposes.
The
Fund invests in investment grade securities and in below investment grade
securities (sometimes called “high yield” or "junk"). The Fund is not managed to
a particular maturity or duration. The Fund concentrates its investments
(invests more than 25% of its net assets) in securities in one or more
industries (i.e., banking, insurance and commercial finance) within the
financial services sector.
Principal
Risks
The
value of your investment in the Fund changes with the value of the Fund's
investments. Many factors affect that value, and it is possible to lose money by
investing in the Fund. An investment in the Fund is not a deposit of a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The principal risks of investing in the Fund are listed
below in alphabetical order and not in order of significance.
Capital
Securities Risk.
In addition to the risks associated with other types of preferred securities and
fixed-income securities, investing in capital securities includes the risk that
the value of securities may decline in response to changes in legislation and
regulations applicable to financial institutions and financial markets,
increased competition, adverse changes in general or industry-specific economic
conditions, or unfavorable interest rates.
Contingent
Convertible Securities Risk.
In addition to the general risks associated with fixed-income securities and
convertible securities, the risks of investing in contingent convertible
securities (“CoCos”) include the risk that a CoCo may be written down, written
off or converted into an equity security when the issuer’s capital ratio falls
below a specified trigger level, or in a regulator’s discretion depending on the
regulator’s judgment about the issuer’s solvency prospects. Due to these
features, CoCos may have substantially greater risk than other securities in
times of financial stress. If the trigger level is breached, the issuer’s
decision to write down, write off or convert a CoCo may result in the fund's
complete loss on an investment in CoCos with no chance of recovery even if the
issuer remains in existence.
Dividend-Oriented
Stocks Risk.
Companies that have paid regular dividends to shareholders may decrease or
eliminate dividend payments in the future. For example, a sharp rise in interest
rates or economic downturn could cause a company to unexpectedly reduce or
eliminate its dividend. Additionally, the Fund’s performance during a broad
market advance could suffer because dividend-paying securities may not
experience the same capital appreciation as non-dividend paying
securities.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate, credit quality, and
liquidity risks. The market value of fixed-income securities generally declines
when interest rates rise, and increased interest rates may adversely affect the
liquidity of certain fixed-income securities. Moreover, an issuer of
fixed-income securities could default on its payment obligations due to
increased interest rates or for other reasons.
Foreign
Securities Risk.
The risks of foreign securities include loss of value as a result of: political
or economic instability; nationalization, expropriation or confiscatory
taxation; settlement delays; and limited government regulation (including less
stringent reporting, accounting, and disclosure standards than are required of
U.S. companies).
High
Yield Securities Risk.
High yield fixed-income securities (commonly referred to as "junk bonds") are
subject to greater credit quality risk than higher rated fixed-income securities
and should be considered speculative.
Industry
Concentration Risk.
A fund that concentrates investments in a particular industry or group of
industries has greater exposure than other funds to market, economic and other
factors affecting that industry or group of industries.
•Financial
Services.
A fund concentrating in financial services companies may be more susceptible to
adverse economic or regulatory occurrences affecting financial services
companies. Financial companies may be adversely affected in certain market
cycles, including periods of rising interest rates, which may restrict the
availability and increase the cost of capital, and declining economic
conditions, which may cause credit losses due to financial difficulties of
borrowers. Because many types of financial companies are especially vulnerable
to these economic cycles, the Fund’s investments in these companies may lose
significant value during such periods.
Market
Trading Risks.
The Fund faces numerous market trading risks, including the potential lack of an
active market for Fund shares, losses from trading in secondary markets, and
disruption to the activities of market makers, authorized participants, or other
participants and in the creation/redemption process of the Fund. ANY OF THESE
FACTORS MAY LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO
NAV.
Portfolio
Duration Risk.
Portfolio duration is a measure of the expected life of a fixed-income security
and its sensitivity to changes in interest rates. The longer a fund's average
portfolio duration, the more sensitive the fund will be to changes in interest
rates, which means funds with longer average portfolio durations may be more
volatile than those with shorter durations.
Preferred
Securities Risk.
Because preferred securities have a lower priority claim on assets or earnings
than senior bonds and other debt instruments in a company's capital structure,
they are subject to greater credit and liquidation risk than more senior debt
instruments. In addition, preferred securities are subject to other risks, such
as limited or no voting rights, deferring or skipping distributions, interest
rate risk, and redeeming the security prior to any stated maturity
date.
Real
Estate Investment Trusts ("REITs") Risk.
In addition to risks associated with investing in real estate securities, REITs
are dependent upon management skills, are not diversified, and are subject to
heavy cash flow dependency, risks of default by borrowers, and self-liquidation.
Investment in REITs also involves risks similar to risks of investing in small
market capitalization companies, such as limited financial resources, less
frequent and limited volume trading, and may be subject to more abrupt or
erratic price movements than larger company securities. A REIT could fail to
qualify for tax-free pass-through of income under the Internal Revenue Code.
Fund shareholders will indirectly bear their proportionate share of the expenses
of REITs in which the fund invests.
Real
Estate Securities Risk.
Investing in real estate securities subjects the fund to the risks associated
with the real estate market (which are similar to the risks associated with
direct ownership in real estate), including declines in real estate values, loss
due to casualty or condemnation, property taxes, interest rate changes,
increased expenses, cash flow of underlying real estate assets, regulatory
changes (including zoning, land use and rents), and environmental problems, as
well as to the risks related to the management skill and creditworthiness of the
issuer.
Redemption
and Large Transaction Risk.
Ownership of the fund's shares may be concentrated in one or a few large
investors (such as funds of funds, institutional investors, and asset allocation
programs) that may redeem or purchase shares in large quantities. These
transactions may cause the fund to sell securities to meet redemptions or to
invest additional cash at times it would not otherwise do so, which may result
in increased transaction costs, increased expenses, changes to expense ratios,
and adverse effects to fund performance. Such transactions may also accelerate
the realization of taxable income if sales of portfolio securities result in
gains.
Tax-Advantaged
Strategy Risk.
There can be no assurance as to the portion of the Fund’s distributions that
will qualify for favorable federal income tax treatment. The Fund may make
investments and pay dividends that are ineligible for favorable tax treatment or
that otherwise do not meet the requirements for such treatment, and shareholders
must satisfy certain requirements to take advantage of beneficial tax
treatment.
For
example, only certain individual and non-corporate taxpayers (and not corporate
and other certain taxpayers) are eligible for reduced income tax rates (0%-20%)
on QDI or to deduct up to 20% of qualified dividends from REITs (“QRD”).
Additionally, in order to benefit from QDI or QRD treatment, both the Fund and
eligible shareholders must meet holding period requirements. Some taxpayers
(including certain individuals, trusts, and estates) may be subject to an
additional 3.8% tax on QDI. Current regulations provide for favorable QRD
treatment only for dividends distributed during the 2018-2025 tax years.
Moreover,
the Internal Revenue Service may take a contrary position as to the tax
treatment of certain dividends. Federal income tax laws with respect to
qualified dividends or other favorable tax treatment may change, and any
applicable reduced income tax rate or deduction may change or be eliminated for
some or all taxpayers. Therefore, some or all of the Fund’s dividends may be
subject to ordinary income tax rates and/or may not qualify for any special
deduction under U.S. federal income tax laws. Any dividends made by the Fund
will also be subject to applicable state and local tax.
Because
the Fund makes investment decisions based in part on tax considerations, the
Fund’s pre-tax performance may be lower than the performance of similar funds
that are not tax-managed.
Performance
No
performance information is shown because the Fund has not yet had a calendar
year of performance. The Fund’s performance is benchmarked against the ICE BofA
Merrill Lynch 7% Constrained DRD Eligible Preferred Securities Index.
Performance information provides an indication of the risks of investing in the
Fund. Past performance (before and after taxes) is not necessarily an indication
of how the Fund will perform in the future. You may get updated performance
information online at www.principaletfs.com.
Investment
Advisor
Principal
Global Investors, LLC
Sub-Advisor
and Portfolio Managers
Spectrum
Asset Management, Inc.
•Fred
Diaz (since 2020), Portfolio Manager
•Roberto
Giangregorio (since 2020), Portfolio Manager
•L.
Phillip Jacoby, IV (since 2020), Chief Investment Officer and Portfolio
Manager
•Manu
Krishnan (since 2020), Portfolio Manager
•Mark
A. Lieb (since 2020), President and Chief Executive Officer
Purchase
and Sale of Fund Shares
The
Fund issues and redeems Shares at net asset value (“NAV”) only with authorized
participants ("APs") who have entered into agreements with the Fund’s
distributor and only in blocks of 50,000 Shares (each block of Shares is called
a "Creation Unit"), or multiples thereof ("Creation Unit Aggregations"), in
exchange for the deposit or delivery of a basket of securities that the Fund
specifies each day. Except when aggregated in Creation Units, the Shares are not
redeemable securities of the Fund. Typically, the basket of assets will be made
up of securities, but may include a cash component. (See "Purchase and
Redemption of Creation Units" in the Statement of Additional Information for
more information.)
Shares
of the Fund are listed for trading on NYSE Arca, Inc. Individual Shares may only
be bought and sold in the secondary market through a broker or dealer at a
market price. Because Shares trade at market prices rather than NAV, Shares may
trade at prices greater than NAV (at a premium), at NAV, or less than NAV (at a
discount). An investor may incur costs attributable to the difference between
the highest price a buyer is willing to pay to purchase Shares (bid) and the
lowest price a seller is willing to accept for Shares (ask) when buying or
selling Shares on the secondary market (the bid-ask spread).
You
can access recent information, including information on the Fund’s net asset
value, market price, premiums and discounts, and bid-ask spreads at
www.principaletfs.com.
Tax
Information
The
Fund’s distributions you receive are generally subject to federal income tax as
ordinary income or capital gain and may also be subject to state and local
taxes, unless you are tax-exempt or your account is tax-deferred in which case
your distributions would be taxed when withdrawn from the tax-deferred
account.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
PRINCIPAL
ULTRA-SHORT ACTIVE INCOME ETF
Objective:
The Fund seeks to provide current income.
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 or the example below.
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
|
|
|
|
|
|
Management
Fees |
0.18% |
Other
Expenses |
—% |
Total
Annual Fund Operating Expenses (1) |
0.18% |
(1)
The
investment management agreement (the “Management Agreement”) between the Fund
and Principal Global Investors, LLC (“PGI”) provides that, for the duration of
the Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan (if or
when such fees are imposed), brokerage commissions and other expenses connected
to the execution of portfolio transactions, interest expense, taxes, acquired
fund fees and expenses, litigation expenses and other extraordinary
expenses.
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. The Example also assumes that your investment has a 5% return each
year and that the Fund’s operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal
Ultra-Short Active Income ETF |
$18 |
$58 |
$101 |
$230 |
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 Fund
shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the example, affect the Fund’s performance.
During the most recent fiscal year, the Fund's portfolio turnover rate was 32.7%
of the average value of its portfolio.
Principal
Investment Strategies
The
Fund is an actively managed exchange-traded fund (“ETF”) that seeks to achieve
its investment objective by investing, under normal circumstances, at least 80%
of its net assets, plus any borrowings for investment purposes, in
investment-grade bonds and other fixed income securities. "Investment grade”
securities are rated at the time of purchase BBB- or higher by S&P Global
Ratings ("S&P Global") or Baa3 or higher by Moody's Investors Service, Inc.
("Moody's") or, if unrated, of comparable quality in the opinion of those
selecting such investments. If the security has been rated by only one of those
agencies, that rating will determine whether the security is investment grade.
The
Fund invests in fixed- and floating-rate securities. The Fund invests in foreign
securities, corporate securities, securities issued by the U.S. and foreign
governments and their agencies and instrumentalities, asset-backed securities
(securitized products), and commercial paper. The Fund concentrates (invests
more than 25% of its net assets) its investments in one or more industries
(i.e., banking, insurance and commercial finance) within the financial services
sector.
Under
normal circumstances, the Fund maintains an average effective maturity of three
years or less and an average portfolio duration of one year or less. The Fund is
not a money market fund and does not seek to maintain a stable net asset value
of $1.00 per share. The Fund actively trades securities.
Principal
Risks
The
value of your investment in the Fund changes with the value of the Fund's
investments. Many factors affect that value, and it is possible to lose money by
investing in the Fund. An investment in the Fund is not a deposit of a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The principal risks of investing in the Fund are listed
below in alphabetical order and not in order of significance.
Commercial
Paper Risk.
The value of the Fund’s investment in commercial paper, which is generally
unsecured, is susceptible to changes in interest rates and the issuer’s
financial condition or credit quality. Commercial paper is usually repaid
at maturity by the issuer from the proceeds of the issuance of
new commercial paper. As a result, investments in commercial paper are
subject to the risk that the issuer cannot issue enough new commercial paper to
satisfy its outstanding obligations. In addition, under certain
circumstances commercial paper may become illiquid or may suffer from
reduced liquidity.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate, credit quality, and
liquidity risks. The market value of fixed-income securities generally declines
when interest rates rise, and increased interest rates may adversely affect the
liquidity of certain fixed-income securities. Moreover, an issuer of
fixed-income securities could default on its payment obligations due to
increased interest rates or for other reasons.
Floating
Interest Rate Risk.
Floating interest rates vary with and are periodically adjusted to reflect
changes in a generally recognized base interest rate such as LIBOR (London
Interbank Offered Rate) or the prime rate. Securities with floating or variable
interest rates can be less sensitive to interest rate changes than securities
with fixed interest rates, but may decline in value if their coupon rates do not
reset as high, or as quickly, as comparable market interest rates, and generally
carry lower yields than fixed notes of the same maturity. Although floating rate
securities are less sensitive to interest rate risk than fixed-rate securities,
they are subject to credit risk and default risk, which could impair their
value.
Foreign
Securities Risk.
The risks of foreign securities include loss of value as a result of: political
or economic instability; nationalization, expropriation or confiscatory
taxation; settlement delays; and limited government regulation (including less
stringent reporting, accounting, and disclosure standards than are required of
U.S. companies).
Industry
Concentration Risk.
A fund that concentrates investments in a particular industry or group of
industries has greater exposure than other funds to market, economic and other
factors affecting that industry or group of industries.
•Financial
Services.
A fund concentrating in financial services companies may be more susceptible to
adverse economic or regulatory occurrences affecting financial services
companies. Financial companies may be adversely affected in certain market
cycles, including periods of rising interest rates, which may restrict the
availability and increase the cost of capital, and declining economic
conditions, which may cause credit losses due to financial difficulties of
borrowers. Because many types of financial companies are especially vulnerable
to these economic cycles, the Fund’s investments in these companies may lose
significant value during such periods.
Market
Trading Risks. The
Fund faces numerous market trading risks, including the potential lack of an
active market for Fund shares, losses from trading in secondary markets, and
disruption to the activities of market makers, authorized participants, or other
participants and in the creation/redemption process of the Fund. ANY OF THESE
FACTORS MAY LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO
NAV.
Portfolio
Duration Risk. Portfolio
duration is a measure of the expected life of a fixed-income security and its
sensitivity to changes in interest rates. The longer a fund's average portfolio
duration, the more sensitive the fund will be to changes in interest rates,
which means funds with longer average portfolio durations may be more volatile
than those with shorter durations.
Redemption
and Large Transaction Risk. Ownership
of the fund's shares may be concentrated in one or a few large investors (such
as funds of funds, institutional investors, and asset allocation programs) that
may redeem or purchase shares in large quantities. These transactions may cause
the fund to sell securities to meet redemptions or to invest additional cash at
times it would not otherwise do so, which may result in increased transaction
costs, increased expenses, changes to expense ratios, and adverse effects to
fund performance. Such transactions may also accelerate the realization of
taxable income if sales of portfolio securities result in gains.
Securitized
Products Risk.
Investments in securitized products are subject to risks similar to traditional
fixed income securities, such as credit, interest rate, liquidity, prepayment,
extension, and default risk, as well as additional risks associated with the
nature of the assets and the servicing of those assets. Unscheduled prepayments
on securitized products may have to be reinvested at lower rates. A reduction in
prepayments may increase the effective maturities of these securities, exposing
them to the risk of decline in market value over time (extension risk).
U.S.
Government Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S.
Government-Sponsored Securities Risk. Securities
issued by U.S. government-sponsored enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. government.
Performance
The
following information provides some indication of the risks of investing in the
Fund. Past performance (before and after taxes) is not necessarily an indication
of how the Fund will perform in the future. You may get updated performance
information online at www.principaletfs.com.
The
bar chart shows the investment returns of the Fund’s shares for each full
calendar year of operations for 10 years (or, if shorter, the life of the Fund).
The table shows for the last one, five, and ten calendar year periods (or, if
shorter, the life of the Fund), how the Fund’s average annual total returns
compare with those of one or more broad measures of market performance.
Life
of Fund returns are measured from the date the Fund's shares were first sold
(April 24, 2019).
Total
Returns as of December 31 (1)
|
|
|
|
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
2020 |
1.75% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q1
2020 |
(0.48)% |
(1)
The
year-to-date return as of June 30, 2021 is 0.17%
|
|
|
|
|
|
|
|
|
Average
Annual Total Returns (Based on NAV)
For
the periods ended December 31, 2020 |
|
1 Year |
Life
of Fund |
Return
Before Taxes |
1.67% |
2.11% |
Return
After Taxes on Distributions |
0.79% |
1.09% |
Return
After Taxes on Distributions and Sale of Fund Shares |
0.98% |
1.18% |
Bloomberg
U.S. 1-3 Month Treasury Bill Index |
0.54% |
1.18% |
After-tax
returns are calculated using the historical highest individual federal marginal
income tax rates and do not reflect the impact of state and local taxes. Actual
after-tax returns depend on an investor’s tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold
their Fund shares through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
Investment
Advisor and Portfolio Managers
Principal
Global Investors, LLC
•John
R. Friedl (since 2019), Portfolio Manager
•Scott
J. Peterson (since 2019), Portfolio Manager
Purchase
and Sale of Fund Shares
The
Fund issues and redeems Shares at net asset value (“NAV”) only with authorized
participants ("APs") who have entered into agreements with the Fund’s
distributor and only in blocks of 50,000 Shares (each block of Shares is called
a "Creation Unit"), or multiples thereof ("Creation Unit Aggregations"), in
exchange for the deposit or delivery of a basket of securities that the Fund
specifies each day. Except when aggregated in Creation Units, the Shares are not
redeemable securities of the Fund. Typically, the basket of assets will be made
up of securities, but may include a cash component. (See "Purchase and
Redemption of Creation Units" in the Statement of Additional Information for
more information.)
Shares
of the Fund are listed for trading on NYSE Arca, Inc. Individual Shares may only
be bought and sold in the secondary market through a broker or dealer at a
market price. Because Shares trade at market prices rather than NAV, Shares may
trade at prices greater than NAV (at a premium), at NAV, or less than NAV (at a
discount). An investor may incur costs attributable to the difference between
the highest price a buyer is willing to pay to purchase Shares (bid) and the
lowest price a seller is willing to accept for Shares (ask) when buying or
selling Shares on the secondary market (the bid-ask spread).
You
can access recent information, including information on the Fund’s net asset
value, market price, premiums and discounts, and bid-ask spreads at
www.principaletfs.com.
Tax
Information
The
Fund’s distributions you receive are generally subject to federal income tax as
ordinary income or capital gain and may also be subject to state and local
taxes, unless you are tax-exempt or your account is tax-deferred in which case
your distributions would be taxed when withdrawn from the tax-deferred account.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
PRINCIPAL
U.S. LARGE-CAP ADAPTIVE MULTI-FACTOR ETF
Objective:
The
Fund seeks long-term growth of capital.
Fees
and Expenses of the Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund ("Shares"). You may pay other fees, such as brokerage
commissions and other fees to financial intermediaries, which are not reflected
in the table or the example below.
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your investment)
|
|
|
|
|
|
Management
Fees |
0.15% |
Other
Expenses |
—% |
Total
Annual Fund Operating Expenses (1) |
0.15% |
(1)
The investment management agreement (the “Management Agreement”) between the
Fund and Principal Global Investors, LLC (“PGI”) provides that, for the duration
of the Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan (if or
when such fees are imposed), brokerage commissions and other expenses connected
to the execution of portfolio transactions, interest expense, taxes, acquired
fund fees and expenses, litigation expenses and other extraordinary expenses.
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. The Example also assumes that your investment has a 5% return each
year and that the Fund’s operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
1
year |
3
years |
Principal
U.S. Large-Cap Adaptive Multi-Factor ETF |
$15 |
$48 |
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 Fund
shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the example, affect the Fund’s performance.
This is a new fund and does not have a portfolio turnover rate to
disclose.
Principal
Investment Strategies
Under
normal circumstances, the Fund invests at least 80% of its net assets, plus any
borrowings for investment purposes, in equity securities of U.S. companies with
large market capitalizations at the time of purchase. For this Fund, companies
with large market capitalizations are those within the market capitalization
range of the companies in the S&P 500 Index, which as of June 30, 2021, was
between approximately $4.0 billion and $2.3 trillion. The Fund is considered
non-diversified, which means it can invest a higher percentage of assets in
securities of individual issuers than a diversified fund. As a result, changes
in the value of a single investment could cause greater fluctuations in the
Fund's share price than would occur in a more diversified fund.
For
security selection and portfolio construction, Principal Global Investors, LLC
("PGI") uses a proprietary quantitative model. The model is designed to identify
and rank equity securities in the S&P 500 Index (the "Index") that
correspond to factor categories including the following:
•
Value
companies - securities with low prices relative to their fundamental value,
measured by such metrics as earnings yield, free cash flow yield, and sales
yield.
•
Higher
quality companies – securities ranked based on metrics such as return on equity,
sales growth, earnings growth, and balance sheet measures of quality (such as
lower debt and accruals).
•
Higher
momentum companies - securities ranked by evaluating recent performance.
•
Lower
volatility companies – identified using the last 12-month standard deviation of
returns (in other words, how much such returns vary).
The
model incorporates a proprietary rules-based methodology that identifies the
current market risk regime as “lower,” “higher and increasing,” or “higher and
decreasing” and then weights securities within and among the factor categories
based on the prevailing market regime. During "higher and decreasing" market
risk environments, the model is expected to correspond more closely to the
weights used in the Index itself; however, in other regimes, the model’s
selection and weighting is expected to differ from the Index in an effort to
outperform the Index returns after fees and expenses. In "lower" risk
environments, the model is expected to allocate more to value, quality, and
momentum stocks, while de-emphasizing lower volatility stocks, whereas in
"higher and increasing" risk environments the model is expected to allocate more
to lower volatility stocks, as well as quality and momentum stocks, while
de-emphasizing value stocks. For certain securities, the model assigns weights
equal to that of the Index in all risk regimes. The Fund invested significantly
in industries within the information technology sector as of June 30, 2021.
PGI
expects to review the risk environment weekly. In circumstances where the risk
environment does not change, the Fund's holdings are expected to be rebalanced
semi-annually. Fund holdings will be rebalanced more frequently in the event of
market risk regime shifts, which will result in increased portfolio turnover.
PGI expects to review the model and risk environment regularly, and adjustments
to the model and Fund holdings may be made at PGI's discretion. The Fund’s
strategies may result in the active and frequent trading of the Fund’s portfolio
securities.
Note:
"Standard
& Poor's 5
00"
and "S&P 5
00
®
"
are trademarks of S&P Global and have been licensed by Principal. The Fund
is not sponsored, endorsed, sold, or promoted by S&P Global and S&P
Global makes no representation regarding the advisability of investing in the
Fund.
Principal
Risks
The
value of your investment in the Fund changes with the value of the Fund's
investments. Many factors affect that value, and it is possible to lose money by
investing in the Fund. An investment in the Fund is not a deposit of a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The principal risks of investing in the Fund are listed
below in alphabetical order and not in order of significance.
Equity
Securities Risk. A
variety of factors can negatively impact the value of equity securities held by
a fund, including a decline in the issuer’s financial condition, unfavorable
performance of the issuer's sector or industry, or changes in response to
overall market and economic conditions. A fund's principal market segment(s)
(such as market capitalization or style) may underperform other market segments
or the equity markets as a whole.
•
Growth
Style Risk. Growth
investing entails that risk that if growth companies do not increase their
earnings at a rate expected by investors, the market price of their stock may
decline significantly, even if earnings show an absolute increase. Growth
company stocks also typically lack the dividend yield that can lessen price
declines in market downturns.
•
Value
Style Risk. Value
investing entails the risk that value stocks may continue to be undervalued by
the market for extended periods, including the entire period during which the
stock is held by a fund, or the events that would cause the stock price to
increase may not occur as anticipated or at all. Moreover, a stock that appears
to be undervalued actually may be appropriately priced at a low level and
therefore would not be profitable for the fund.
High
Portfolio Turnover Risk. High
portfolio turnover (more than 100%) caused by the active and frequent trading
portfolio securities may result in accelerating the realization of taxable gains
and losses, lower fund performance, and increased brokerage costs.
Information
Technology Sector Risk. Companies
in the information technology sector may face dramatic and often unpredictable
changes in growth rates and are particularly vulnerable to changes in technology
product cycles, product obsolescence, government regulation, and competition,
both domestically and internationally. Such companies are heavily dependent on
patent and intellectual property rights, the loss or impairment of which may
adversely affect profitability.
Market
Trading Risks. The
Fund faces numerous market trading risks, including the potential lack of an
active market for Fund shares, losses from trading in secondary markets, and
disruption to the activities of market makers, authorized participants, or other
participants and in the creation/redemption process of the Fund. ANY OF THESE
FACTORS MAY LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO
NAV.
Model
Risk. Because
PGI uses quantitative models to select and hold securities, the Fund may hold
securities that present risks that an investment advisor researching individual
securities might seek to avoid. Moreover, models may be predictive in nature and
depend heavily on the accuracy and reliability of historical data that is
supplied by others and may be incorrect or incorrectly input. The Fund bears the
risk that the quantitative models used will not be successful in identifying
trends or in determining the size and direction of investment positions that
will enable the Fund to achieve its investment objective.
Momentum
Style Risk. Momentum
can turn quickly, and stocks that previously exhibited high momentum may not
experience continued positive momentum. Momentum securities may be more volatile
than a broad cross-section of securities or the overall stock market. The Fund
may experience losses if momentum stops, reverses or otherwise behaves
differently than predicted. In addition, there may be periods when momentum
style is out of favor, during which the investment performance of the Fund may
suffer to the extent it employs momentum style methodology.
Non-Diversification
Risk .
A non-diversified fund may invest a high percentage of its assets in the
securities of a small number of issuers and is more likely than diversified
funds to be significantly affected by a specific security’s poor
performance.
Redemption
and Large Transaction Risk. Ownership
of the fund's shares may be concentrated in one or a few large investors (such
as funds of funds, institutional investors, and asset allocation programs) that
may redeem or purchase shares in large quantities. These transactions may cause
the fund to sell securities to meet redemptions or to invest additional cash at
times it would not otherwise do so, which may result in increased transaction
costs, increased expenses, changes to expense ratios, and adverse effects to
fund performance. Such transactions may also accelerate the realization of
taxable income if sales of portfolio securities result in gains.
Performance
No
performance information is shown because the Fund has not yet had a calendar
year of performance. The Fund’s performance is benchmarked against the S&P
500 Index. Performance information provides an indication of the risks of
investing in the Fund. Past performance (before and after taxes) is not
necessarily an indication of how the Fund will perform in the future. You may
get updated performance information online at www.principaletfs.com.
Investment
Advisor and Portfolio Managers
Principal
Global Investors, LLC
•
Jeffrey
A. Schwarte (since 2021), Portfolio Manager
•
Aaron
J. Siebel (since 2021), Portfolio Manager
Purchase
and Sale of Fund Shares
The
Fund issues and redeems Shares at net asset value (“NAV”) only with authorized
participants who have entered into agreements with the Fund’s distributor and
only in blocks of 50,000 Shares (each block of Shares is called a "Creation
Unit"), or multiples thereof ("Creation Unit Aggregations"), in exchange for the
deposit or delivery of a basket of securities that the Fund specifies each day.
Except when aggregated in Creation Units, the Shares are not redeemable
securities of the Fund. Typically, the basket of assets will be made up of
securities, but may include a cash component. (See "Purchase and Redemption of
Creation Units" in the Statement of Additional Information for more
information.)
Shares
of the Fund are listed for trading on Cboe BZX Exchange, Inc. Individual Shares
may only be bought and sold in the secondary market through a broker or dealer
at a market price. Because Shares trade at market prices rather than NAV, Shares
may trade at prices greater than NAV (at a premium), at NAV, or less than NAV
(at a discount). An investor may incur costs attributable to the difference
between the highest price a buyer is willing to pay to purchase Shares (bid) and
the lowest price a seller is willing to accept for Shares (ask) when buying or
selling Shares on the secondary market (the bid-ask spread).
You
can access recent information, including information on the Fund's net asset
value, market price, premiums and discounts, and bid-ask spreads at
www.principaletfs.com.
Tax
Information
The
Fund’s distributions you receive are generally subject to federal income tax as
ordinary income or capital gain and may also be subject to state and local
taxes, unless you are tax-exempt or your account is tax-deferred in which case
your distributions would be taxed when withdrawn from the tax-deferred
account.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
PRINCIPAL
U.S. MEGA-CAP ETF
Objective:
The Fund seeks to provide investment results that
closely correspond, before expenses, to the performance of the Nasdaq US Mega
Cap Select Leaders Index (the "Index").
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 or the example below.
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
|
|
|
|
|
|
Management
Fees |
0.15% |
Other
Expenses |
—% |
Total
Annual Fund Operating Expenses (1) |
0.15% |
Fee
Waiver and/or Expense Reimbursement (2) |
(0.03)% |
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense
Reimbursement |
0.12% |
(1)
The investment management agreement (the “Management Agreement”) between the
Fund and Principal Global Investors, LLC (“PGI”) provides that, for the duration
of the Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan (if or
when such fees are imposed), brokerage commissions and other expenses connected
to the execution of portfolio transactions, interest expense, taxes, acquired
fund fees and expenses, litigation expenses and other extraordinary
expenses.
(2)
Principal Global Investors, LLC ("PGI") has contractually agreed to reduce total
annual fund operating expenses for the Fund by waiving a portion of its
management fee, or reimbursing the Fund, to the extent that total expenses
exceed 0.12% (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses) expressed as
a percent of average net assets on an annualized basis. It is expected that the
expense limit will continue through the period ending October 31, 2021; however,
Principal Exchange-Traded Funds and PGI, the parties to the agreement, may
mutually agree to terminate the expense limit prior to the end of the period.
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. The Example also assumes that your investment has a 5% return each
year and that the Fund’s operating expenses remain the same. The calculation of
costs takes into account contractual fee waivers and/or expense reimbursements
for the period noted in the table above. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal
U.S. Mega-Cap ETF |
$12 |
$45 |
$82 |
$189 |
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 Fund
shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the example, affect the Fund’s performance.
During the most recent fiscal year, the Fund's portfolio turnover rate was 42.9%
of the average value of its portfolio.
Principal
Investment Strategies
Under
normal circumstances, the Fund invests at least 80% of its net assets, plus any
borrowings for investment purposes, in equity securities of companies that
compose the Index at the time of purchase. The Index uses a quantitative model
designed to identify equity securities of companies in the Nasdaq US 500 Large
Cap Index (the "Parent Index") that have the largest market capitalizations,
with higher weights given to less volatile securities.
The
Parent Index is composed of equity securities of U.S. issuers with large market
capitalizations. To be eligible for the Index, a security must be in the top
50th percentile of the Parent Index by aggregate company market capitalization.
As of June 30, 2021, the market capitalization range of the companies in the
Parent Index was between approximately $2.0 billion and $2.2 trillion.
The
Index employs a modified equal-dollar weighting methodology. With respect to
securities of companies in the top 10% of aggregate market capitalization,
companies with the largest market capitalizations receive relatively more
weight. Securities of the remaining companies are equally weighted and
volatility adjusted, which gives higher weight to securities that are less
volatile.
The
Index is rebalanced semi-annually. Additionally, throughout the year securities
that become ineligible for the Index are removed and not replaced. The Fund will
make corresponding changes to its portfolio shortly after the Index changes are
made public. As of June 30, 2021, the Index included 45 components, and the
Parent Index included 499 components. More detailed information about the Index
methodology is provided in the prospectus under Underlying Indices.
The
Fund employs a passive investment approach designed to attempt to track the
performance of the Index. In seeking its objective, the Fund typically employs a
"full replication" strategy which involves investing in all the securities that
make up the Index, in the same approximate proportions as the Index. The Fund
can, however, use a “sampling” methodology to purchase a subset of the
securities in the Index in an effort to hold a portfolio of securities with
generally the same risk and return characteristics of the Index. The Fund can
also purchase securities not included in the Index that the advisor believes
will help the fund track the Index.
The
Fund will not concentrate its investments (invest more than 25% of its assets)
in a particular industry except to the extent the Index is so concentrated. Due
to the composition of the Index, the Fund invested significantly in one or more
industries within the information technology sector as of June 30, 2021.
Principal
Risks
The
value of your investment in the Fund changes with the value of the Fund's
investments. Many factors affect that value, and it is possible to lose money by
investing in the Fund. An investment in the Fund is not a deposit of a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The principal risks of investing in the Fund are listed
below in alphabetical order and not in order of significance.
Equity
Securities Risk.
A variety of factors can negatively impact the value of equity securities held
by a fund, including a decline in the issuer’s financial condition, unfavorable
performance of the issuer's sector or industry, or changes in response to
overall market and economic conditions. A fund's principal market segment(s)
(such as market capitalization or style) may underperform other market segments
or the equity markets as a whole.
•Growth
Style Risk. Growth
investing entails that risk that if growth companies do not increase their
earnings at a rate expected by investors, the market price of their stock may
decline significantly, even if earnings show an absolute increase. Growth
company stocks also typically lack the dividend yield that can lessen price
declines in market downturns.
•Value
Style Risk. Value
investing entails the risk that value stocks may continue to be undervalued by
the market for extended periods, including the entire period during which the
stock is held by a fund, or the events that would cause the stock price to
increase may not occur as anticipated or at all. Moreover, a stock that appears
to be undervalued actually may be appropriately priced at a low level and
therefore would not be profitable for the fund.
Index
Fund Risk.
Index funds use a passive investment approach and generally do not attempt to
manage market volatility, use defensive strategies, or reduce the effect of any
long-term periods of poor investment performance. Therefore, the Fund may hold
securities that present risks that an investment advisor researching individual
securities might seek to avoid. An index fund has operating and other expenses
while an index does not. As a result, over time, index funds tend to
underperform the index. The correlation between fund performance and index
performance may also be affected by the type of passive investment approach used
by a fund (sampling or replication), changes in securities markets, changes in
the composition of the index, and the timing of purchases and sales of fund
shares. Errors or delays in compiling or rebalancing the Index may impact the
performance of the Fund and increase transaction costs.
Industry
Concentration Risk. A
fund that concentrates investments in a particular industry or group of
industries has greater exposure than other funds to market, economic and other
factors affecting that industry or group of industries.
Information
Technology Sector Risk. Companies
in the information technology sector may face dramatic and often unpredictable
changes in growth rates and are particularly vulnerable to changes in technology
product cycles, product obsolescence, government regulation, and competition,
both domestically and internationally. Such companies are heavily dependent on
patent and intellectual property rights, the loss or impairment of which may
adversely affect profitability.
Market
Trading Risks. The
Fund faces numerous market trading risks, including the potential lack of an
active market for Fund shares, losses from trading in secondary markets, and
disruption to the activities of market makers, authorized participants, or other
participants and in the creation/redemption process of the Fund. ANY OF THESE
FACTORS MAY LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO
NAV.
Redemption
and Large Transaction Risk.
Ownership of the fund's shares may be concentrated in one or a few large
investors (such as funds of funds, institutional investors, and asset allocation
programs) that may redeem or purchase shares in large quantities. These
transactions may cause the fund to sell securities to meet redemptions or to
invest additional cash at times it would not otherwise do so, which may result
in increased transaction costs, increased expenses, changes to expense ratios,
and adverse effects to fund performance. Such transactions may also accelerate
the realization of taxable income if sales of portfolio securities result in
gains.
Performance
The
following information provides some indication of the risks of investing in the
Fund. Past performance (before and after taxes) is not necessarily an indication
of how the Fund will perform in the future. You may get updated performance
information online at www.principaletfs.com.
The
bar chart shows the investment returns of the Fund’s shares for each full
calendar year of operations for 10 years (or, if shorter, the life of the Fund).
The table shows for the last one, five, and ten calendar year periods (or, if
shorter, the life of the Fund), how the Fund’s average annual total returns
compare with those of one or more broad measures of market performance.
Life
of Fund returns are measured from the date the Fund's shares were first sold
(October 11, 2017).
Total
Returns as of December 31 (1)
|
|
|
|
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
2020 |
16.44% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q1
2020 |
(17.17)% |
(1)
The
year-to-date return as of June 30, 2021 is 11.59%
|
|
|
|
|
|
|
|
|
Average
Annual Total Returns (Based on NAV)
For
the periods ended December 31, 2020 |
|
1 Year |
Life
of Fund |
Return
Before Taxes |
16.03% |
13.91% |
Return
After Taxes on Distributions |
15.19% |
13.26% |
Return
After Taxes on Distributions and Sale of Fund Shares |
9.42% |
10.72% |
Nasdaq
US Mega Cap Select Leaders Index (reflects no deductions for fees,
expenses or taxes) |
16.26% |
14.14% |
After-tax
returns are calculated using the historical highest individual federal marginal
income tax rates and do not reflect the impact of state and local taxes. Actual
after-tax returns depend on an investor’s tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold
their Fund shares through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
Investment
Advisor and Portfolio Managers
Principal
Global Investors, LLC
•Jeffrey
A. Schwarte (since 2017), Portfolio Manager
•Aaron
J. Siebel (since 2020), Portfolio Manager
Purchase
and Sale of Fund Shares
The
Fund issues and redeems Shares at net asset value (“NAV”) only with authorized
participants who have entered into agreements with the Fund’s distributor and
only in blocks of 50,000 Shares (each block of Shares is called a "Creation
Unit"), or multiples thereof ("Creation Unit Aggregations"), in exchange for the
deposit or delivery of a basket of securities that the Fund specifies each day.
Except when aggregated in Creation Units, the Shares are not redeemable
securities of the Fund. Typically, the basket of assets will be made up of
securities, but may include a cash component. (See "Purchase and Redemption of
Creation Units" in the Statement of Additional Information for more
information.)
Shares
of the Fund are listed for trading on The Nasdaq Stock Market LLC. Individual
Shares may only be bought and sold in the secondary market through a broker or
dealer at a market price. Because Shares trade at market prices rather than NAV,
Shares may trade at prices greater than NAV (at a premium), at NAV, or less than
NAV (at a discount). An investor may incur costs attributable to the difference
between the highest price a buyer is willing to pay to purchase Shares (bid) and
the lowest price a seller is willing to accept for Shares (ask) when buying or
selling Shares on the secondary market (the bid-ask spread).
You
can access recent information, including information on the Fund’s net asset
value, market price, premiums and discounts, and bid-ask spreads at
www.principaletfs.com.
Tax
Information
The
Fund’s distributions you receive are generally subject to federal income tax as
ordinary income or capital gain and may also be subject to state and local
taxes, unless you are tax-exempt or your account is tax-deferred in which case
your distributions would be taxed when withdrawn from the tax-deferred
account.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
PRINCIPAL
U.S. SMALL-CAP ADAPTIVE MULTI-FACTOR ETF
Objective:
The
Fund seeks long-term growth of capital.
Fees
and Expenses of the Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund ("Shares"). You may pay other fees, such as brokerage
commissions and other fees to financial intermediaries, which are not reflected
in the table or the example below.
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your investment)
|
|
|
|
|
|
Management
Fees |
0.19% |
Other
Expenses |
—% |
Total
Annual Fund Operating Expenses (1) |
0.19% |
(1)
The
investment management agreement (the “Management Agreement”) between the Fund
and Principal Global Investors, LLC (“PGI”) provides that, for the duration of
the Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan (if or
when such fees are imposed), brokerage commissions and other expenses connected
to the execution of portfolio transactions, interest expense, taxes, acquired
fund fees and expenses, litigation expenses and other extraordinary
expenses.
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. The Example also assumes that your investment has a 5% return each
year and that the Fund’s operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
1
year |
3
years |
Principal
U.S. Small-Cap Adaptive Multi-Factor ETF |
$19 |
$61 |
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 Fund
shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the example, affect the Fund’s performance.
This is a new fund and does not have a portfolio turnover rate to
disclose.
Principal
Investment Strategies
Under
normal circumstances, the Fund invests at least 80% of its net assets, plus any
borrowings for investment purposes, in equity securities of U.S. companies with
small market capitalizations at the time of purchase. For this Fund, companies
with small market capitalizations are those within the market capitalization
range of the companies in the S&P 600 Index, which as of June 30, 2021, was
between approximately $146.9 million and $14.2 billion.
For
security selection and portfolio construction, Principal Global Investors, LLC
("PGI") uses a proprietary quantitative model. The model is designed to identify
and rank equity securities in the S&P 600 Index (the "Index") that
correspond to factor categories including the following:
•
Value
companies - securities with low prices relative to their fundamental value,
measured by such metrics as earnings yield, free cash flow yield, and sales
yield.
•
Higher
quality companies – securities ranked based on metrics such as return on equity,
sales growth, earnings growth, and balance sheet measures of quality (such as
lower debt and accruals).
•
Higher
momentum companies - securities ranked by evaluating recent performance.
•
Lower
volatility companies – identified using the last 12-month standard deviation of
returns (in other words, how much such returns vary).
The
model incorporates a proprietary rules-based methodology that identifies the
current market risk regime as “lower,” “higher and increasing,” or “higher and
decreasing” and then weights securities within and among the factor categories
based on the prevailing market regime. During "higher and decreasing" market
risk environments, the model is expected to correspond more closely to the
weights used in the Index itself; however, in other regimes, the model’s
selection and weighting is expected to differ from the Index in an effort to
outperform the Index returns after fees and expenses. In "lower" risk
environments, the model is expected to allocate more to value, quality, and
momentum stocks, while de-emphasizing lower volatility stocks, whereas in
"higher and increasing" risk environments the model is expected to allocate more
to lower volatility stocks, as well as quality and momentum stocks, while
de-emphasizing value stocks. For certain securities, the model assigns weights
equal to that of the Index in all risk regimes.
PGI
expects to review the risk environment weekly. In circumstances where the risk
environment does not change, the Fund's holdings are expected to be rebalanced
semi-annually. Fund holdings will be rebalanced more frequently in the event of
market risk regime shifts, which will result in increased portfolio turnover.
PGI expects to review the model and risk environment regularly, and adjustments
to the model and Fund holdings may be made at PGI's discretion. The Fund’s
strategies may result in the active and frequent trading of the Fund’s portfolio
securities.
Note:
"Standard
& Poor's 600" and "S&P 600 ®
"
are trademarks of S&P Global and have been licensed by Principal. The Fund
is not sponsored, endorsed, sold, or promoted by S&P Global and S&P
Global makes no representation regarding the advisability of investing in the
Fund.
Principal
Risks
The
value of your investment in the Fund changes with the value of the Fund's
investments. Many factors affect that value, and it is possible to lose money by
investing in the Fund. An investment in the Fund is not a deposit of a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The principal risks of investing in the Fund are listed
below in alphabetical order and not in order of significance.
Equity
Securities Risk. A
variety of factors can negatively impact the value of equity securities held by
a fund, including a decline in the issuer’s financial condition, unfavorable
performance of the issuer's sector or industry, or changes in response to
overall market and economic conditions. A fund's principal market segment(s)
(such as market capitalization or style) may underperform other market segments
or the equity markets as a whole.
•
Growth
Style Risk. Growth
investing entails that risk that if growth companies do not increase their
earnings at a rate expected by investors, the market price of their stock may
decline significantly, even if earnings show an absolute increase. Growth
company stocks also typically lack the dividend yield that can lessen price
declines in market downturns.
•
Smaller
Companies Risk. Investments
in smaller companies may involve greater risk and price volatility than
investments in larger, more mature companies. Smaller companies may have limited
product lines, markets or financial resources, lack the competitive strength of
larger companies, have less experienced managers or depend on a few key
employees. Their securities often are less widely held and trade less frequently
and in lesser quantities, and their market prices often fluctuate more, than
securities of larger companies.
•
Value
Style Risk. Value
investing entails the risk that value stocks may continue to be undervalued by
the market for extended periods, including the entire period during which the
stock is held by a fund, or the events that would cause the stock price to
increase may not occur as anticipated or at all. Moreover, a stock that appears
to be undervalued actually may be appropriately priced at a low level and
therefore would not be profitable for the fund.
High
Portfolio Turnover Risk. High
portfolio turnover (more than 100%) caused by the active and frequent trading
portfolio securities may result in accelerating the realization of taxable gains
and losses, lower fund performance, and increased brokerage costs.
Market
Trading Risks. The
Fund faces numerous market trading risks, including the potential lack of an
active market for Fund shares, losses from trading in secondary markets, and
disruption to the activities of market makers, authorized participants, or other
participants and in the creation/redemption process of the Fund. ANY OF THESE
FACTORS MAY LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO
NAV.
Model
Risk. Because
PGI uses quantitative models to select and hold securities, the Fund may hold
securities that present risks that an investment advisor researching individual
securities might seek to avoid. Moreover, models may be predictive in nature and
depend heavily on the accuracy and reliability of historical data that is
supplied by others and may be incorrect or incorrectly input. The Fund bears the
risk that the quantitative models used will not be successful in identifying
trends or in determining the size and direction of investment positions that
will enable the Fund to achieve its investment objective.
Momentum
Style Risk. Momentum
can turn quickly, and stocks that previously exhibited high momentum may not
experience continued positive momentum. Momentum securities may be more volatile
than a broad cross-section of securities or the overall stock market. The Fund
may experience losses if momentum stops, reverses or otherwise behaves
differently than predicted. In addition, there may be periods when momentum
style is out of favor, during which the investment performance of the Fund may
suffer to the extent it employs momentum style methodology.
Redemption
and Large Transaction Risk. Ownership
of the fund's shares may be concentrated in one or a few large investors (such
as funds of funds, institutional investors, and asset allocation programs) that
may redeem or purchase shares in large quantities. These transactions may cause
the fund to sell securities to meet redemptions or to invest additional cash at
times it would not otherwise do so, which may result in increased transaction
costs, increased expenses, changes to expense ratios, and adverse effects to
fund performance. Such transactions may also accelerate the realization of
taxable income if sales of portfolio securities result in gains.
Performance
No
performance information is shown because the Fund has not yet had a calendar
year of performance. The Fund’s performance is benchmarked against the S&P
600 Index. Performance information provides an indication of the risks of
investing in the Fund. Past performance (before and after taxes) is not
necessarily an indication of how the Fund will perform in the future. You may
get updated performance information online at www.principaletfs.com.
Investment
Advisor and Portfolio Managers
Principal
Global Investors, LLC
•
Jeffrey
A. Schwarte (since 2021), Portfolio Manager
•
Aaron
J. Siebel (since 2021), Portfolio Manager
Purchase
and Sale of Fund Shares
The
Fund issues and redeems Shares at net asset value (“NAV”) only with authorized
participants ("APs") who have entered into agreements with the Fund’s
distributor and only in blocks of 50,000 Shares (each block of Shares is called
a "Creation Unit"), or multiples thereof ("Creation Unit Aggregations"), in
exchange for the deposit or delivery of a basket of securities that the Fund
specifies each day. Except when aggregated in Creation Units, the Shares are not
redeemable securities of the Fund. Typically, the basket of assets will be made
up of securities, but may include a cash component. (See "Purchase and
Redemption of Creation Units" in the Statement of Additional Information for
more information.)
Shares
of the Fund are listed for trading on Cboe BZX Exchange, Inc. Individual Shares
may only be bought and sold in the secondary market through a broker or dealer
at a market price. Because Shares trade at market prices rather than NAV, Shares
may trade at prices greater than NAV (at a premium), at NAV, or less than NAV
(at a discount). An investor may incur costs attributable to the difference
between the highest price a buyer is willing to pay to purchase Shares (bid) and
the lowest price a seller is willing to accept for Shares (ask) when buying or
selling Shares on the secondary market (the bid-ask spread).
You
can access recent information, including information on the Fund's net asset
value, market price, premiums and discounts, and bid-ask spreads at
www.principaletfs.com.
Tax
Information
The
Fund’s distributions you receive are generally subject to federal income tax as
ordinary income or capital gain and may also be subject to state and local
taxes, unless you are tax-exempt or your account is tax-deferred in which case
your distributions would be taxed when withdrawn from the tax-deferred
account.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
PRINCIPAL
U.S. SMALL-CAP MULTI-FACTOR ETF
Objective: The
Fund seeks to provide investment results that closely correspond, before
expenses, to the performance of the Nasdaq US Small Cap Select Leaders Index
(the "Index").
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 or the example below.
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
|
|
|
|
|
|
Management
Fees |
0.38% |
Other
Expenses |
—% |
Total
Annual Fund Operating Expenses (1) |
0.38% |
(1)
The
investment management agreement (the “Management Agreement”) between the Fund
and Principal Global Investors, LLC (“PGI”) provides that, for the duration of
the Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan (if or
when such fees are imposed), brokerage commissions and other expenses connected
to the execution of portfolio transactions, interest expense, taxes, acquired
fund fees and expenses, litigation expenses and other extraordinary
expenses.
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. The Example also assumes that your investment has a 5% return each
year and that the Fund’s operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal
U.S. Small-Cap Multi-Factor ETF |
$39 |
$122 |
$213 |
$480 |
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 Fund
shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the example, affect the Fund’s performance.
During the most recent fiscal year, the Fund's portfolio turnover rate was 80.4%
of the average value of its portfolio.
Principal
Investment Strategies
Under
normal circumstances, the Fund invests at least 80% of its net assets, plus any
borrowings for investment purposes, in equity securities of companies that
compose the Index at the time of purchase. The Index uses a quantitative model
designed to identify equity securities (including growth and value stock) of
small-capitalization companies in the Nasdaq US Small Cap Index (the "Parent
Index") that exhibit potential for high degrees of value, quality growth, and
strong momentum, while adjusting for liquidity and volatility. As
of June 30, 2021, the market capitalization range of the companies comprising
the Parent Index was between approximately $26.6 million and
$28.4 billion.
To
be eligible for the Index, a security must: be a component of the Parent Index;
be in the top 90th percentile of the Nasdaq US Benchmark Index in terms of
3-month Average Daily Dollar Volume and have a minimum 3-month trading history,
among other factors. One security per issuer is permitted.
Each
security is ranked according to three factors:
•The
Shareholder Yield (value factor) ranks securities based on the collective
financial impact on a company's shareholders from the return of free cash flow
through cash dividends, stock repurchases, and debt reduction. This factor is
designed to identify securities with low prices relative to their fundamental
value.
•The
Price Setters (quality growth factor) ranks securities based on pricing power,
which is the extent to which a company can raise the prices of its products
without reducing the demand for them.
•The
Momentum Factor ranks securities based on recent performance relative to their
peers.
Each
security has a Shareholder Yield, Price Setters, and Momentum rank that is based
on that security's Industry Classification Benchmark ("ICB") within the Index.
The ranks are then averaged to determine a rank for each security within each
ICB. The ranks are then averaged to determine eligibility for inclusion in the
Index. Securities that rank in the top 20% are included in the Index, in
addition to securities already in the Index that rank in the top 50%. Securities
are weighted by their liquidity-volatility score, in an effort to give greater
weight to securities that are more liquid and less volatile. Once an initial
weight is determined, a final weight initially caps each security's weight at
0.7%.
The
Index is rebalanced semi-annually. Additionally, throughout the year securities
that become ineligible for the Index are removed and not replaced. The Fund will
make corresponding changes to its portfolio shortly after Index changes are made
public. As of June 30, 2021, the Index included 516 components, and the Parent
Index included 1,986 components. More detailed information about the Index
methodology is provided in the prospectus under Underlying Indices.
The
Fund employs a passive investment approach designed to attempt to track the
performance of the Index. In seeking its objective, the Fund typically employs a
"full replication" strategy which involves investing in all the securities that
make up the Index, in the same approximate proportions as the Index. The Fund
can, however, use a “sampling” methodology to purchase a subset of the
securities in the Index in an effort to hold a portfolio of securities with
generally the same risk and return characteristics of the Index. The Fund can
also invest in securities not included in the Index that the advisor believes
will help the fund track the Index.
The
Fund will not concentrate (invest more than 25% of its assets) its investments
in a particular industry except to the extent the Index is so concentrated.
Principal
Risks
The
value of your investment in the Fund changes with the value of the Fund's
investments. Many factors affect that value, and it is possible to lose money by
investing in the Fund. An investment in the Fund is not a deposit of a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The principal risks of investing in the Fund are listed
below in alphabetical order and not in order of significance.
Equity
Securities Risk.
A variety of factors can negatively impact the value of equity securities held
by a fund, including a decline in the issuer’s financial condition, unfavorable
performance of the issuer's sector or industry, or changes in response to
overall market and economic conditions. A fund's principal market segment(s)
(such as market capitalization or style) may underperform other market segments
or the equity markets as a whole.
•Growth
Style Risk. Growth
investing entails that risk that if growth companies do not increase their
earnings at a rate expected by investors, the market price of their stock may
decline significantly, even if earnings show an absolute increase. Growth
company stocks also typically lack the dividend yield that can lessen price
declines in market downturns.
•
Smaller
Companies Risk. Investments
in smaller companies may involve greater risk and price volatility than
investments in larger, more mature companies. Smaller companies may have limited
product lines, markets or financial resources, lack the competitive strength of
larger companies, have less experienced managers or depend on a few key
employees. Their securities often are less widely held and trade less frequently
and in lesser quantities, and their market prices often fluctuate more, than
securities of larger companies.
•Value
Style Risk. Value
investing entails the risk that value stocks may continue to be undervalued by
the market for extended periods, including the entire period during which the
stock is held by a fund, or the events that would cause the stock price to
increase may not occur as anticipated or at all. Moreover, a stock that appears
to be undervalued actually may be appropriately priced at a low level and
therefore would not be profitable for the fund.
Index
Fund Risk.
Index funds use a passive investment approach and generally do not attempt to
manage market volatility, use defensive strategies, or reduce the effect of any
long-term periods of poor investment performance. Therefore, the Fund may hold
securities that present risks that an investment advisor researching individual
securities might seek to avoid. An index fund has operating and other expenses
while an index does not. As a result, over time, index funds tend to
underperform the index. The correlation between fund performance and index
performance may also be affected by the type of passive investment approach used
by a fund (sampling or replication), changes in securities markets, changes in
the composition of the index, and the timing of purchases and sales of fund
shares. Errors or delays in compiling or rebalancing the Index may impact the
performance of the Fund and increase transaction costs.
Industry
Concentration Risk. A
fund that concentrates investments in a particular industry or group of
industries has greater exposure than other funds to market, economic and other
factors affecting that industry or group of industries.
Market
Trading Risks. The
Fund faces numerous market trading risks, including the potential lack of an
active market for Fund shares, losses from trading in secondary markets, and
disruption to the activities of market makers, authorized participants, or other
participants and in the creation/redemption process of the Fund. ANY OF THESE
FACTORS MAY LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO
NAV.
Momentum
Style Risk.
Stocks that previously exhibited high momentum characteristics may not
experience positive momentum or may experience more volatility than the market
as a whole. In addition, there may be periods when momentum style is out of
favor, during which the investment performance of a Fund that uses
momentum-based strategies may suffer.
Redemption
and Large Transaction Risk. Ownership
of the fund's shares may be concentrated in one or a few large investors (such
as funds of funds, institutional investors, and asset allocation programs) that
may redeem or purchase shares in large quantities. These transactions may cause
the fund to sell securities to meet redemptions or to invest additional cash at
times it would not otherwise do so, which may result in increased transaction
costs, increased expenses, changes to expense ratios, and adverse effects to
fund performance. Such transactions may also accelerate the realization of
taxable income if sales of portfolio securities result in gains.
Performance
The
following information provides some indication of the risks of investing in the
Fund. Past performance (before and after taxes) is not necessarily an indication
of how the Fund will perform in the future. You may get updated performance
information online at www.principaletfs.com.
The
bar chart shows the investment returns of the Fund’s shares for each full
calendar year of operations for 10 years (or, if shorter, the life of the Fund).
The table shows for the last one, five, and ten calendar year periods (or, if
shorter, the life of the Fund), how the Fund’s average annual total returns
compare with those of one or more broad measures of market performance.
Life
of Fund returns are measured from the date the Fund's shares were first sold
(September 21, 2016).
Total
Returns as of December 31 (1)
|
|
|
|
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q4
2020 |
30.83% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q1
2020 |
(32.95)% |
(1)
The
year-to-date return as of June 30, 2021 is 29.35%.
|
|
|
|
|
|
|
|
|
Average
Annual Total Returns (Based on NAV)
For
the periods ended December 31, 2020 |
|
1 Year |
Life
of Fund |
Return
Before Taxes |
13.45% |
10.58% |
Return
After Taxes on Distributions |
12.72% |
10.16% |
Return
After Taxes on Distributions and Sale of Fund Shares |
7.87% |
8.21% |
Nasdaq
US Small Cap Select Leaders Index (reflects no deductions for fees,
expenses or taxes) |
13.73% |
11.03% |
After-tax
returns are calculated using the historical highest individual federal marginal
income tax rates and do not reflect the impact of state and local taxes. Actual
after-tax returns depend on an investor’s tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold
their Fund shares through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
Investment
Advisor and Portfolio Managers
Principal
Global Investors, LLC
•Jeffrey
A. Schwarte (since 2016), Portfolio Manager
•Aaron
J. Siebel (since 2020), Portfolio Manager
Purchase
and Sale of Fund Shares
The
Fund issues and redeems Shares at net asset value (“NAV”) only with authorized
participants ("APs") who have entered into agreements with the Fund’s
distributor and only in blocks of 50,000 Shares (each block of Shares is called
a "Creation Unit"), or multiples thereof ("Creation Unit Aggregations"), in
exchange for the deposit or delivery of a basket of securities that the Fund
specifies each day. Except when aggregated in Creation Units, the Shares are not
redeemable securities of the Fund. Typically, the basket of assets will be made
up of securities, but may include a cash component. (See "Purchase and
Redemption of Creation Units" in the Statement of Additional Information for
more information.)
Shares
of the Fund are listed for trading on The Nasdaq Stock Market LLC. Individual
Shares may only be bought and sold in the secondary market through a broker or
dealer at a market price. Because Shares trade at market prices rather than NAV,
Shares may trade at prices greater than NAV (at a premium), at NAV, or less than
NAV (at a discount). An investor may incur costs attributable to the difference
between the highest price a buyer is willing to pay to purchase Shares (bid) and
the lowest price a seller is willing to accept for Shares (ask) when buying or
selling Shares on the secondary market (the bid-ask spread).
You
can access recent information, including information on the Fund’s net asset
value, market price, premiums and discounts, and bid-ask spreads at
www.principaletfs.com.
Tax
Information
The
Fund’s distributions you receive are generally subject to federal income tax as
ordinary income or capital gain and may also be subject to state and local
taxes, unless you are tax-exempt or your account is tax-deferred in which case
your distributions would be taxed when withdrawn from the tax-deferred
account.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
PRINCIPAL
VALUE ETF
Objective:
The Fund seeks to provide investment results that
closely correspond, before expenses, to the performance of the Nasdaq US
Shareholder Yield Index (the "Index").
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 or the example below.
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
|
|
|
|
|
|
Management
Fees (1) |
0.15% |
Other
Expenses |
—% |
Total
Annual Fund Operating Expenses (2) |
0.15% |
(1)
Fees have been restated to reflect current fees.
(2)
The investment management agreement (the “Management Agreement”) between the
Fund and Principal Global Investors, LLC (“PGI”) provides that, for the duration
of the Management Agreement, PGI will pay all operating expenses of the Fund,
except the Management Fee, payments made under each Series 12b-1 plan (if or
when such fees are imposed), brokerage commissions and other expenses connected
to the execution of portfolio transactions, interest expense, taxes, acquired
fund fees and expenses, litigation expenses and other extraordinary expenses.
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. The Example also assumes that your investment has a 5% return each
year and that the Fund’s operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal
Value ETF |
$15 |
$48 |
$85 |
$192 |
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 Fund
shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the example, affect the Fund’s performance.
During the most recent fiscal year, the Fund's portfolio turnover rate was 47.6%
of the average value of its portfolio.
Principal
Investment Strategies
Under
normal circumstances, the Fund invests at least 80% of its net assets, plus any
borrowings for investment purposes, in equity securities of companies that
compose the Index at the time of purchase. The Index uses a quantitative model
designed to identify equity securities (emphasizing value stock) of mid- to
large-capitalization companies in the Nasdaq US Large Mid Cap Index (the "Parent
Index") that exhibit higher degrees of shareholder yield, in an effort to
produce a value-based portfolio with a higher quality focus than is customary in
traditional value approaches.
To
be eligible for the Index, a security must be a component of the Parent Index
and the security must have paid a regular dividend in the prior year. Securities
are ranked based upon nine factors that include calculations based on dividend
yield, buyback yield, dividend payout per share, free cash flow, price, Sharpe
ratio, EBITDA, debt, dividend yield historical valuation, and dividend growth.
Securities that rank in the top 20% are included in the Index. The Index employs
a modified yield weighting methodology, weighting securities according to their
dividend yields. Final eligible securities receive a maximum weight of 3%, and
all excess weight is distributed proportionally across the remaining Index
securities.
The
Index is rebalanced annually. Additionally, throughout the year securities that
become ineligible for the Index are removed and not replaced. The Fund will make
corresponding changes to its portfolio shortly after Index changes are made
public. As of June 30, 2021, the Index included 115 components, and the Parent
Index included 974 components. More detailed information about the Index
methodology is provided in the prospectus under Underlying Indices.
The
Fund employs a passive investment approach designed to attempt to track the
performance of the Index. In seeking its objective, the Fund typically employs a
"full replication" strategy which involves investing in all the securities that
make up the Index, in the same approximate proportions as the Index. The Fund
can, however, use a “sampling” methodology to purchase a subset of the
securities in the Index in an effort to hold a portfolio of securities with
generally the same risk and return characteristics of the Index. The Fund can
also purchase securities not included in the Index that the advisor believes
will help the fund track the Index.
The
Fund will not concentrate its investments (invest more than 25% of its assets)
in a particular industry except to the extent the Index is so concentrated. Due
to the composition of the Index, the Fund invested significantly in one or more
industries within the financial services sector (i.e., banking, insurance and
commercial finance industries) as of June 30, 2021.
Principal
Risks
The
value of your investment in the Fund changes with the value of the Fund's
investments. Many factors affect that value, and it is possible to lose money by
investing in the Fund. An investment in the Fund is not a deposit of a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The principal risks of investing in the Fund are listed
below in alphabetical order and not in order of significance.
Equity
Securities Risk.
A variety of factors can negatively impact the value of equity securities held
by a fund, including a decline in the issuer’s financial condition, unfavorable
performance of the issuer's sector or industry, or changes in response to
overall market and economic conditions. A fund's principal market segment(s)
(such as market capitalization or style) may underperform other market segments
or the equity markets as a whole.
•Medium
Market Capitalization Companies.
Investments in medium sized companies may involve greater risk and price
volatility than investments in larger, more mature companies.
•Value
Style Risk. Value
investing entails the risk that value stocks may continue to be undervalued by
the market for extended periods, including the entire period during which the
stock is held by a fund, or the events that would cause the stock price to
increase may not occur as anticipated or at all. Moreover, a stock that appears
to be undervalued actually may be appropriately priced at a low level and
therefore would not be profitable for the fund.
Financial
Services Sector Risk .
A fund that invests significantly in financial services companies may be more
susceptible to adverse economic or regulatory occurrences affecting financial
services companies. Financial companies may be adversely affected in certain
market cycles, including periods of rising interest rates, which may restrict
the availability and increase the cost of capital, and declining economic
conditions, which may cause credit losses due to financial difficulties of
borrowers. Because many types of financial companies are especially vulnerable
to these economic cycles, the Fund’s investments in these companies may lose
significant value during such periods.
Index
Fund Risk.
Index funds use a passive investment approach and generally do not attempt to
manage market volatility, use defensive strategies, or reduce the effect of any
long-term periods of poor investment performance. Therefore, the Fund may hold
securities that present risks that an investment advisor researching individual
securities might seek to avoid. An index fund has operating and other expenses
while an index does not. As a result, over time, index funds tend to
underperform the index. The correlation between fund performance and index
performance may also be affected by the type of passive investment approach used
by a fund (sampling or replication), changes in securities markets, changes in
the composition of the index, and the timing of purchases and sales of fund
shares. Errors or delays in compiling or rebalancing the Index may impact the
performance of the Fund and increase transaction costs.
Industry
Concentration Risk. A
fund that concentrates investments in a particular industry or group of
industries has greater exposure than other funds to market, economic and other
factors affecting that industry or group of industries.
Market
Trading Risks. The
Fund faces numerous market trading risks, including the potential lack of an
active market for Fund shares, losses from trading in secondary markets, and
disruption to the activities of market makers, authorized participants, or other
participants and in the creation/redemption process of the Fund. ANY OF THESE
FACTORS MAY LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO
NAV.
Redemption
and Large Transaction Risk. Ownership
of the fund's shares may be concentrated in one or a few large investors (such
as funds of funds, institutional investors, and asset allocation programs) that
may redeem or purchase shares in large quantities. These transactions may cause
the fund to sell securities to meet redemptions or to invest additional cash at
times it would not otherwise do so, which may result in increased transaction
costs, increased expenses, changes to expense ratios, and adverse effects to
fund performance. Such transactions may also accelerate the realization of
taxable income if sales of portfolio securities result in gains.
Performance
The
following information provides some indication of the risks of investing in the
Fund. Past performance (before and after taxes) is not necessarily an indication
of how the Fund will perform in the future. You may get updated performance
information online at www.principaletfs.com.
The
bar chart shows the investment returns of the Fund’s shares for each full
calendar year of operations for 10 years (or, if shorter, the life of the Fund).
The table shows for the last one, five, and ten calendar year periods (or, if
shorter, the life of the Fund), how the Fund’s average annual total returns
compare with those of one or more broad measures of market performance.
Life
of Fund returns are measured from the date the Fund's shares were first sold
(March 21, 2016).
Total
Returns as of December 31 (1)
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Highest
return for a quarter during the period of the bar chart
above: |
Q2
2020 |
22.18% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q1
2020 |
(33.36)% |
(1)
The
year-to-date return as of June 30, 2021 is 25.45%.
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Average
Annual Total Returns (Based on NAV)
For
the periods ended December 31, 2020 |
|
1 Year |
Life
of Fund |
Return
Before Taxes |
2.51% |
9.26% |
Return
After Taxes on Distributions |
1.07% |
8.49% |
Return
After Taxes on Distributions and Sale of Fund Shares |
1.34% |
7.08% |
Nasdaq
US Shareholder Yield Index (reflects no deductions for fees, expenses or
taxes) |
2.65% |
9.62% |
After-tax
returns are calculated using the historical highest individual federal marginal
income tax rates and do not reflect the impact of state and local taxes. Actual
after-tax returns depend on an investor’s tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold
their Fund shares through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
Investment
Advisor and Portfolio Managers
Principal
Global Investors, LLC
•Jeffrey
A. Schwarte (since 2016), Portfolio Manager
•Aaron
J. Siebel (since 2020), Portfolio Manager
Purchase
and Sale of Fund Shares
The
Fund issues and redeems Shares at net asset value (“NAV”) only with authorized
participants ("APs") who have entered into agreements with the Fund’s
distributor and only in blocks of 50,000 Shares (each block of Shares is called
a "Creation Unit"), or multiples thereof ("Creation Unit Aggregations"), in
exchange for the deposit or delivery of a basket of securities that the Fund
specifies each day. Except when aggregated in Creation Units, the Shares are not
redeemable securities of the Fund. Typically, the basket of assets will be made
up of securities, but may include a cash component. (See "Purchase and
Redemption of Creation Units" in the Statement of Additional Information for
more information.)
Shares
of the Fund are listed for trading on The Nasdaq Stock Market LLC. Individual
Shares may only be bought and sold in the secondary market through a broker or
dealer at a market price. Because Shares trade at market prices rather than NAV,
Shares may trade at prices greater than NAV (at a premium), at NAV, or less than
NAV (at a discount). An investor may incur costs attributable to the difference
between the highest price a buyer is willing to pay to purchase Shares (bid) and
the lowest price a seller is willing to accept for Shares (ask) when buying or
selling Shares on the secondary market (the bid-ask spread).
You
can access recent information, including information on the Fund’s net asset
value, market price, premiums and discounts, and bid-ask spreads at
www.principaletfs.com.
Tax
Information
The
Fund’s distributions you receive are generally subject to federal income tax as
ordinary income or capital gain and may also be subject to state and local
taxes, unless you are tax-exempt or your account is tax-deferred in which case
your distributions would be taxed when withdrawn from the tax-deferred
account.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
ADDITIONAL
INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Each
Fund’s investment objective is described in the summary section for each Fund.
The summary section also describes each Fund’s principal investment strategies,
including the types of securities in which each Fund invests, and the principal
risks of investing in each Fund. The principal investment strategies are not the
only investment strategies available to each Fund, but they are the ones each
Fund primarily uses to achieve its investment objective.
Except
for Fundamental Restrictions described in the Fund’s Statement of Additional
Information (“SAI”), the Board may change any Fund's objective or investment
strategies without a shareholder vote if it determines such a change is in the
best interests of the Fund. If there is a material change to a Fund's investment
objective or investment strategies, you should consider whether the Fund remains
an appropriate investment for you. There is no guarantee that a Fund will meet
its objective.
Each
Fund is designed to be a portion of an investor's portfolio. No Fund is intended
to be a complete investment program. Investors should consider the risks of a
Fund before making an investment; it is possible to lose money by investing in a
Fund.
Holdings
Disclosure
On
each business day, before commencement of trading on the exchange, each Fund
will disclose on www.principaletfs.com the identities and quantities of the
Fund’s portfolio holdings that will form the basis for the Fund’s calculation of
the Fund’s net asset value at the end of the business day.
Active
Management
The
performance of a fund that is actively managed (including hybrid funds or
passively-managed funds that use a sampling approach that includes some
actively-managed components) will reflect in part the ability of those managing
the investments of the fund to make investment decisions that are suited to
achieving the fund's investment objective. Actively-managed funds may invest
differently from the benchmark against which the fund's performance is compared.
When making decisions about whether to buy or sell equity securities,
considerations may include, among other things, a company’s strength in
fundamentals, its potential for earnings growth over time, its ability to
navigate certain macroeconomic environments, the current price of its securities
relative to their perceived worth and relative to others in its industry, and
analysis from computer models. When making decisions about whether to buy or
sell fixed-income investments, considerations may include, among other things,
the strength of certain sectors of the fixed-income market relative to others,
interest rates, a range of economic, political and financial factors, the
balance between supply and demand for certain asset classes, the credit quality
of individual issuers, the fundamental strengths of corporate and municipal
issuers, and other general market conditions.
Models,
which may assist portfolio managers and analysts in formulating their securities
trading and allocation decisions by providing investment and risk management
insights, may also expose a fund to risks. Models may be predictive in nature,
which models depend heavily on the accuracy and reliability of historical data
that is supplied by others and may be incorrect or incorrectly input. The fund
bears the risk that the quantitative models used will not be successful in
identifying trends or in determining the size and direction of investment
positions that will enable the fund to achieve its investment objective. In
addition, “model prices” will often differ substantially from market prices,
especially for instruments with complex characteristics, such as derivative
instruments.
An
active fund's investment performance depends upon the successful allocation of
the fund's assets among asset classes, geographical regions, industry sectors,
and specific issuers and investments. There is no guarantee that these
allocation techniques and decisions will produce the desired results. It is
possible to lose money on an investment in a fund as a result of these
allocation decisions. If a fund's investment strategies do not perform as
expected, the fund could underperform other funds with similar investment
objectives or lose money. Moreover, buying and selling securities to adjust the
fund’s asset allocation may increase portfolio turnover and generate transaction
costs.
Investment
advisors with large assets under management in a Fund, or in other funds that
have the same strategy as a Fund, may have difficulty fully investing such
Fund’s assets according to its investment objective due to potential liquidity
constraints and high transaction costs. Typically, small-cap, mid-cap and
emerging market equity funds are more susceptible to such a risk. A Fund may add
additional investment advisors or close the Fund to new investors to address
such risks.
Passive
Management (Index Funds)
Index
funds use a passive, or indexing, investment approach. Funds that are pure index
funds do not attempt to manage market volatility, use defensive strategies or
reduce the effect of any long-term periods of poor stock or bond performance.
Some index funds may attempt to fully replicate their relevant target index by
investing primarily in the securities held by the index in approximately the
same proportion of the weightings in the index. However, because of the
difficulty of executing some relatively small securities trades, other index
funds may use a "sampling" approach and may not be invested in the less heavily
weighted securities held by the index. Some index funds may invest in index
futures, swaps, and/or exchange-traded funds on a daily basis in an effort to
minimize tracking error relative to the benchmark.
It
is unlikely that an index fund's performance will perfectly correlate with the
performance of the fund's relevant index. An index fund's ability to match the
performance of its index may be affected by many factors, such as fund expenses,
the timing of cash flows into and out of the fund, changes in securities
markets, and changes in the composition of the index.
The
providers of the Funds’ respective underlying indexes do not provide any
warranty or accept any liability for the quality, accuracy or completeness of
any index or its related data. Those managing an index fund’s investments manage
such fund consistently with the underlying index provided by the index provider
and do not provide any warranty or guarantee against the index provider’s or its
agent’s errors. Errors in the quality, accuracy and completeness of the data
used to compile an underlying index may occur and may not be identified and
corrected in a timely manner, or at all. Such errors may negatively or
positively impact the performance of a fund.
Unusual
market conditions may cause an index provider to postpone a scheduled rebalance,
which could cause a fund’s underlying index to vary from its normal or expected
composition. The postponement of a scheduled rebalance, particularly in a time
of market volatility, could mean that constituents that would otherwise be
removed at rebalance due to changes in market capitalizations, issuer credit
ratings, or other reasons may remain, causing the performance and constituents
of the underlying index to vary from those expected under normal conditions.
Apart from scheduled rebalances, an index provider may carry out additional
index rebalances due to unusual market conditions or in order, for example, to
correct an error in the selection of index constituents. When an index is
rebalanced and an index fund in turn rebalances its portfolio, such fund and its
shareholders bear any related transaction costs and market
exposure.
More
detailed information about each Fund's index methodology is provided in the
prospectus under Underlying Indices.
Cash
Management
Funds
may have uninvested cash balances pending investment in other securities,
pending payment of redemptions, or in other circumstances where liquidity is
necessary or desirable. A Fund may hold uninvested cash; invest it in cash
equivalents such as money market funds, including the Principal Funds, Inc.
Government Money Market Fund; lend it to other Funds pursuant to the Funds'
interfund lending facility; and/or invest in other instruments that those
managing the Fund’s assets deem appropriate for cash management purposes.
Generally, these types of investments offer less potential for gains than other
types of securities. To attempt to provide returns similar to its benchmark, a
Fund may invest uninvested cash in stock index futures contracts or
exchange-traded funds ("ETFs"), including Principal Exchange-Traded Funds ETFs.
In selecting such investments, the Advisor may have conflicts of interest due to
economic or other incentives to make or retain an investment in certain
affiliated funds instead of in other investments that may be appropriate for the
Fund.
Liquidity
The
Funds have established a liquidity risk management program as required by the
SEC’s Liquidity Rule. Under the program, PGI assesses, manages, and periodically
reviews each Fund’s liquidity risk, which is the risk that a Fund could not meet
requests to redeem shares issued by the Fund without significant dilution of the
remaining investors’ interests in the Fund. As part of the program, PGI
classifies each investment as a “highly liquid investment,” “moderately liquid
investment,” “less liquid investment” or “illiquid investment.” The liquidity of
a Fund’s portfolio investments is determined based on relevant market, trading
and investment-specific considerations under the program. To the extent that an
investment is deemed to be an illiquid investment or a less liquid investment, a
Fund can expect to be exposed to greater liquidity risk.
Certain
fund holdings may be deemed to be less liquid or illiquid because they cannot be
readily sold without significantly impacting the value of the holdings. A fund
is exposed to liquidity risk when trading volume, lack of a market maker, or
legal restrictions impair its ability to sell particular securities or close
derivative positions at an advantageous price. Funds with principal investment
strategies that involve securities of companies with smaller market
capitalizations, foreign securities, derivatives, high yield bonds and bank
loans or securities with substantial market and/or credit risk tend to have the
greatest exposure to liquidity risk.
Liquidity
risk also refers to the risk of unusually high redemption requests, redemption
requests by certain large shareholders such as institutional investors or asset
allocators, or other unusual market conditions that may make it difficult for a
fund to sell investments within the allowable time period to meet redemptions.
Meeting such redemption requests could require a fund to sell securities at
reduced prices or under unfavorable conditions, which would reduce the value of
the fund.
Additional
liquidity risks that apply to ETFs are described under "Market Trading Risks"
below.
Market
Volatility and Securities Issuers
The
value of a fund's portfolio securities may decrease in response to overall stock
or bond market movements. Markets tend to move in cycles, with periods of rising
prices and periods of falling prices. Stocks tend to go up and down in value
more than bonds. Moreover, markets (or certain market sectors) may experience
greater volatility in response to the occurrence of natural or man-made
disasters and catastrophes, such as acts of terrorism, pandemics, military
actions, or political instability. If a fund's investments are concentrated in
certain sectors, its performance could be worse than the overall market.
Additionally, the value of a security may decline for reasons directly related
to the issuer, such as management performance, financial leverage, and reduced
demand for the issuer’s goods or services. As a result, the value of an
individual security or particular type of security can be more volatile than the
market as a whole and can perform differently from the value of the market as a
whole.
Recent
events are impacting the securities markets. A respiratory disease caused by a
novel coronavirus designated as COVID-19 was first detected in China in December
2019 and has spread internationally. The transmission of COVID-19 and efforts to
contain its spread have resulted in border closings and other travel
restrictions and disruptions, disruptions to business operations, supply chains
and customer activity, event cancellations and restrictions, service
cancellations and reductions, significant challenges in the healthcare industry,
and quarantines. These impacts have caused significant volatility and declines
in global financial markets, including declines in oil and commodity markets,
which have caused losses for investors. Health crises may exacerbate other
pre-existing political, social, economic, market and financial risks and could
negatively affect the global economy, as well as the economies of individual
countries, the financial performance of individual companies and sectors, and
the markets in general in significant and unforeseen ways. The COVID-19 outbreak
has resulted in certain of those negative consequences. Governmental and
quasi-governmental authorities and regulators throughout the world, such as the
Federal Reserve, have in the past responded to major economic disruptions with a
variety of significant fiscal and monetary policy changes, including but not
limited to, direct capital infusions into companies, new monetary programs, and
dramatically lower interest rates. Certain of those policy changes are being
implemented or considered in response to the COVID-19 outbreak. Such policy
changes may adversely affect the value, volatility and liquidity of dividend and
interest paying securities.
The
COVID-19 outbreak, and future pandemics, could also impair the information
technology and other operational systems upon which a fund’s investment advisor
or sub-advisor rely, and could otherwise disrupt the ability of the fund’s
service providers to perform essential tasks. In certain cases, an exchange or
market may close or issue trading halts on either specific securities or even
the entire market, which may result in a fund being, among other things, unable
to buy or sell certain securities or financial instruments or accurately price
its investments.
The
impact of the COVID-19 pandemic may be short term or may last for an extended
period of time, and in either case could result in a substantial economic
downturn or recession. The resulting market volatility, dramatic changes to
interest rates, and unfavorable economic conditions could result in a fund’s
inability to achieve its investment objectives, cause the postponement of
reconstitution/rebalance dates of passive funds’ underlying indices, adversely
affect the prices and liquidity of the securities and other instruments in which
a fund invests, negatively impact the fund’s performance, and cause losses on
your investment in the fund. You should also review this prospectus and the
statement of additional information to understand each fund’s discretion to
implement temporary defensive measures, as well as the circumstances in which a
fund may satisfy redemption requests in-kind.
Securities
Lending
To
generate additional income, a Fund may lend its portfolio securities to
broker-dealers and other institutional borrowers to the extent permitted under
the 1940 Act or the rules, regulations or interpretations thereunder. A Fund
that lends its securities will continue to receive amounts equal to the interest
or dividend payments generated by the loaned securities. In addition to
receiving these amounts, the Fund generates income on the loaned securities by
receiving a fee from the borrower, and by earning interest on the collateral
received from the borrower. A negotiated portion of the income is paid to a
securities lending agent (e.g., a bank or trust company) who arranged the loan.
During the term of the loan, the Fund’s investment performance will reflect
changes in the value of the loaned securities.
A
borrower’s obligations under a securities loan is secured continuously by
collateral posted by the borrower and held by the custodian in an amount at
least equal to the market value of the loaned securities. Generally, cash
collateral that a Fund receives from securities lending activities will be
invested in money market funds, which may include the Principal Funds, Inc.
Government Money Market Fund, which is managed by PGI and for which PGI receives
a management fee. Collateral may also be invested in unaffiliated money market
funds.
Securities
lending involves exposure to certain risks, including the risk of losses
resulting from problems in the settlement and accounting process, the risk of a
mismatch between the return on cash collateral reinvestments and the fees each
Fund has agreed to pay a borrower, and credit, legal, counterparty and market
risk. A Fund’s participation in a securities lending transaction may affect the
amount, timing, and character of distributions derived from such transaction to
shareholders. Qualified dividend income does not include “payments in lieu of
dividends,” which the Funds anticipate they will receive in securities lending
transactions.
Temporary
Defensive Measures
From
time to time, as part of its investment strategy, a Fund may invest without
limit in cash and cash equivalents for temporary defensive purposes in response
to adverse market, economic, or political conditions. For this purpose, cash
equivalents include: bank notes, bank certificates of deposit, bankers'
acceptances, repurchase agreements, commercial paper, and commercial paper
master notes, which are floating rate debt instruments without a fixed maturity.
In addition, each Fund may purchase U.S. government securities, preferred
stocks, and debt securities, whether or not convertible into or carrying rights
for common stock. There is no limit on the extent to which a Fund may take
temporary defensive measures. In taking such measures, a Fund may lose the
benefit of upswings and may limit its ability to meet, or fail to achieve, its
investment objective.
Trading
Issues
Although
the shares of the Funds are expected to be listed on the exchange identified in
the fund summary for each Fund, there can be no assurance that an active trading
market for such shares will develop or be maintained. Trading in Shares on the
exchange 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 the exchange's "circuit breaker" rules. There can
be no assurance that the requirements of the exchange necessary to maintain the
listing of a Fund will continue to be met or will remain unchanged.
Strategy
and Risk Table
The
following table lists each Fund and identifies whether the strategies and risks
discussed in this section (listed in alphabetical order) are principal,
non-principal (meaning they are relevant to a Fund but to a lesser degree than
those designated as principal), or not applicable for each Fund. Each fund is
also subject to the risks of any underlying funds in which it invests.
The
SAI contains additional information about investment strategies and their
related risks.
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INVESTMENT
STRATEGIES AND RISKS |
Principal
Active High Yield ETF |
Principal
Healthcare Innovators ETF |
Principal
International Adaptive Multi-Factor ETF |
Principal
International Multi-Factor ETF |
Bank
Loans (also known as Senior Floating Rate interests) |
Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Contingent
Convertible Securities |
Non-Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Convertible
Securities |
Non-Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Counterparty
Risk |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Derivatives |
Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Emerging
Markets |
Principal |
Not
Applicable |
Not
Applicable |
Non-Principal |
Equity
Securities |
Non-Principal |
Principal |
Principal |
Principal |
•Growth
Style |
Not
Applicable |
Principal |
Principal |
Principal |
•Smaller
Companies |
Not
Applicable |
Principal |
Principal |
Principal |
•Value
Style |
Not
Applicable |
Non-Principal |
Principal |
Principal |
Fixed-Income
Securities |
Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Foreign
Currency |
Principal |
Non-Principal |
Principal |
Principal |
Foreign
Securities |
Principal |
Non-Principal |
Principal |
Principal |
Hedging |
Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
High
Portfolio Turnover |
Non-Principal |
Non-Principal |
Principal |
Non-Principal |
High
Yield Securities |
Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Industry
Concentration |
Not
Applicable |
Principal
(1) |
Not
Applicable |
Principal
(1) |
Investment
Company Securities |
Non-Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Leverage |
Non-Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Market
Trading Risks |
Principal |
Principal |
Principal |
Principal |
Master
Limited Partnerships (MLPs) |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Momentum
Style |
Not
Applicable |
Not
Applicable |
Principal |
Principal |
Portfolio
Duration |
Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Preferred
Securities |
Principal |
Not
Applicable |
Non-Principal |
Not
Applicable |
Real
Estate Investment Trusts (REITs) |
Not
Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Real
Estate Securities |
Not
Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Redemption
and Large Transaction Risk |
Principal |
Principal |
Principal |
Principal |
Securitized
Products |
Non-Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
U.S.
Government and U.S. Government-Sponsored Securities |
Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
(1) An
index Fund using a replication strategy may concentrate (invest more than 25% of
its assets) its investments in a particular industry only to the extent the
relevant index is so concentrated.
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INVESTMENT
STRATEGIES AND RISKS |
Principal
Investment Grade Corporate Active ETF |
Principal Millennials
ETF |
Principal
Quality
ETF |
Principal
Spectrum Preferred Securities
Active
ETF |
Bank
Loans (also known as Senior Floating Rate interests) |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Contingent
Convertible Securities |
Non-Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Convertible
Securities |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Counterparty
Risk |
Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Derivatives |
Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Emerging
Markets |
Non-Principal |
Principal |
Not
Applicable |
Not
Applicable |
Equity
Securities |
Not
Applicable |
Principal |
Principal |
Not
Applicable |
•Growth
Style |
Not
Applicable |
Principal |
Principal |
Not
Applicable |
•Smaller
Companies |
Not
Applicable |
Principal |
Principal |
Not
Applicable |
•Value
Style |
Not
Applicable |
Principal |
Principal |
Not
Applicable |
Fixed-Income
Securities |
Principal |
Not
Applicable |
Not
Applicable |
Principal |
Foreign
Currency |
Not
Applicable |
Principal |
Non-Principal |
Not
Applicable |
Foreign
Securities |
Principal |
Principal |
Non-Principal |
Principal |
Hedging |
Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
High
Portfolio Turnover |
Non-Principal |
Non-Principal |
Principal |
Non-Principal |
High
Yield Securities |
Non-Principal |
Not
Applicable |
Not
Applicable |
Principal |
Industry
Concentration |
Not
Applicable |
Principal
(1) |
Principal
(1) |
Principal |
Investment
Company Securities |
Non-Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Leverage |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Market
Trading Risks |
Principal |
Principal |
Principal |
Principal |
Master
Limited Partnerships (MLPs) |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Momentum
Style |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Portfolio
Duration |
Principal |
Not
Applicable |
Not
Applicable |
Principal |
Preferred
Securities |
Non-Principal |
Not
Applicable |
Not
Applicable |
Principal |
Real
Estate Investment Trusts (REITs) |
Not
Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Real
Estate Securities |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Redemption
and Large Transaction Risk |
Principal |
Principal |
Principal |
Principal |
Securitized
Products |
Non-Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
U.S.
Government and U.S. Government-Sponsored Securities |
Principal |
Not
Applicable |
Not
Applicable |
Non-Principal |
(1) An
index Fund using a replication strategy may concentrate (invest more than 25% of
its assets) its investments in a particular industry only to the extent the
relevant index is so concentrated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT
STRATEGIES AND RISKS |
Principal
Spectrum Tax-Advantaged Dividend Active ETF |
Principal
Ultra-Short
Active Income ETF |
Principal
U.S. Large-Cap Adaptive Multi-Factor ETF |
Principal
U.S. Mega-Cap ETF |
Bank
Loans (also known as Senior Floating Rate interests) |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Contingent
Convertible Securities |
Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Convertible
Securities |
Non-Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Counterparty
Risk |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Derivatives |
Non-Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Emerging
Markets |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Equity
Securities |
Non-Principal |
Not
Applicable |
Principal |
Principal |
•Growth
Style |
Non-Principal |
Not
Applicable |
Principal |
Principal |
•Smaller
Companies |
Non-Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
•Value
Style |
Non-Principal |
Not
Applicable |
Principal |
Principal |
Fixed-Income
Securities |
Principal |
Principal |
Not
Applicable |
Not
Applicable |
Foreign
Currency |
Non-Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Foreign
Securities |
Principal |
Principal |
Not
Applicable |
Not
Applicable |
Hedging |
Non-Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
High
Portfolio Turnover |
Non-Principal |
Non-Principal |
Principal |
Non-Principal |
High
Yield Securities |
Principal |
Non-Principal |
Not
Applicable |
Not
Applicable |
Industry
Concentration |
Principal |
Principal |
Not
Applicable |
Principal
(1) |
Investment
Company Securities |
Non-Principal |
Non-Principal |
Not
Applicable |
Not
Applicable |
Leverage |
Non-Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Market
Trading Risks |
Principal |
Principal |
Principal |
Principal |
Master
Limited Partnerships (MLPs) |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Momentum
Style |
Not
Applicable |
Not
Applicable |
Principal |
Not
Applicable |
Portfolio
Duration |
Principal |
Principal |
Not
Applicable |
Not
Applicable |
Preferred
Securities |
Principal |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Real
Estate Investment Trusts (REITs) |
Principal |
Not
Applicable |
Not
Applicable |
Non-Principal |
Real
Estate Securities |
Principal |
Non-Principal |
Not
Applicable |
Non-Principal |
Redemption
and Large Transaction Risk |
Principal |
Principal |
Principal |
Principal |
Securitized
Products |
Not
Applicable |
Principal |
Not
Applicable |
Not
Applicable |
U.S.
Government and U.S. Government-Sponsored Securities |
Non-Principal |
Principal |
Not
Applicable |
Not
Applicable |
(1) An
index Fund using a replication strategy may concentrate (invest more than 25% of
its assets) its investments in a particular industry only to the extent the
relevant index is so concentrated.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT
STRATEGIES AND RISKS |
Principal
U.S. Small-Cap Adaptive Multi-Factor ETF |
Principal
U.S. Small-Cap Multi-Factor ETF |
Principal Value
ETF |
Bank
Loans (also known as Senior Floating Rate interests) |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Contingent
Convertible Securities |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Convertible
Securities |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Counterparty
Risk |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Derivatives |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Emerging
Markets |
Not
Applicable |
Non-Principal |
Non-Principal |
Equity
Securities |
Principal |
Principal |
Principal |
•Growth
Style |
Principal |
Principal |
Non-Principal |
•Smaller
Companies |
Principal |
Principal |
Principal |
•Value
Style |
Principal |
Principal |
Principal |
Fixed-Income
Securities |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Foreign
Currency |
Not
Applicable |
Non-Principal |
Non-Principal |
Foreign
Securities |
Not
Applicable |
Non-Principal |
Non-Principal |
Hedging |
Not
Applicable |
Not
Applicable |
Not
Applicable |
High
Portfolio Turnover |
Principal |
Non-Principal |
Non-Principal |
High
Yield Securities |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Industry
Concentration |
Not
Applicable |
Principal
(1) |
Principal
(1) |
Investment
Company Securities |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Leverage |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Market
Trading Risks |
Principal |
Principal |
Principal |
Master
Limited Partnerships (MLPs) |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Momentum
Style |
Principal |
Principal |
Not
Applicable |
Portfolio
Duration |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Preferred
Securities |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Real
Estate Investment Trusts (REITs) |
Not
Applicable |
Non-Principal |
Non-Principal |
Real
Estate Securities |
Non-Principal |
Non-Principal |
Non-Principal |
Redemption
and Large Transaction Risk |
Principal |
Principal |
Principal |
Securitized
Products |
Not
Applicable |
Not
Applicable |
Not
Applicable |
U.S.
Government and U.S. Government-Sponsored Securities |
Not
Applicable |
Not
Applicable |
Not
Applicable |
(1) An
index Fund using a replication strategy may concentrate (invest more than 25% of
its assets) its investments in a particular industry only to the extent the
relevant index is so concentrated.
Bank
Loans (also known as Senior Floating Rate Interests)
Bank
loans typically hold the most senior position in the capital structure of a
business entity (the "Borrower"), are secured by specific collateral, and have a
claim on the Borrower's assets and/or stock that is senior to that held by the
Borrower's unsecured subordinated debtholders and stockholders. The proceeds of
bank loans primarily are used to finance leveraged buyouts, recapitalizations,
mergers, acquisitions, stock repurchases, dividends, and, to a lesser extent, to
finance internal growth and for other corporate purposes. Bank loans are
typically structured and administered by a financial institution that acts as
the agent of the lenders participating in the bank loan. Most bank loans that
will be purchased by a fund are rated below-investment-grade (sometimes called
“junk”) or will be comparable if unrated, which means they are more likely to
default than investment-grade loans. A default could lead to non-payment of
income which would result in a reduction of income to the fund, and there can be
no assurance that the liquidation of any collateral would satisfy the Borrower's
obligation in the event of non-payment of scheduled interest or principal
payments, or that such collateral could be readily liquidated. Most bank loans
are not traded on any national securities exchange. Bank loans generally have
less liquidity than investment-grade bonds and there may be less public
information available about them. Bank loan interests may not be considered
"securities," and purchasers therefore may not be entitled to rely on the
anti-fraud protections of the federal securities laws.
The
primary and secondary market for bank loans may be subject to irregular trading
activity, wide bid/ask spreads and extended trade settlement periods, which may
cause a fund to be unable to realize full value and thus cause a material
decline in a fund's net asset value. Because transactions in bank loans may be
subject to extended settlement periods, a fund may not receive proceeds from the
sale of a bank loan for a period of time after the sale. As a result, sale
proceeds may not be available to make additional investments or to meet a fund's
redemption obligations for a period of time after the sale of the bank loans,
which could lead to a fund having to sell other investments, borrow to meet
obligations, or borrow to remain fully invested while awaiting
settlement.
Bank
loans pay interest at rates which are periodically reset by reference to a base
lending rate plus a spread. These base lending rates are generally the prime
rate offered by a designated U.S. bank or the London InterBank Offered Rate
(LIBOR) or the prime rate offered by one or more major U.S. banks.
Bank
loans generally are subject to mandatory and/or optional prepayment. Because of
these prepayment conditions and because there may be significant economic
incentives for the borrower to repay, prepayments may occur.
Contingent
Convertible Securities ("CoCos")
Contingent
convertible securities (“CoCos”) are hybrid debt securities intended to either
convert into equity or have their principal written down upon the occurrence of
certain “triggers.” The triggers are generally linked to regulatory capital
thresholds or regulatory actions calling into question the issuing banking
institution’s continued viability as a going-concern, if the conversion trigger
were not exercised. CoCos’ unique equity conversion or principal write-down
features are tailored to the issuing banking institution and its regulatory
requirements. Some additional risks associated with CoCos include, but are not
limited to, the following:
•The
occurrence of a conversion event is inherently unpredictable and depends on many
factors, some of which will be outside the issuer’s control. Because of the
uncertainty regarding whether a conversion event will occur, it may be difficult
to predict when, if at all, a CoCo will be converted to equity, and a fund may
suffer losses as a result.
•CoCos
may have no stated maturity and fully discretionary coupons. This means coupon
(i.e., interest) payments can be canceled at the banking institution’s
discretion or at the request of the relevant regulatory authority in order to
help the bank absorb losses, without causing a default.
•CoCos
are usually issued in the form of subordinated debt instruments to provide the
appropriate regulatory capital treatment. If an issuer liquidates, dissolves or
winds-up before a conversion to equity has occurred, the rights and claims of
the holders of the CoCos (such as a fund) against the issuer generally rank
junior to the claims of holders of unsubordinated obligations of the issuer. In
addition, if the CoCos are converted into the issuer’s underlying equity
securities after a conversion event (i.e., a “trigger”), each holder will be
further subordinated.
•The
value of CoCos is unpredictable and is influenced by many factors including,
without limitation: the creditworthiness of the issuer and/or fluctuations in
such issuer’s applicable capital ratios; supply and demand for CoCos; general
market conditions and available liquidity; and economic, financial and political
events that affect the issuer, its particular market or the financial markets in
general. Moreover, the performance of CoCos may be correlated with one another
and as a result negative information of one issuer may cause decline in the
value of CoCos of many other issuers.
Due
to these features, CoCos may have substantially greater risk than other
securities in times of financial stress. If the trigger level is breached, the
issuer’s decision to write down, write off or convert a CoCo may result in the
fund's complete loss on an investment in CoCos with no chance of recovery even
if the issuer remains in existence.
Convertible
Securities
Convertible
securities are usually fixed-income securities that a fund has the right to
exchange for equity securities at a specified conversion price. Convertible
securities could also include corporate bonds, notes or preferred stocks of U.S.
or foreign issuers. Convertible securities allow a Fund to realize additional
returns if the market price of the equity securities exceeds the conversion
price. For example, a Fund may hold fixed-income securities that are convertible
into shares of common stock at a conversion price of $10 per share. If the
market value of the shares of common stock reached $12, the Fund could realize
an additional $2 per share by converting its fixed-income securities.
Convertible
securities have lower yields than comparable fixed-income securities. In
addition, at the time a convertible security is issued the conversion price
exceeds the market value of the underlying equity securities. Thus, convertible
securities may provide lower returns than non-convertible fixed-income
securities or equity securities depending upon changes in the price of the
underlying equity securities. However, convertible securities permit a Fund to
realize some of the potential appreciation of the underlying equity securities
with less risk of losing its initial investment.
Depending
on the features of the convertible security, a fund will treat a convertible
security as a fixed-income security, equity security, or preferred security for
purposes of investment policies and limitations because of the unique
characteristics of convertible securities. Funds that invest in convertible
securities may invest in convertible securities that are below investment grade
(sometimes referred to as "junk"). Many convertible securities are relatively
illiquid.
Counterparty
Risk
Counterparty
risk is the risk that the counterparty to a contract or other obligation will be
unable or unwilling to honor its obligations. If a counterparty fails to meet
its contractual obligations, goes bankrupt, or otherwise experiences a business
interruption, a fund could miss investment opportunities or otherwise hold
investments it would prefer to sell, resulting in losses for the fund. In
addition, a fund may suffer losses if a counterparty fails to comply with
applicable laws or other requirements. Counterparty risk is pronounced during
unusually adverse market conditions and is particularly acute in environments in
which financial services firms are exposed to systemic risks.
Derivatives
Generally,
a derivative is a financial arrangement, the value of which is derived from, or
based on, a traditional security, asset, or market index. A fund may invest in
certain derivative strategies to earn income, manage or adjust the risk profile
of the fund, replace more direct investments, or obtain exposure to certain
markets. A fund may enter into forward commitment agreements, which call for the
fund to purchase or sell a security on a future date at a fixed price. A fund
may also enter into contracts to sell its investments either on demand or at a
specific interval.
The
risks associated with derivative investments include:
•increased
volatility of a fund and/or the failure of the investment to mitigate volatility
as intended;
•the
inability of those managing investments of the fund to predict correctly the
direction of securities prices, interest rates, currency exchange rates, asset
values, and other economic factors;
•losses
caused by unanticipated market movements, which may be substantially greater
than a fund's initial investment and are potentially unlimited;
•the
possibility that there may be no liquid secondary market which may make it
difficult or impossible to close out a position when desired;
•the
possibility that the counterparty may fail to perform its obligations;
and
•the
inability to close out certain hedged positions to avoid adverse tax
consequences.
There
are many different types of derivatives and many different ways to use them. The
specific derivatives that are principal strategies of each Fund are listed in
its Fund Summary.
•Commodity
Index-Linked Notes are derivative debt instruments issued by U.S. and foreign
banks, brokerage firms, insurance companies and other corporations with
principal and/or coupon payments linked to the performance of commodity indices.
Commodities are assets that have tangible properties, such as oil, coal, natural
gas, agricultural products, industrial metals, livestock and precious metals.
These notes expose a fund to movements in commodity prices. They are also
subject to credit, counterparty, and interest rate risk. Commodity index-linked
notes are often leveraged, increasing the volatility of each note's market value
relative to changes in the underlying commodity index. At the maturity of the
note, a fund may receive more or less principal than it originally invested. A
fund may also receive interest payments on the note that are less than the
stated coupon interest payments.
•Credit
Default Swap Agreements may be entered into by a fund as a "buyer" or "seller"
of credit protection. Credit default swap agreements involve special risks
because they may be difficult to value, are highly susceptible to liquidity and
credit risk, and generally pay a return to the party that has paid the premium
only in the event of an actual default by the issuer of the underlying
obligation (as opposed to a credit downgrade or other indication of financial
difficulty). Credit default swaps can increase credit risk because a fund has
exposure to both the issuer of the referenced obligation and the counterparty to
the credit default swap.
•Foreign
Currency Contracts (such as foreign currency options and foreign currency
forward and swap agreements) may be used by funds to increase exposure to a
foreign currency or to shift exposure to foreign currency fluctuations from one
country to another. A forward currency contract involves a privately negotiated
obligation to purchase or sell a specific currency at a future date at a price
set in the contract. For currency contracts, there is also a risk of government
action through exchange controls that would restrict the ability of a fund to
deliver or receive currency.
•Forwards,
futures contracts and options thereon (including commodities futures); options
(including put or call options); and swap agreements and over-the-counter swap
agreements (e.g., interest rate swaps, total return swaps and credit default
swaps) may be used by funds for hedging purposes in order to try to mitigate or
protect against potential losses due to changing interest rates, securities
prices, asset values, currency exchange rates, and other market conditions;
non-hedging purposes to seek to increase the fund’s income or otherwise enhance
return;
and as a low-cost method of gaining exposure to a particular market without
investing directly in those securities or assets. These derivative investments
are subject to special risk considerations, particularly the imperfect
correlation between the change in market value of the instruments held by a fund
and the price of the derivative instrument. If a fund has insufficient cash, it
may have to sell securities from its portfolio to meet daily variation margin
requirements, even when it may be disadvantageous to do so. Options and Swap
Agreements also involve counterparty risk. With respect to options, there may be
difference in trading hours for the options markets and the markets for the
underlying securities (rate movements can take place in the underlying markets
that cannot be reflected in the options markets) and an insufficient liquid
secondary market for particular options.
•Index/structured
securities. Certain derivative securities are described more accurately as
index/structured securities, which are derivative securities whose value or
performance is linked to other equity securities (such as depositary receipts),
currencies, interest rates, indices, or other financial indicators (reference
indices).
Emerging
Markets
The
Funds consider a security to be tied economically to an emerging market (an
“emerging market security”) if the issuer of the security has its principal
place of business or principal office in an emerging market, has its principal
securities trading market in an emerging market, or derives a majority of its
revenue from emerging markets.
Usually,
the term "emerging market" (also referred to as a "developing market") means any
market that is considered to be an emerging market by the international
financial community (such as markets tied to securities included in the MSCI
Emerging Markets Index or Bloomberg Barclays Emerging Markets USD Aggregate Bond
Index). Emerging markets generally exclude the U.S., Canada, Japan, Australia,
New Zealand, Hong Kong, and Singapore and most nations located in Western
Europe.
Investments
in companies in emerging markets are subject to higher risks than investments in
companies in more developed markets. These risks include:
•increased
social, political, and economic instability;
•a
smaller market for these securities and low or nonexistent trading volume that
results in a lack of liquidity and greater price volatility;
•lack
of publicly available information, including reports of payments of dividends or
interest on outstanding securities;
•foreign
government policies that may restrict opportunities, including restrictions on
investment in issuers or industries deemed sensitive to national
interests;
•relatively
new capital market structure or market-oriented economy;
•the
possibility that recent favorable economic developments may be slowed or
reversed by unanticipated political or social events in these
countries;
•restrictions
that may make it difficult or impossible for a fund to vote proxies, exercise
shareholder rights, pursue legal remedies, and obtain judgments in foreign
courts; and
•possible
losses through the holding of securities in domestic and foreign custodial banks
and depositories.
In
addition, many developing markets have experienced substantial and, in some
periods, extremely high rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economies, currencies, interest rates, and securities markets of
those markets.
Repatriation
of investment income, capital, and proceeds of sales by foreign investors may
require governmental registration and/or approval in some developing markets. A
fund could be adversely affected by delays in or a refusal to grant any required
governmental registration or approval for repatriation.
Further,
the economies of developing markets generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be adversely
affected by trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the
countries with which they trade.
The
U.S. Securities and Exchange Commission, the U.S. Department of Justice, and
other U.S. authorities may be limited in their ability to pursue bad actors,
including instances of fraud in emerging markets. For example, in certain
emerging markets, there are significant legal obstacles to obtaining information
needed for investigations or litigation. Similar limitations apply to the
pursuit of actions against individuals, including officers, who may have engaged
in fraud or wrongdoing. In addition, local authorities often are constrained in
their ability to assist U.S. authorities and overseas investors more generally.
There are also legal or other obstacles to seeking access to funds in a foreign
country.
Equity
Securities
Equity
securities include common stocks, some convertible securities, preferred stock,
depositary receipts, rights (an offering of common stock to investors who
currently own shares which entitle them to buy subsequent issues at a discount
from the offering price), and warrants (the right to purchase securities from
the issuer at a specified price, normally higher than the current market price).
Common stocks, the most familiar type, represent an equity (ownership) interest
in a corporation. The value of a company's stock may fall as a result of factors
directly relating to that company, such as decisions made by its management or
lower demand for the company's products or services. A stock's value may also
fall because of factors affecting not just the company, but also companies in
the same industry or in a number of different industries, such as increases in
production costs. The value of a company's stock may also be affected by changes
in financial markets that are relatively unrelated to the company or its
industry, such as changes in interest rates or currency exchange rates. In
addition, a company's stock generally pays dividends only after the company
invests in its own business and makes required payments to holders of its bonds
and other debt. For this reason, the value of a company's stock will usually
react more strongly than its bonds and other debt to actual or perceived changes
in the company's financial condition or prospects.
Some
funds focus their investments on certain market capitalization ranges. Market
capitalization is defined as total current market value of a company's
outstanding equity securities. The market capitalization of companies in a
fund’s portfolios and their related indexes will change over time, and, except
to the extent consistent with its principal investment strategies (for example,
for an index fund that uses a replication strategy), a fund will not
automatically sell a security just because it falls outside of the market
capitalization range of its index(es).
Growth
Style
The
prices of growth stocks may be based largely on expectations of future earnings,
and their prices can decline rapidly and significantly in reaction to negative
news about such factors as earnings, revenues, the economy, political
developments, or other news. Growth stocks may underperform value stocks and
stocks in other broad style categories (and the stock market as a whole) over
any period of time and may shift in and out of favor with investors generally,
sometimes rapidly, depending on changes in market, economic, and other factors.
As a result, a fund that holds substantial investments in growth stocks may
underperform other funds that invest more broadly or favor different investment
styles. Because growth companies typically reinvest their earnings, growth
stocks typically do not pay dividends at levels associated with other types of
stocks, if at all.
Smaller
Companies
Investments
in companies with smaller market capitalizations may involve greater risks and
price volatility (wide, rapid fluctuations) than investments in larger, more
mature companies. Small company stocks may decline in price as large company
stocks rise, or rise in price while larger company stocks decline. The net asset
value of a fund that invests a substantial portion of its assets in small
company stocks may therefore be more volatile than the shares of a fund that
invests solely in larger company stocks. Small companies may be less significant
within their industries and may be at a competitive disadvantage relative to
their larger competitors. Smaller companies may be less mature than larger
companies. At this earlier stage of development, the companies may have limited
product lines, reduced market liquidity for their shares, limited financial
resources, or less depth in management than larger or more established
companies. While smaller companies may be subject to these additional risks,
they may also realize more substantial growth than larger or more established
companies.
Unseasoned
issuers are companies with a record of less than three years continuous
operation, including the operation of predecessors and parents. Many unseasoned
issuers also may be small companies and involve the risks and price volatility
associated with smaller companies. Unseasoned issuers by their nature have only
a limited operating history that can be used for evaluating the company's growth
prospects. As a result, these securities may place a greater emphasis on current
or planned product lines and the reputation and experience of the company's
management and less emphasis on fundamental valuation factors than would be the
case for more mature growth companies.
Value
Style
Value
stocks present the risk that they may decline in price or never reach their
expected full market value because the market fails to recognize the stock's
intrinsic worth. Value stocks may underperform growth stocks and stocks in other
broad style categories (and the stock market as a whole) over any period of time
and may shift in and out of favor with investors generally, sometimes rapidly,
depending on changes in market, economic, and other factors. As a result, a fund
that holds substantial investments in value stocks may underperform other funds
that invest more broadly or favor different investment styles.
Fixed-Income
Securities
Fixed-income
securities include bonds and other debt instruments that are used by issuers to
borrow money from investors (examples include corporate bonds, convertible
securities, asset- and mortgage-backed securities, and municipal, agency, and
U.S. government securities). The issuer of a fixed-income security generally
pays the investor a fixed, variable, or floating rate of interest. The amount
borrowed must be repaid at maturity. Some debt securities, such as zero coupon
bonds, do not pay current interest, but are sold at a discount from their face
values.
Fixed-income
securities are sensitive to changes in interest rates. In general, fixed-income
security prices rise when interest rates fall and fall when interest rates rise.
An increase in interest rates from a low interest rate environment may lead to
heightened volatility and redemptions alongside reduced liquidity and dealer
market-making capacity in fixed income markets. If interest rates fall, issuers
of callable bonds may call (repay) securities with high interest rates before
their maturity dates; this is known as call risk. In this case, a fund would
likely reinvest the proceeds from these securities at lower interest rates,
resulting in a decline in the fund's income. Very low interest rates, including
rates that fall below zero (where banks charge for depositing money), may
detract from a Fund’s performance and its ability to maintain positive returns
to the extent the Fund is exposed to such interest rates. To the extent a Fund
holds an investment with a negative interest rate to maturity, the Fund would
generate a negative return on that investment. Floating rate securities
generally are less sensitive to interest rate changes but may decline in value
if their interest rates do not rise as much, or as quickly, as interest rates in
general. Conversely, floating rate securities will not generally increase in
value if interest rates decline.
The
United Kingdom’s Financial Conduct Authority, which regulates the London
Inter-bank Offered Rate (“LIBOR”), plans to phase out LIBOR by the end of 2021.
There remains uncertainty regarding LIBOR’s future and the nature of a
replacement rate. LIBOR’s discontinuation and replacement could lead to
short-term and long-term uncertainty, market instability, and adverse impacts to
newly issued and existing financial instruments that reference LIBOR. While some
instruments may contemplate the discontinuation of LIBOR by providing for an
alternative rate-setting methodology, not all instruments may have such
provisions and there is uncertainty regarding the effectiveness of any
alternative methodology. In addition, LIBOR’s discontinuation or replacement may
affect the value, liquidity, or return on certain Fund investments and may
result in costs in connection with closing out positions and entering into new
trades.
Fixed-income
securities are also affected by the credit quality of the issuer. Investment
grade debt securities are medium and high quality securities. Some bonds, such
as lower grade or "junk" bonds, may have speculative characteristics and may be
particularly sensitive to economic conditions and the financial condition of the
issuers. Credit risk refers to the possibility that the issuer of the security
will not be able to make principal and interest payments when due.
Additionally,
a Fund's investments in companies with smaller market capitalizations may
involve greater risks, price volatility (wide, rapid fluctuations), and less
liquidity than investments in larger, more mature companies.
Foreign
Currency
Certain
of a Fund's investments will be denominated in foreign currencies or traded in
securities markets in which settlements are made in foreign currencies. Any
income on such investments is generally paid to a fund in foreign currencies. In
addition, funds may engage in foreign currency transactions for both hedging and
investment purposes, as well as to increase exposure to a foreign currency or to
shift exposure to foreign currency fluctuations from one country to
another.
The
value of foreign currencies relative to the U.S. dollar varies continually,
causing changes in the dollar value of a fund’s portfolio investments (even if
the local market price of the investments is unchanged) and changes in the
dollar value of a fund’s income available for distribution to its shareholders.
The effect of changes in the dollar value of a foreign currency on the dollar
value of a fund’s assets and on the net investment income available for
distribution may be favorable or unfavorable. Transactions in non-U.S.
currencies are also subject to many of the risks of investing in foreign
(non-U.S.) securities; for example, changes in foreign economies and political
climates are more likely to affect a fund that has foreign currency exposure
than a fund that invests exclusively in U.S. companies and currency. There also
may be less government supervision of foreign markets, resulting in non-uniform
accounting practices and less publicly available information. Transactions in
foreign currencies, foreign currency denominated debt and certain foreign
currency options, futures contracts and forward contracts (and similar
instruments) may give rise to ordinary income or loss to the extent such income
or loss results from fluctuations in the value of the foreign currency
concerned.
A
fund may incur costs in connection with conversions between various currencies.
In addition, a fund may be required to liquidate portfolio assets, or may incur
increased currency conversion costs, to compensate for a decline in the dollar
value of a foreign currency occurring between the time when a fund declares and
pays a dividend, or between the time when a fund accrues and pays an operating
expense in U.S. dollars. To protect against a change in the foreign currency
exchange rate between the date on which a fund contracts to purchase or sell a
security and the settlement date for the purchase or sale, to gain exposure to
one or more foreign currencies or to "lock in" the equivalent of a dividend or
interest payment in another currency, a fund might purchase or sell a foreign
currency on a spot (i.e.,
cash) basis at the prevailing spot rate.
Currency
hedging involves some of the same general risks and considerations as other
transactions with similar instruments (i.e.,
derivative instruments) and hedging. Currency transactions are also subject to
additional risks. Because currency control is of great importance to the issuing
governments and influences economic planning and policy, purchases and sales of
currency and related instruments can be adversely affected by government
exchange controls, limitations or restrictions on repatriation of currency, and
manipulations or exchange restrictions imposed by governments. These forms of
governmental actions can result in losses to a fund if it is unable to deliver
or receive currency or monies in settlement of obligations. They could also
cause hedges the fund has entered into to be rendered useless, resulting in full
currency exposure as well as incurring transaction costs. Settlement of a
currency forward contract for the purchase of most currencies must occur at a
bank based in the issuing nation. The ability to establish and close out
positions on trading options on currency futures contracts is subject to the
maintenance of a liquid market that may not always be available.
Foreign
Securities
The
Funds consider a security to be tied economically to countries outside the U.S.
(a “foreign security”) if the issuer of the security has its principal place of
business or principal office outside the U.S., has its principal securities
trading market outside the U.S., or derives a majority of its revenue
from outside the U.S.
There
may be less publicly available information about foreign companies than U.S.
companies, and information about foreign securities in which the Funds invest
may be less reliable or complete. Foreign companies, including those listed on
U.S. securities exchanges, may not be subject to the same uniform accounting,
auditing, and financial reporting practices as are required of U.S. companies
with respect to such matters as insider trading rules, tender offer regulation,
accounting standards or auditor oversight, stockholder proxy requirements and
the requirements mandating timely and accurate disclosure of information. For
example, the Chinese government has taken positions that prevent the Public
Company Accounting Oversight Board from inspecting the audit work and practices
of accounting firms in mainland China and Hong Kong for compliance with U.S. law
and professional standards. In addition, securities of many foreign companies
are less liquid and more volatile than securities of comparable U.S. companies.
Commissions on foreign securities exchanges may be generally higher than those
on U.S. exchanges.
Foreign
markets also have different clearance and settlement procedures than those in
U.S. markets. In certain markets, there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct these transactions. Delays in settlement could result in
temporary periods when a portion of Fund assets is not invested and earning no
return. If the Fund is unable to make intended security purchases due to
settlement problems, the Fund may miss attractive investment opportunities. In
addition, the Fund may incur a loss as a result of a decline in the value of its
portfolio if it is unable to sell a security.
With
respect to certain foreign countries, there is the possibility of
nationalization, expropriation or confiscatory taxation, political or social
instability, or diplomatic developments that could affect the Fund's investments
in those countries. In addition, the Fund may also suffer losses due to
differing accounting practices and treatments. Investments in foreign securities
are subject to laws of the foreign country that may limit the amount and types
of foreign investments. Changes of governments or of economic or monetary
policies, in the U.S. or abroad, changes in dealings between nations, currency
convertibility or exchange rates could result in investment losses for the Fund.
Foreign
securities are often traded with less frequency and volume, and therefore may
have greater price volatility than is the case with many U.S. securities.
Brokerage commissions, custodial services, and other costs relating to
investment in foreign countries are generally more expensive than in the U.S.
Though the Fund intends to acquire the securities of foreign issuers where there
are public trading markets, economic or political turmoil in a country in which
the Fund has a significant portion of its assets or deterioration of the
relationship between the U.S. and a foreign country may reduce the liquidity of
the Fund's portfolio, and the Fund may have difficulty meeting a large number of
redemption requests. Furthermore, there may be difficulties in obtaining or
enforcing judgments against foreign issuers.
A
fund may invest in a foreign company by purchasing depositary receipts.
Depositary receipts are certificates of ownership of shares in a foreign-based
issuer held by a bank or other financial institution. They are alternatives to
purchasing the underlying security but are subject to the foreign securities
risks to which they relate.
A
fund may file claims to recover foreign withholding taxes on dividend and
interest income (if any) received from issuers in certain countries and capital
gains on the disposition of stocks or securities where such withholding tax
reclaim is possible. Whether or when a fund will receive a withholding tax
refund is within the control of the tax authorities in such countries. Where a
fund expects to recover withholding taxes, the net asset value of a fund
generally includes accruals for such tax refunds. If the likelihood of recovery
materially decreases, accruals in the fund’s net asset value for such refunds
may be written down partially or in full, which will adversely affect the fund’s
net asset value. Shareholders in the fund at the time an accrual is written down
will bear the impact of the resulting reduction in net asset value regardless of
whether they were shareholders during the accrual period. Conversely, if a fund
receives a tax refund that has not been previously accrued, shareholders in the
fund at the time of the successful recovery will benefit from the resulting
increase in the fund’s net asset value. Shareholders who sold their shares prior
to such time will not benefit from such increase in the fund’s net asset
value
If
a fund's portfolio invests significantly in a certain geographic region, any
negative development affecting that region will have a greater impact on the
fund than a fund that is not as heavily invested in that region. For example,
with respect to funds that invest significantly in China or the EU:
•
Investing
in China involves certain heightened risks and considerations including, among
others: frequent trading suspensions and government interventions (including by
nationalizing assets); currency exchange rate fluctuations or blockages; limits
on using brokers and on foreign ownership; different financial reporting
standards, as described above; higher dependence on exports and international
trade; political and social instability; infectious disease outbreaks; regional
and global conflicts; increased trade tariffs, embargoes and other trade
limitations; custody and other risks associated with programs used to access
Chinese securities; and uncertainties in tax rules that could result in
unexpected tax liabilities for the Fund. Significant portions of the Chinese
securities markets may become rapidly illiquid, as Chinese issuers have the
ability to suspend the trading of their equity securities. Moreover, actions by
the U.S. government, such as delisting of certain Chinese companies from U.S.
securities exchanges or otherwise restricting their operations in the U.S., may
negatively impact the value of such securities held by the funds.
•
Funds
that invest in the United Kingdom (the "UK") face risks related to the UK's
departure from the European Union (the “EU”), commonly known as “Brexit.” Brexit
has resulted in significant uncertainties and instability in the financial
markets, and considerable uncertainty remains related to the potential
consequences associated with the exit, how the negotiations for the withdrawal
and new trade agreements will be conducted, and whether the UK's exit will
increase the likelihood of other countries also departing the EU. Brexit may
have significant political and financial consequences in the UK, as well as in
European markets and the broader global economy, which may result in increased
volatility and illiquidity, and potentially lower economic growth in markets in
the UK, Europe and globally.
Hedging
Hedging
is a strategy that can be used to attempt to mitigate or protect against
potential losses due to changing interest rates, securities prices, asset
values, currency exchange rates, and other market conditions. The success of a
Fund’s hedging strategy will be subject to the ability of those managing the
Fund's investments to correctly assess the degree of correlation between the
performance of the instruments used in the hedging strategy and the performance
of the investments in the portfolio being hedged. Since the characteristics of
many securities change as markets change or time passes, the success of the
Fund’s hedging strategy will also be subject to the ability of those managing
the Fund's investments to continually recalculate, readjust, and execute hedges
in an efficient and timely manner. For a variety of reasons, those managing the
Fund's investments may not seek to establish a perfect correlation between such
hedging instruments and the portfolio holdings being hedged. Such imperfect
correlation may prevent the Fund from achieving the intended hedge or expose the
Fund to risk of loss. In addition, it is not possible to hedge fully or
perfectly against any risk, and hedging entails its own costs.
High
Portfolio Turnover
"Portfolio
Turnover" is the term used in the industry for measuring the amount of trading
that occurs in a fund's portfolio during the year. For example, a 100% turnover
rate means that on average every security in the portfolio has been replaced
once during the year. Funds with high turnover rates (more than 100%) often have
higher transaction costs (which are paid by the Fund) that may lower the Fund's
performance. High portfolio turnover can result in a lower capital gain
distribution due to higher transaction costs added to the basis of the assets or
can result in lower ordinary income distributions to shareholders when the
transaction costs cannot be added to the basis of assets. Both events reduce
fund performance.
Please
consider all the factors when you compare the turnover rates of different funds.
You should also be aware that the "total return" line in the Financial
Highlights section reflects portfolio turnover costs.
High
Yield Securities
Below
investment grade securities are fixed income securities that are rated at the
time of purchase Ba1 or lower by Moody's Investors Service, Inc. ("Moody's") and
BB+ or lower by S&P Global Ratings ("S&P Global") (if the security has
been rated by only one of those agencies, that rating will determine if the
security is below investment grade; if the security has not been rated by either
of those agencies, those managing investments of a Fund will determine whether
the security is of a quality comparable to those rated below investment grade).
Below investment grade securities are sometimes referred to as high yield or
"junk bonds" and are considered speculative, particularly with respect to the
issuer's continuing ability to meet principal and interest payments. Such
securities could be in default at time of purchase.
Investing
in high yield securities involves special risks in addition to those associated
with investing in investment grade securities.
•High
yield securities may be less liquid than investment grade
securities.
•The
secondary market on which high yield securities are traded may be less liquid,
which may reduce the price of the security and adversely affect and cause large
fluctuations in the daily price of the Fund's shares.
•Analysis
of the creditworthiness of issuers of high yield securities is more complex. To
the extent a Fund invests in high yield securities, its ability to meet its
objective may be more dependent on such credit analyses.
•High
yield securities may be more susceptible to real or perceived adverse economic
and competitive industry conditions. Although high yield securities prices tend
to be less sensitive to interest rate changes than those of investment grade
securities, they tend to be more sensitive to adverse economic downturns or
individual corporate developments. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may decrease the value and
liquidity of high yield securities, especially in a thinly traded
market.
•If
the issuer of high yield securities defaults, a Fund may incur additional
expenses to seek recovery.
•If
an issuer of high yield securities undergoes a corporate restructuring, such
high yield securities may become exchanged for or converted into reorganized
equity of the underlying issuer. Moreover, to the extent that a bond indenture
or loan agreement does not contain sufficiently protective covenants or
otherwise permits the issuer to take certain actions to the Fund's detriment
(such as distributing cash to equity holders, incurring additional indebtedness,
and disposing of assets), the underlying value of the high yield security may
decline.
The
use of credit ratings for evaluating high yield securities also involves certain
risks. For example, credit ratings reflect the safety of principal and interest
payments, not the market value risk of high yield securities. Also, credit
rating agencies may fail to change credit ratings in a timely manner to reflect
subsequent events. If a credit rating agency changes the rating of a portfolio
security held by a Fund, the Fund may retain the security.
Industry
Concentration
A
fund that concentrates its investments (invests more than 25% of its net assets)
in a particular industry (or group of industries) is more exposed to the overall
condition of the particular industry than a fund that invests in a wider variety
of industries. A particular industry could be affected by economic, business,
supply-and-demand, political, or regulatory factors. Companies within the same
industry could react similarly to such factors. As a result, a fund’s
concentration in a particular industry would increase the possibility that the
fund’s performance will be affected by such factors.
Investment
Company Securities
Securities
of other investment companies, including shares of closed-end investment
companies, unit investment trusts, various exchange-traded funds ("ETFs"), and
other open-end investment companies, represent interests in professionally
managed portfolios that may invest in a variety of instruments. Certain types of
investment companies, such as closed-end investment companies, issue a fixed
number of shares that trade on a stock exchange or over-the-counter at a premium
or a discount to their net asset value. Others are continuously offered at net
asset value, but may also be traded in the secondary market. ETFs are often
structured to perform in a similar fashion to a broad-based securities index.
Investing in ETFs involves generally the same risks as investing directly in the
underlying instruments. Investing in ETFs involves the risk that they will not
perform in exactly the same fashion, or in response to the same factors, as the
index or underlying instruments. Shares of ETFs may trade at prices other than
NAV.
A
fund that invests in another investment company is subject to the risks
associated with direct ownership of the securities in which such investment
company invests. Fund shareholders indirectly bear their proportionate share of
the expenses of each such investment company, including its advisory and
administrative fees. The Fund would also continue to pay its own advisory fees
and other expenses. Consequently, the Fund and its shareholders would, in
effect, absorb two levels of fees with respect to investments in other
investment companies.
A
fund may invest in affiliated underlying funds, and those who manage such fund's
investments and their affiliates may earn different fees from different
underlying funds and may have an incentive to allocate more fund assets to
underlying funds from which they receive higher fees.
Leverage
If
a fund makes investments in futures contracts, forward contracts, swaps and
other derivative instruments, these instruments provide the economic effect of
financial leverage by creating additional investment exposure, as well as the
potential for greater loss. If a fund uses leverage through activities such as
borrowing, entering into short sales, purchasing securities on margin or on a
“when-issued” basis or purchasing derivative instruments in an effort to
increase its returns, the fund has the risk of magnified capital losses that
occur when losses affect an asset base, enlarged by borrowings or the creation
of liabilities, that exceeds the net assets of the fund. The net asset value of
a fund employing leverage will be more volatile and sensitive to market
movements. Leverage may involve the creation of a liability that requires the
fund to pay interest. Leveraging may cause a fund to liquidate portfolio
positions to satisfy its obligations or to meet segregation requirements when it
may not be advantageous to do so. To the extent that a fund is not able to close
out a leveraged position because of market illiquidity, a fund’s liquidity may
be impaired to the extent that it has a substantial portion of liquid assets
segregated or earmarked to cover obligations.
Market
Trading Risks
The
net asset value ("NAV") of the Shares generally will fluctuate with changes in
the market value of each Fund's holdings. The market prices of the Shares
generally will fluctuate in accordance with changes in NAV, as well as the
relative supply of and demand for Shares on the respective exchanges, PGI cannot
predict whether the Shares will trade below, at or above their NAV. Price
differences may be due largely to the fact that supply and demand forces at work
in the secondary trading market for the Shares will be related, but not
identical, to the forces influencing the prices of the securities held by the
Fund (individually or in the aggregate) at any time.
Only
authorized participants ("APs") may engage in creation or redemption
transactions directly with each Fund. (See "Purchase and Sale of Fund
Shares-Generally.") The Fund has a limited number of institutions that may act
as APs, none of which are or will be obligated to engage in creation or
redemption transactions. To the extent that these institutions exit the business
or are unable or unwilling to proceed with creation and/or redemption orders
with respect to the Fund, and no other AP is able or willing to step forward to
create or redeem Creation Units, Fund shares may trade at a discount to NAV and
possibly face trading halts and/or delisting. Such disruptions to creations and
redemptions or the existence of extreme market volatility may result in trading
prices that differ significantly from NAV.
With
respect to funds that invest in foreign securities, since foreign exchanges may
be open on days when such a fund does not price its shares, the value of the
fund’s portfolio may change on days when shareholders will not be able to
purchase or sell the fund’s Shares, and may result in trading prices that differ
significantly from NAV. Additionally, such funds may be subject to heightened
risks since APs may be required to post collateral with such investments, which
only certain APs are able to do. Moreover, to the extent that an AP is unable or
unwilling to trade on an agency basis for foreign securities, there could be a
diminished trading market for ETF shares, and shares may trade at a discount to
NAV.
If
a shareholder purchases at a time when the market price is at a premium to the
NAV or sells at a time when the market price is at a discount to the NAV, the
shareholder may sustain losses. Given that Shares can be created and redeemed
only in Creation Units at NAV, PGI believes that large discounts and premiums
should not be sustained over the long term.
Master
Limited Partnerships (MLPs)
An
MLP that invests in a particular industry (e.g., oil and gas) will be harmed by
detrimental economic events within that industry. For example, the business of
certain MLPs is affected by supply and demand for energy commodities because
such MLPs derive revenue and income based upon the volume of the underlying
commodity produced, transported, processed, distributed, and/or marketed. Many
MLPs are also subject to various federal, state and local environmental laws and
health and safety laws as well as laws and regulations specific to their
particular activities.
MLPs
tend to pay relatively higher distributions than other types of companies. The
amount of cash that an MLP can distribute to its partners will depend on the
amount of cash it generates from operations, which will vary from quarter to
quarter depending on factors affecting the market generally and on factors
affecting the particular business lines of the MLP. Available cash will also
depend on the MLPs' level of operating costs (including incentive distributions
to the
general
partner), level of capital expenditures, debt service requirements, acquisition
costs (if any), fluctuations in working capital needs and other factors.
Certain
benefits derived from investment in MLPs depend largely on the MLPs being
treated as partnerships for federal income tax purposes. As a partnership, an
MLP has no federal income tax liability at the entity level. MLPs taxed as
partnerships file a partnership tax return for U.S. federal, state, and local
income tax purposes and communicate the Fund's allocable share of the MLP's
income, gains, losses, deductions, and expenses via a "Schedule K-1." Each year,
the Fund will send you an annual tax statement (Form 1099) to assist you in
completing your tax returns. In some circumstances the Fund may need to send you
a corrected Form 1099, which could require you to amend your tax returns. For
example, if the Fund keeps MLP investments until the basis (generally the price
paid for the units, as adjusted downwards with each distribution and allocation
of deductions and losses, and upwards with each allocation of taxable income and
gain) is zero, subsequent distributions will be taxable to the Fund at ordinary
income rates and shareholders may receive a corrected Form 1099.
If,
as a result of a change in current law or a change in an MLP's business, an MLP
was treated as a corporation for federal income tax purposes, the MLP would be
obligated to pay federal income tax on its income at the corporate tax rate. If
an MLP was classified as a corporation for federal income tax purposes, the
amount of cash available for distribution would be reduced and the distributions
received might be taxed entirely as dividend income.
Momentum
Style
Investing
in or having exposure to securities with positive momentum entails investing in
securities that have had above-average recent returns. These securities
may be more volatile than a broad cross-section of securities. Returns on
securities that have previously exhibited momentum may be less than returns on
other styles of investing or the overall stock market. Momentum can turn
quickly and cause significant variation from other types of investments, and
stocks that previously exhibited high momentum may not experience continued
positive momentum. In addition, there may be periods when the momentum
style is out of favor, and during which the investment performance of the Fund
using a momentum strategy may suffer.
Portfolio
Duration
Average
duration is a mathematical calculation of the average life of a bond (or for a
bond fund, the average life of the fund's underlying bonds, weighted by the
percentage of the fund's assets that each represents) that serves as a useful
measure of its price risk. Duration is an estimate of how much the value of the
bonds held by a fund will fluctuate in response to a change in interest rates.
For example, if a fund has an average duration of 4 years and interest rates
rise by 1%, the value of the bonds held by the fund will decline by
approximately 4%, and if the interest rates decline by 1%, the value of the
bonds held by the fund will increase by approximately 4%. Longer term bonds and
zero coupon bonds are generally more sensitive to interest rate changes.
Duration, which measures price sensitivity to interest rate changes, is not
necessarily equal to average maturity.
Preferred
Securities
Preferred
securities include preferred stock and various types of junior subordinated debt
and trust preferred securities. Preferred securities may pay fixed rate or
adjustable rate distributions and generally have a payment "preference" over
common stock, but are junior to the issuer's senior debt in a liquidation of the
issuer’s assets. Preference would mean that a company must pay on its preferred
securities before paying on its common stock, and that any claims of the
preferred security holder would typically be ahead of common stockholders'
claims on assets in a corporate liquidation.
Holders
of preferred securities usually have no right to vote for corporate directors or
on other matters. The market value of preferred securities is sensitive to
changes in interest rates as they are typically fixed income securities; the
fixed-income payments are expected to be the primary source of long-term
investment return. While some preferred securities are issued with a final
maturity date, others are perpetual in nature. In certain instances, a final
maturity date may be extended and/or the final payment of principal may be
deferred at the issuer’s option for a specified time without triggering an event
of default for the issuer. In addition, an issuer of preferred securities may
have the right to redeem the securities before their stated maturity date. For
instance, for certain types of preferred securities, a redemption may be
triggered by a change in federal income tax or securities laws. As with call
provisions, a redemption by the issuer may reduce the return of the security
held by the fund. Preferred securities may be subject to provisions that allow
an issuer, under certain circumstances to skip (indefinitely) or defer (possibly
up to 10 years) distributions. If a fund owns a preferred security that is
deferring its distribution, the fund may be required to report income for tax
purposes while it is not receiving any income.
Preferred
securities are typically issued by corporations, generally in the form of
interest or dividend bearing instruments, or by an affiliated business trust of
a corporation, generally in the form of beneficial interests in subordinated
debentures or similarly structured securities. The preferred securities market
is generally divided into the
$25
par “retail” and the $1,000 par “institutional” segments. The $25 par segment
includes securities that are listed on the New York Stock Exchange (exchange
traded), which trade and are quoted with accrued dividend or interest income,
and which are often callable at par value five years after their original
issuance date. The institutional segment includes $1,000 par value securities
that are not exchange-listed (over the counter), which trade and are quoted on a
“clean” price, i.e., without accrued dividend or interest income, and which
often have a minimum of 10 years of call protection from the date of their
original issuance. Preferred securities can also be issued by real estate
investment trusts and involve risks similar to those associated with investing
in real estate investment trust companies.
Real
Estate Investment Trusts ("REITs")
REITs
involve certain unique risks in addition to the risks associated with investing
in the real estate industry in general (such as possible declines in the value
of real estate, lack of availability of mortgage funds, or extended vacancies of
property). REITs are characterized as: equity REITs, which primarily own
property and generate revenue from rental income; mortgage REITs, which invest
in real estate mortgages; and hybrid REITs, which combine the characteristics of
both equity and mortgage REITs. Equity REITs may be affected by changes in the
value of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of any credit extended. REITs are dependent upon
management skills, are not diversified, and are subject to heavy cash flow
dependency, risks of default by borrowers, and self-liquidation. A fund that
invests in a REIT is subject to the REIT’s expenses, including management fees,
and will remain subject to the fund's advisory fees with respect to the assets
so invested. REITs are also subject to the possibilities of failing to qualify
for the special tax treatment accorded REITs under the Internal Revenue Code,
and failing to maintain their exemptions from registration under the 1940
Act.
Regular
REIT dividends received by a Fund from a REIT will not qualify for the corporate
dividends-received deduction and generally will not constitute qualified
dividend income for U.S. income tax purposes. Any distribution of income
attributable to regular REIT dividends from a Fund’s investment in a REIT will
not qualify for the deduction that would be available to a non-corporate
shareholder were the shareholder to own such REIT directly.
Investment
in REITs also involves risks similar to those associated with investing in small
market capitalization companies. REITs may have limited financial resources, may
trade less frequently and in a limited volume, and may be subject to more abrupt
or erratic price movements than larger company securities.
Real
Estate Securities
Investing
in securities of companies in the real estate industry subjects a fund to the
special risks associated with the real estate market and the real estate
industry in general. Generally, companies in the real estate industry are
considered to be those that have principal activity involving the development,
ownership, construction, management or sale of real estate; have significant
real estate holdings, such as hospitality companies, healthcare facilities,
supermarkets, mining, lumber and/or paper companies; and/or provide products or
services related to the real estate industry, such as financial institutions
that make and/or service mortgage loans and manufacturers or distributors of
building supplies. Securities of companies in the real estate industry are
sensitive to factors such as loss to casualty or condemnation, changes in real
estate values, property taxes, interest rates, cash flow of underlying real
estate assets, occupancy rates, government regulations affecting zoning, land
use and rents, and the management skill and creditworthiness of the issuer.
Companies in the real estate industry may also be subject to liabilities under
environmental and hazardous waste laws.
Redemption
and Large Transaction Risk
Ownership
of a fund's shares may be concentrated in one or a few large investors (such as
funds of funds, institutional investors, and asset allocation programs) that may
redeem or purchase shares in large quantities. These transactions may cause a
fund to sell securities to meet redemptions or to invest additional cash at
times it would not otherwise do so, which may result in increased transaction
costs, increased expenses, changes to expense ratios, and adverse effects to
fund performance. Such transactions may also accelerate the realization of
taxable income if sales of portfolio securities result in gains.
As
an example, as of June 30, 2020, Principal Funds, Inc. ("PFI") and Principal
Variable Contracts Funds, Inc. ("PVC") funds of funds owned the following
percentages, in the aggregate, of the outstanding shares of the underlying funds
listed below. Principal Global Investors, LLC ("PGI") is the advisor to the PFI
and PVC funds of funds and is committed to minimizing the potential impact of
redemption and large transaction risk on underlying funds to the extent
consistent with pursuing the investment objectives of the funds of funds that it
manages. However, PGI and its affiliates may face conflicts of interest in
fulfilling responsibilities to all such funds.
|
|
|
|
|
|
Fund |
Total
Percentage
of
Outstanding
Shares
Owned |
Principal
Active Global Dividend Income ETF |
98.52% |
Principal
Active High Yield ETF |
86.25% |
Principal
Investment Grade Corporate Active ETF |
95.18% |
Principal
Quality ETF |
1.27% |
Principal
U.S. Mega-Cap ETF |
87.43% |
Principal
U.S. Small-Cap Multi-Factor ETF |
96.67% |
Purchases
and redemptions of creation units primarily with cash rather through in kind
delivery of portfolio securities may cause the ETF to incur certain costs, such
as brokerage costs or taxable gains or losses that it might not have incurred if
it had made redemption in kind. These costs could be imposed on the ETF and thus
decrease its NAV to the extent that the costs are not offset by a transaction
fee payable by an authorized participant.
Securitized
Products
Securitized
products are fixed income instruments that represent interests in underlying
pools of collateral or assets. The value of the securitized product is derived
from the performance, value, and cash flows of the underlying asset(s). A fund’s
investments in securitized products are subject to risks similar to traditional
fixed income securities, such as credit, interest rate, liquidity, prepayment,
extension, and default risk, as well as additional risks associated with the
nature of the assets and the servicing of those assets. Prepayment risk may make
it difficult to calculate the average life of a fund’s investment in securitized
products. Securitized products are generally issued as pass-through
certificates, which represent the right to receive principal and interest
payments collected on the underlying pool of assets, which are passed through to
the security holder. Therefore, repayment depends on the cash flows generated by
the underlying pool of assets. The securities may be rated as investment-grade
or below-investment-grade.
The
specific securitized products that are principal strategies of each Fund are
listed in its Fund Summary.
•Mortgage-backed
securities (“MBS”) represent an interest in a pool of underlying mortgage loans
secured by real property. MBS are sensitive to changes in interest rates, but
may respond to these changes differently from other fixed income securities due
to the possibility of prepayment of the underlying mortgage loans. If interest
rates fall and the underlying loans are prepaid faster than expected, the fund
may have to reinvest the prepaid principal in lower yielding securities, thus
reducing the fund’s income. Conversely, rising interest rates tend to discourage
refinancings and the underlying loans may be prepaid more slowly than expected,
reducing a fund’s potential to reinvest the principal in higher yielding
securities and extending the duration of the underlying loans. In addition, when
market conditions result in an increase in default rates on the underlying loans
and the foreclosure values of the underlying real estate is less than the
outstanding amount due on the underlying loan, collection of the full amount of
accrued interest and principal on these investments may be doubtful. The risk of
such defaults is generally higher in the case of underlying mortgage pools that
include sub-prime mortgages (mortgages granted to borrowers whose credit
histories would not support conventional mortgages).
•Commercial
mortgage-backed securities (“CMBS”) represent an interest in a pool of
underlying commercial mortgage loans secured by real property such as retail,
office, hotel, multi-family, and industrial properties. Certain CMBS are issued
in several classes with different levels of yield and credit protection, and the
CMBS class in which a fund invests usually influences the interest rate, credit,
and prepayment risks.
•Asset-backed
securities (“ABS”) are backed by non-mortgage assets such as company
receivables, truck and auto loans, student loans, leases and credit card
receivables. ABS entail credit risk. They also may present a risk that, in the
event of default, the liquidation value of the underlying assets may be
inadequate to pay any unpaid interest or principal.
U.S.
Government and U.S. Government-Sponsored Securities
U.S.
Government securities, such as Treasury bills, notes and bonds and
mortgage-backed securities guaranteed by the Government National Mortgage
Association ("Ginnie Mae"), are supported by the full faith and credit of the
United States; others are supported by the right of the issuer to borrow from
the U.S. Treasury; others are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; and still others are
supported only by the credit of the issuing agency, instrumentality, or
enterprise.
Although
U.S. Government-sponsored enterprises such as the Federal Home Loan Mortgage
Corporation ("Freddie Mac") and the Federal National Mortgage Association
("Fannie Mae") may be chartered or sponsored by Congress, they are not funded by
Congressional appropriations, and their securities are not issued by the U.S.
Treasury nor supported by the full faith and credit of the U.S. Government.
There
is no assurance that the U.S. Government would provide financial support to its
agencies and instrumentalities if not required to do so. In addition, certain
governmental entities have been subject to regulatory scrutiny regarding their
accounting policies and practices and other concerns that may result in
legislation, changes in regulatory oversight and/or other consequences that
could adversely affect the credit quality, availability, or investment character
of securities issued by these entities. The value and liquidity of U.S.
Government securities may be affected adversely by changes in the ratings of
those securities.
PORTFOLIO
HOLDINGS INFORMATION
A
description of the Fund's policies and procedures with respect to disclosure of
the Fund's portfolio securities is available in the Fund's Statement of
Additional Information ("SAI").
MANAGEMENT
OF THE FUNDS
The
Manager and Advisor
Principal
Global Investors, LLC (“PGI”), an indirect subsidiary of Principal Financial
Group, Inc. (“Principal®”),
serves as the manager and advisor for the Fund. Through the Management Agreement
with the Fund, PGI provides investment advisory services and certain corporate
administrative services for the Fund.
Advisor:
Principal
Global Investors, LLC ("PGI"), 711
High Street, Des Moines, IA 50392, is part of a diversified global asset
management organization which utilizes a multi-boutique strategy of specialized
investment groups and affiliates to provide institutional investors and
individuals with diverse investment capabilities, including fixed income,
equities, real estate, currency, asset allocation and stable value. In addition
to its asset management offices in the U.S., PGI has asset management offices of
affiliate advisors located in Europe, Asia, Latin America and Australia. PGI has
been an investment advisor since 1998.
Funds: In
fulfilling its investment advisory responsibilities, PGI provides the day-to-day
discretionary investment services (directly making decisions to purchase or sell
securities) for each Fund. For some Funds, these services are provided by the
sub-advisor, as described below.
Portfolio
Managers
As
reflected in the Fund Summaries, the day-to-day portfolio management for each
Fund is shared by multiple portfolio managers. Except as described below, the
portfolio managers operate as a team, sharing authority and responsibility for
research and the day-to-day management of the Fund's portfolio with no
limitation on the authority of one portfolio manager in relation to
another.
Each
Fund summary identifies the portfolio managers of the Fund. Additional
information about the portfolio managers follows. References to
Principal®
include the entire Principal organization. The SAI provides additional
information about each portfolio manager’s compensation, other accounts the
portfolio managers manage, and each portfolio manager’s ownership of securities
in the Fund.
Mark
P. Denkinger has
been with Principal ®
since
1990. He earned a bachelor’s degree in Finance and an M.B.A. with a Finance
emphasis from the University of Iowa. Mr. Denkinger has earned the right to use
the Chartered Financial Analyst designation
John
R. Friedl
has been with Principal®
since 1998. He earned a B.A. in Communications and History from the University
of Washington and a master's degree in Finance from Seattle University. Mr.
Friedl has earned the right to use the Chartered Financial Analyst
designation.
Matt
Minnetian has
been with Principal ®
since
2019. Previously, Mr. Minnetian was a portfolio manager and Head of US
Investment Grade Credit at AllianceBernstein. He earned a B.A. in Economics and
an M.B.A. from Columbia University. Mr. Minnetian has earned the right to use
the Chartered Financial Analyst designation.
Scott
J. Peterson
has been with Principal®
since 2002. He earned a bachelor’s degree in Mathematics from Brigham Young
University and an M.B.A. from New York University’s Stern School of Business.
Mr. Peterson has earned the right to use the Chartered Financial Analyst
designation.
Joshua
Rank has
been with Principal ®
since
2013. He earned a bachelor's degree in Finance from Iowa State University. Mr.
Rank has earned the right to use the Chartered Financial Analyst
designation.
Jeffrey
A. Schwarte has
been with Principal®
since 1993. He earned a bachelor’s degree in Accounting from the University of
Northern Iowa. Mr. Schwarte has earned the right to use the Chartered Financial
Analyst designation.
Aaron
J. Siebel has
been with Principal®
since 2005. He earned a bachelor’s degree in Finance from the University of
Iowa.
Darrin
E. Smith has
been with Principal ®
since
2007. He earned a bachelor’s degree in Economics from Iowa State University and
an M.B.A. from Drake University. Mr. Smith has earned the right to use the
Chartered Financial Analyst designation.
The
Sub-Advisor
PGI
has signed a contract with a Sub-Advisor. Under the sub-advisory agreement, the
Sub-Advisor agrees to assume the obligations of PGI to provide investment
advisory services to the portion of the assets of the Fund allocated to it by
PGI. For these services, PGI pays the Sub-Advisor a fee.
PGI
or the Sub-Advisor provides the Trustees of the Fund with a recommended
investment program. The program must be consistent with the Fund's investment
objective and policies. Within the scope of the approved investment program, the
Sub-Advisor advises the Fund on its investment policy and determines which
securities are bought or sold, and in what amounts.
Sub-Advisor: Spectrum
Asset Management, Inc. ("Spectrum"), 2
High Ridge Park, Stamford, CT 06905, founded in 1987, manages portfolios of
preferred securities for corporate, pension fund, insurance and endowment
clients, open-end and closed-end mutual funds, and separately managed account
programs for high net worth individual investors as well as providing volatility
mitigation solutions for some client portfolios.
Funds: Principal
Spectrum Preferred Securities Active ETF
Principal
Spectrum Tax-Advantaged Dividend Active ETF
The
day-to-day portfolio management for these Funds is shared by multiple portfolio
managers. The portfolio managers operate as a team, sharing authority and
responsibility for research and the day-to-day management of each Fund's
portfolio with no limitation on the authority of one portfolio manager in
relation to another.
Fernando
("Fred") Diaz
joined Spectrum in 2000.
Roberto
Giangregorio
joined Spectrum in 2003. Mr. Giangregorio earned a B.S. and M.S. in Mechanical
Engineering from S.U.N.Y. at Stony Brook and the University of
Wisconsin-Madison, respectively. He also earned an M.B.A. in Finance from
Cornell University.
L.
Phillip Jacoby, IV joined
Spectrum in 1995. Mr. Jacoby earned a B.S. in Finance from the Boston University
School of Management.
Manu
Krishnan
joined Spectrum in 2004. Mr. Krishnan earned a B.S. in Mechanical Engineering
from the College of Engineering, Osmania University, India, an M.S. in
Mechanical Engineering from the University of Delaware, and an M.B.A. in Finance
from Cornell University. Mr. Krishnan has earned the right to use the Chartered
Financial Analyst designation.
Mark
A. Lieb founded
Spectrum in 1987. Mr. Lieb earned a B.A. in Economics from Central Connecticut
State College and an M.B.A. in Finance from the University of
Hartford.
Kevin
Nugent
joined Spectrum in 2020. Mr. Nugent earned a B.A. from Ohio Wesleyan
University.
Satomi
Yarnell joined
Spectrum in 2015. Ms. Yarnell earned a M.A. in Economics from Waseda University.
Ms. Yarnell has earned the right to use the Chartered Financial Analyst
designation and is a Chartered Member of Security Analyst Association of Japan
(CMA).
Participating
Affiliate Agreement
In
rendering investment advisory services to a Fund, the advisor and each
sub-advisor may use the resources of one or more of its respective foreign
(non-U.S.) affiliates that are not registered under the Investment Advisers Act
of 1940, as amended, to provide portfolio management, research, and trading
services to the Fund. Under a Participating Affiliate Agreement, and pursuant to
applicable guidance from the staff of the SEC, U.S. registered advisors are
allowed to use investment advisory and trading resources of such unregistered
advisory affiliates subject to the regulatory supervision of the registered
advisor. For example, some Principal Fund Complex assets are managed by
employees of Principal Global Investors (Europe) Limited pursuant to such an
arrangement. Each such affiliate and any of their respective employees who
provide services to the Fund are considered under the Participating Affiliate
Agreement to be “ supervised
persons”
of the advisor or sub-advisor (as applicable) as that term is defined in the
Investment Advisers Act of 1940.
Fees
Paid to PGI
The
Funds pay PGI a fee for its services, which includes the fee PGI pays to
Sub-Advisors, as applicable, and to State Street Bank and Trust for fund
administration, fund accounting and other services. Pursuant to the Management
Agreement between the Funds and PGI, PGI pays all operating expenses of each
Fund, except interest expenses, taxes, brokerage commissions and other expenses
connected with executing
portfolio transactions, acquired fund fees and expenses, future distribution
fees or expenses, and extraordinary expenses.
The
management fee schedules for Funds that have not completed a full fiscal year
are as follows.
|
|
|
|
|
|
Funds |
All
Assets |
Principal
International Adaptive Multi-Factor ETF |
0.24% |
Principal
U.S. Large-Cap Adaptive Multi-Factor ETF |
0.15% |
Principal
U.S. Small-Cap Adaptive Multi-Factor ETF |
0.19% |
The
fee the Funds paid (as a percentage of the average daily net assets) for the
fiscal year ended June 30, 2021 was:
|
|
|
|
|
|
|
|
|
Funds |
Fee |
|
Principal
Active High Yield |
0.49% |
|
Principal
Healthcare Innovators |
0.42% |
|
Principal
International Multi-Factor |
0.25% |
|
Principal
Investment Grade Corporate Active |
0.25% |
|
Principal
Millennials |
0.45% |
|
Principal
Quality |
0.15% |
|
Principal
Spectrum Preferred Securities Active |
0.55% |
|
Principal
Spectrum Tax-Advantaged Dividend Active |
0.60% |
|
Principal
Ultra-Short Active Income |
0.18% |
|
Principal
U.S. Mega-Cap |
0.15% |
|
Principal
U.S. Small-Cap Multi-Factor |
0.38% |
|
Principal
Value |
0.15% |
|
Availability
of the discussions regarding the basis for the Board of Trustees approval of the
various management and sub-advisory agreements is available for all Funds in the
Annual Report to Shareholders for the period ending June 30, 2021.
Manager
of Managers
Principal
Exchange-Traded Funds (the "Trust") operates as a Manager of Managers. Under an
order received from the SEC (the "current order"), the Trust and PGI may enter
into and materially amend agreements with unaffiliated and wholly-owned
affiliated sub-advisors (affiliated sub-advisors which are at least 95% owned,
directly or indirectly, by PGI or an affiliated person of PGI) without obtaining
shareholder approval, including to:
•hire
one or more sub-advisors;
•change
sub-advisors; and
•reallocate
management fees between PGI and sub-advisors.
Although
there is no present intent to do so, the funds may, in the future, rely on
current SEC Staff guidance which expands relief under the current order to allow
PGI to enter into and materially amend agreements with majority-owned affiliated
sub-advisors (affiliated sub-advisors which are at least 50% owned, directly or
indirectly, by PGI or an affiliated person of PGI), and, further, to all
sub-advisors regardless of the degree of affiliation with PGI.
In
order to rely on the varying degrees of relief granted by the order and/or the
SEC Staff guidance, a Fund must receive approval from its shareholders (or, in
the case of a new Fund, the Fund’s sole initial shareholder before the Fund is
available to the other purchasers). The shareholders of each Fund have approved
such Fund's reliance on the order, as supplemented by the SEC Staff guidance,
with respect to unaffiliated, wholly-owned affiliated, and majority owned
affiliated sub-advisors. The shareholders of the Principal International
Adaptive Multi-Factor, Principal International Multi-Factor, Principal Spectrum
Tax-Advantaged Dividend Active, Principal U.S. Large-Cap Adaptive Multi-Factor
and the Principal U.S. Small-Cap Adaptive Multi-Factor ETFs have approved
reliance on the order, as supplemented by the SEC Staff guidance, with respect
to all sub-advisors, regardless of the degree of affiliation with PGI.
PGI
has ultimate responsibility for the investment performance of each fund that
utilizes a sub-advisor due to its responsibility to oversee sub-advisors and
recommend their hiring, termination, and replacement.
In
accordance with a separate exemptive order that the Trust and PGI have obtained
from the SEC, the Board may approve a new sub-advisory agreement or a material
amendment to an existing sub-advisory agreement at a meeting that is not in
person, provided that the Board Members are able to participate in the meeting
using a means of communication that allows them to hear each other
simultaneously during the meeting and the other conditions in the exemptive
order are met.
DISTRIBUTOR
AND OTHER FUND SERVICE PROVIDERS
ALPS
Distributors, Inc. (the "Distributor") serves as the principal underwriter and
distributor of Creation Units for the Funds. The Distributor does not maintain a
secondary market in Shares.
State
Street Bank and Trust Company is the sub-administrator, custodian, transfer
agent, and dividend disbursing agent for the Funds.
PRICING
OF FUND SHARES
The
Funds will directly issue and redeem Shares on a continuous basis, to and from
authorized participants ("APs"), at net asset value ("NAV") per Share in
aggregations of Shares called “Creation Units.” The value of the Funds' Shares
bought and sold in the secondary market (on the exchange identified in each Fund
summary) will be determined by market price, as described in the section below.
The
Board of Trustees has delegated day-to-day valuation oversight responsibilities
to PGI. PGI has established a Valuation Committee to fulfill these oversight
responsibilities. The NAV of the Funds is calculated each day the New York Stock
Exchange ("NYSE") is open (share prices are not calculated on the days on which
the NYSE is closed for trading, generally New Year’s Day, Martin Luther
King, Jr. Day, Washington’s Birthday, Presidents’ Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas). The
share price is determined as of the close of business of the NYSE (normally
4:00 p.m. Eastern Time). The Funds will not treat an intraday
unscheduled disruption in NYSE trading as a closure of the NYSE and will price
its shares as of 4:00 p.m. Eastern Time, if the particular disruption directly
affects only the NYSE.
Notes:
• If
market quotations are not readily available for a security owned by a Fund, its
fair value is determined using a policy adopted by the Trustees. Fair valuation
pricing is subjective and creates the possibility that the fair value determined
for a security may differ materially from the value that could be realized upon
the sale of the security.
• A
Fund's securities may be traded on foreign securities markets that generally
complete trading at various times during the day before the close of the NYSE.
Foreign securities and currencies are converted to U.S. dollars using the
exchange rate in effect at the close of the NYSE.
• The
trading of foreign securities generally or in a particular country or countries
may not take place on all days the NYSE is open, or may trade on days the NYSE
is closed. Thus, the value of the foreign securities held by the Fund may change
on days when shareholders are unable to purchase or redeem shares.
• Certain
securities issued by companies in emerging markets may have more than one quoted
valuation at any point in time. These may be referred to as local price and
premium price. The premium price is often a negotiated price that may not
consistently represent a price at which a specific transaction can be effected.
The Fund has a policy to value such securities at a price at which the Advisor
expects the securities may be sold.
• With
respect to any portion of a Fund’s assets invested in other registered
investment companies, that portion of the Fund's NAV is calculated based on the
price (NAV or market, as applicable) of such other registered investment
companies.
Fund
Share Trading Prices and IOPV – Secondary Market
The
trading prices of Shares of a Fund on the exchange may differ from the Funds'
daily NAV. The price of the Shares will be subject to factors such as supply and
demand, as well as the current value of the Fund’s portfolio securities.
Secondary market Shares, which are available for purchase or sale on an intraday
basis, do not have a fixed relationship to either the previous day’s NAV or to
the current day’s NAV. Prices in the secondary market, therefore, may be below,
at, or above the most recently calculated NAV per Share.
The
approximate value of shares of each Fund, known as the “indicative optimized
portfolio value” (“IOPV”) will be disseminated every fifteen seconds throughout
the trading day by the national securities exchange on which a Fund is listed or
by other information providers or market data vendors. For actively-managed
Funds, the IOPV is based on the current market value of holdings contained in
the Fund's portfolio at the beginning of the trading day. For passively managed
Funds, the IOPV is based on the creation basket constituents, which represents
the current market value of the securities and/or cash required to be deposited
in exchange for Creation Unit. The IOPV does not necessarily
reflect
the precise composition of the current portfolio of securities held by the Fund
at a particular point in time nor the best possible valuation of the current
portfolio. The IOPV should not be viewed as a “real-time” update of the NAV,
because the IOPV may not be calculated in the same manner as the NAV, which is
computed once a day as discussed below. The IOPV is generally determined by
using current market quotations and/or price quotations obtained from
broker-dealers that may trade in the portfolio securities held by the Fund. The
quotations of certain Fund holdings may not be updated during U.S. trading hours
if such holdings do not trade in the U.S. The Funds and the Advisor are not
involved in, or responsible for, the calculation or dissemination of the IOPV
and make no warranty as to its accuracy. A Fund may choose to discontinue the
dissemination of the IOPV so long as such dissemination is not required by
applicable Exchange rules.
Shares
of each Fund may trade in the secondary market on days when the Fund does not
accept orders to purchase or redeem shares. On such days, shares may trade in
the secondary market with more significant premiums or discounts than might
otherwise be experienced on days when the Fund accepts purchase and redemption
orders.
Information
regarding how often the Shares of each Fund traded on the exchange at a price
above (at a premium) or below (at a discount) the NAV per Share of the Fund
during the past four calendar quarters (if available) can be found at
www.principaletfs.com. Data presented represents past performance and cannot be
used to predict future results.
PURCHASE
AND SALE OF FUND SHARES
Generally
The
Funds will directly issue shares to authorized participants ("APs") on a
continuous basis at net asset value ("NAV") per Share in aggregations of Shares
called “Creation Units,” in exchange for portfolio securities, in the amounts
listed below.
|
|
|
|
|
|
Fund(s) |
Number
of Shares in a Creation Unit* |
Principal
International Adaptive Multi-Factor |
100,000 |
|
Principal
International Multi-Factor |
100,000 |
|
All
Other Funds |
50,000 |
|
*Number
of Shares in a Creation Unit is subject to change.
To
be an AP, you must be a member or participant ("Participating Party") in the
Continuous Net Settlement System of the National Securities Clearing Corporation
(“NSCC”) or a participant in the DTC with access to the DTC system (“DTC
Participant”), and you must execute an agreement ("Participant Agreement") with
the Distributor, which must be accepted by the Transfer Agent, that governs
transactions in the Fund's Creation Units.
APs
may acquire Shares directly from the Funds, and APs may tender their Shares for
redemption directly to the Funds, at NAV per Share only in Creation Units or
Creation Unit Aggregations, and in accordance with the procedures described in
the SAI. Shares are not individually redeemable, but are redeemable only in
Creation Unit aggregations, and in exchange for portfolio securities and/or
cash.
All
orders to purchase or redeem Creation Units must be placed through an AP that
has entered into a Participant Agreement with the Distributor and accepted by
the Transfer Agent with respect to the creation and redemption of Creation
Units. An investor purchasing or redeeming a Creation Unit from the Funds may be
charged a fee (“Transaction Fee”) to protect existing shareholders of the Funds
from the dilutive costs associated with the purchase and redemption of Creation
Units.
Shareholders
who are not APs will not be able to purchase or redeem Shares directly with or
from the Funds. As a result, most investors will buy and sell Shares of the
Funds in secondary market transactions through brokers. Shares of the Funds are
expected to be listed for trading on the secondary market on the exchange
identified in the Fund Summary for each Fund. Shares can be bought and sold
throughout the trading day like other publicly traded shares. There is no
minimum investment. 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 offered price in the secondary market on
each leg of a round trip (purchase and sale) transaction. 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 of the Funds trade under the symbols set forth on the cover of this
prospectus. Contact your broker for additional information on how to buy and
sell Shares.
PGI
may recommend to the Board, and the Board may elect, to liquidate and terminate
a Fund at any time without shareholder approval.
Note: No
salesperson, broker-dealer, or other person is authorized to give information or
make representations about the Fund other than those contained in this
Prospectus. Information or representations not contained in this prospectus may
not be relied upon as having been provided or made by the Trust, the Funds, PGI,
any Sub-Advisor, or the Distributor.
Book
Entry
Shares
are held in book-entry form, which means that no stock certificates are issued.
The Depository Trust Company ("DTC") or its nominee is the record owner of all
outstanding Shares of the Funds and is recognized as the owner of all Shares for
all purposes.
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.
Participants in DTC 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 stocks that you hold in
book entry or "street name" form.
DIVIDENDS
AND DISTRIBUTIONS
The
Funds intend to generally make distributions of net income as
follows:
|
|
|
|
|
|
|
|
|
Fund |
Monthly |
Quarterly |
Principal
Active High Yield ETF |
X |
|
Principal
Healthcare Innovators ETF |
|
X |
Principal
International Adaptive Multi-Factor ETF |
|
X |
Principal
International Multi-Factor ETF |
|
X |
Principal
Investment Grade Corporate Active ETF |
X |
|
Principal
Millennials ETF |
|
X |
Principal
Quality ETF |
|
X |
Principal
Spectrum Preferred Securities Active ETF |
X |
|
Principal
Spectrum Tax-Advantaged Dividend Active ETF |
X |
|
Principal
Ultra-Short Active Income ETF |
X |
|
Principal
U.S. Large-Cap Adaptive Multi-Factor ETF |
|
X |
Principal
U.S. Mega-Cap ETF |
|
X |
Principal
U.S. Small-Cap Adaptive Multi-Factor ETF |
|
X |
Principal
U.S. Small-Cap Multi-Factor ETF |
|
X |
Principal
Value ETF |
|
X |
The
Funds do not guarantee they will make any payments to shareholders on the
frequency set forth above, or at all. Factors that could affect a Fund’s ability
to make distributions include, without limitation, changes in interest rates,
the performance of the financial markets in which the Fund invests, the
allocation of Fund assets across different asset classes and investments, the
performance of the Fund’s investment strategies, and the amount and timing of
the Fund’s prior distributions.
With
respect to Funds that intend to make monthly distributions, each Fund seeks to
tailor the amount of its monthly income payments to moderate fluctuations in the
amounts it distributes to shareholders over the course of the year. Although
each Fund attempts to moderate fluctuations, the amounts it distributes to
shareholders are not fixed and may not be the same each month.
The
Funds do not expect to make distributions that will be treated as return of
capital, although no Fund can guarantee that it will not do so. Return of
capital represents the return of a shareholder’s original investment in Fund
shares, not a dividend from the Fund’s profits and earnings. If a Fund’s
distributions are treated as a return of capital, the distributions themselves
may not be taxable, but they will lower a shareholder's basis in the Fund shares
so that when such shares are sold (even if they are sold at a loss on the
original investment), the shareholder may be obligated to pay taxes on the
capital gains. At the end of the year, the Funds may be required under
applicable law to re-characterize distributions for the year among ordinary
income, capital gains, and return of capital (if any) for purposes of tax
reporting to shareholders.
To
the extent that distributions a Fund pays are derived from a source other than
net income (such as a return of capital), you will receive a notice disclosing
the source of such distributions. Furthermore, such notice will be posted
monthly on our website at www.principalfunds.com/sources-of-distribution. You
may request a copy of all such notices, free of charge, by telephoning
1-800-222-5852. The amounts and sources of distributions included in such
notices are estimates only and you should not rely upon them for purposes of
reporting income taxes. Each Fund will send shareholders a Form 1099-DIV for the
calendar year that will tell shareholders how to report these distributions for
federal income tax purposes.
No
dividend reinvestment service is provided by the Trust. Broker-dealers may make
available DTC book-entry Dividend Reinvestment Service for use by beneficial
owners of the Fund for reinvestment of their dividend distributions. Beneficial
owners should contact their broker to determine the availability and costs of
the service and the details of participation. Brokers may require beneficial
owners to adhere to specific procedures and timetables. If this service is
available and used, dividend distributions of both income and realized gains
will be automatically reinvested in additional whole shares of the Fund
purchased in the secondary market.
FREQUENT
PURCHASES AND REDEMPTIONS
Particularly
where creation and redemption baskets include a cash component, frequent
purchases and redemptions pose a risk to the Funds because they may disrupt the
management of the Funds by forcing the Funds to hold short-term (liquid) assets
rather than investing for long-term growth, which results in lost investment
opportunities for the Funds. Such transactions may also cause unplanned
portfolio turnover, hurt the portfolio performance of the Funds, and increase
expenses of the Funds due to increased broker-dealer commissions and
recordkeeping and related costs.
Shares
of the Funds are listed and traded on national securities exchanges. Therefore,
it is unlikely that a shareholder could take advantage of a potential arbitrage
opportunity presented by a lag between a change in the value of the Fund’s
portfolio securities after the close of the primary markets for the Fund’s
portfolio securities and the reflection of that change in a Fund’s NAV (“market
timing”), because each Fund sells and redeems its shares directly through
transactions that are in-kind and/or for cash. Further, each Fund may impose
transaction fees on purchases and redemptions of Creation Units to cover the
custodial and other costs each Fund incurs in effecting trades which may help
minimize the potential consequences of frequent purchases and redemptions of
shares. For these reasons, the Board of Trustees believes that a frequent
trading monitoring policy is unnecessary for the Funds. Each Fund reserves the
right, without prior written notice, to reject orders from APs that the Fund
determines to be disruptive to the management of the Fund or otherwise not in
the best interests of the Fund.
TAX
CONSIDERATIONS
The
following discussion summarizes some of the possible consequences under current
federal tax law of an investment in a Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local, and/or foreign 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 "Taxes" in the
SAI.
Taxes
As
with any investment, you should consider how your investment in Shares will be
taxed. The tax information in this Prospectus is provided as general
information. You should consult your own tax professional about the tax
consequences of an investment in Shares.
Unless
your investment in Shares is made through a tax-exempt entity or tax-deferred
retirement account, such as an IRA plan, you need to be aware of the possible
tax consequences when:
•a
Fund makes distributions,
•you
sell your Shares listed on the exchange, and
•you
purchase or redeem Creation Units.
Taxes
on Distributions
As
stated above, dividends from net investment income and net capital gains,
ordinarily, are declared and paid monthly or quarterly. A Fund also may pay a
special distribution at the end of the calendar year to comply with federal tax
requirements. In general, your distributions are subject to federal income tax
when they are paid, whether you take them in cash or reinvest them in the Fund.
Dividends
paid out of a Fund's income and net realized short-term capital gains, if any,
are generally taxable as ordinary income, except that the Fund’s dividends
attributable to its “qualified dividend income” (i.e., dividends received on
stock of most domestic and foreign corporations, including Chinese corporations,
with respect to which the Fund satisfies certain holding period and other
restrictions) generally will be subject to federal income tax for individual and
certain other non-corporate shareholders (each, an “individual shareholder”) who
satisfy those restrictions with respect to their Fund shares at the lower rates
for long-term capital gains—a maximum of 15% (or 20% for individual shareholders
with taxable income exceeding certain thresholds, which will be adjusted
annually for inflation). Distributions of net long-term capital gains, if any,
in excess of net short-term capital losses are taxable as long-term capital
gains, regardless of how long you have held the Shares.
Distributions
in excess of a Fund's current and accumulated earnings and profits, if any, are
treated as a tax-free return of capital to the extent of your basis in the
Shares, and as capital gain thereafter. A distribution will reduce the Fund's
NAV per Share and may be taxable to you as ordinary income or long-term capital
gains even though, from an investment standpoint, the distribution may
constitute a return of capital.
By
law, a Fund may be required to withhold a percentage of your distributions and
proceeds if you have not provided your taxpayer identification number or social
security number.
Taxes
on Share Sales
Any
capital gain or loss you realize upon a sale of Shares generally is treated as
long-term capital gain, taxable at the rates mentioned above for individual
shareholders, or loss if you held the Shares for more than one year and as
short-term capital gain or loss if you held the Shares for one year or
less.
The ability to deduct capital losses may be limited.
Taxes
on Purchase and Redemption of Creation Units
An
AP who exchanges securities for Creation Units generally will recognize a gain
or a loss. The gain or loss will be equal to the difference between the market
value of the Creation Units at the time and the exchanger's aggregate basis in
the securities surrendered and the cash component paid. A person who exchanges
Creation Units for securities generally will recognize a gain or loss equal to
the difference between the exchanger's basis in the Creation Units and the
aggregate market value of the securities received and the cash redemption
amount. The Internal Revenue Service, however, may assert that a loss realized
upon an exchange of securities for Creation Units cannot be deducted currently
under the rules governing "wash sales," or on the basis that there has been no
significant change in economic position. Persons exchanging securities should
consult their own tax advisors 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 generally is
treated as long-term capital gain or loss if the Shares have been held for more
than one year and as a short-term capital gain or loss if the Shares have been
held for one year or less.
DISTRIBUTION
PLANS AND INTERMEDIARY COMPENSATION
Distribution
and/or Service (12b-1) Fees
The
Trust has adopted a distribution plan for the Fund pursuant to Rule 12b-1 under
the Investment Company Act. Under the 12b-1 Plan, each Fund is authorized to pay
fees for distribution related expenses and/or for providing services to
shareholders of up to 0.25% of the Fund’s average daily net assets each
year.
No
12b-1 fees are currently paid by the Funds, and there are no current plans to
impose these fees.
However,
in the event the Board of Trustees approves charging 12b-1 fees in the future,
because Rule 12b-1 fees are paid out of Fund assets and are ongoing fees, over
time they will increase the cost of your investment in the Funds and may cost
you more than other types of sales charges.
Additional
Payments to Intermediaries
Shares
of the Funds are sold primarily through intermediaries, such as brokers,
dealers, investment advisors, banks, trust companies, pension plan consultants,
retirement plan administrators and insurance companies.
PGI
and its affiliates may, out of their own resources, pay amounts to
intermediaries that support the distribution or marketing of shares of the Funds
or provide services to Fund shareholders.
In
some cases, PGI or their respective affiliates will provide payments or
reimbursements in connection with the costs of conferences and seminars, and
educational, training and marketing efforts related to the Fund. Such activities
may
be
sponsored by intermediaries, PGI or their respective affiliates. Additional
costs paid or reimbursed may include travel, lodging, entertainment, meals and
small gifts. In some cases, PGI or their respective affiliates will also provide
payment or reimbursement for expenses associated with transactions ("ticket")
charges and general marketing expenses. For more information, see the
SAI.
The
payments described in this prospectus may create a conflict of interest by
influencing your Financial Professional or your intermediary to recommend a Fund
over another investment. Ask your Financial Professional or visit your
intermediary's website for more information about the total amounts paid to them
by PGI and its affiliates, and by sponsors of other investment companies your
Financial Professional may recommend to you.
Your
intermediary may charge you additional fees other than those disclosed in this
prospectus. Ask your Financial Professional about any fees and commissions they
charge.
FUND
ACCOUNT INFORMATION
Continuous
Offering
The
method by which Creation Unit Aggregations are created and traded may raise
certain issues under applicable securities laws. Because new Creation Unit
Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a
"distribution," as such term is used in the Securities Act of 1933, as amended
(the "Securities Act"), may occur at any point. Broker-dealers and other persons
are cautioned that some activities on their part may, depending on the
circumstances, result in their being deemed participants in a distribution in a
manner which could render them statutory underwriters and subject them to the
prospectus delivery requirement and liability provisions of the Securities
Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with
the Distributor, breaks them down into constituent Shares and sells such Shares
directly to customers, or if it chooses to couple the creation of a supply of
new Shares with an active selling effort involving solicitation of secondary
market demand for Shares. A determination of whether one is an underwriter for
purposes of the Securities Act must take into account all the facts and
circumstances pertaining to the activities of the broker-dealer or its client in
the particular case, and the examples mentioned above should not be considered a
complete description of all the activities that could lead to a characterization
as an underwriter.
Broker-dealer
firms also should note that dealers who are not "underwriters" but are effecting
transactions in Shares, whether or not participating in the distribution of
Shares, generally are required to deliver a prospectus. This is because the
prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is not
available in respect of such transactions as a result of Section 24(d) of the
1940 Act. As a result, broker-dealer firms should note that dealers who are not
"underwriters" but are participating in a distribution (as contrasted with
engaging in ordinary secondary market transactions), and thus dealing with the
Shares that are part of an overallotment within the meaning of Section
4(a)(3)(C) of the Securities Act, will be unable to take advantage of the
prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act.
For delivery of prospectuses to exchange members, the prospectus delivery
mechanism of Rule 153 under the Securities Act only is available with respect to
transactions on a national exchange.
Reservation
of Rights
The
Trust reserves the right to amend or terminate a Fund, as well as certain terms
related to a Fund, described in this prospectus. Shareholders will be notified
of any such action to the extent required by law.
Multiple
Translations
This
prospectus may be translated into other languages. In the event of any
inconsistencies or ambiguity as to the meaning of any word or phrase in a
translation, the English text will prevail.
Financial
Statements
Shareholders
will receive annual financial statements for the Funds, audited by the Funds’
independent registered public accounting firm. Shareholders will also receive
semiannual financial statements that are unaudited.
Section
12(d)(1)
Section
12(d)(1) of the 1940 Act restricts investments by investment companies in the
securities of other investment companies. However, registered investment
companies are permitted to invest in a 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, including that such investment companies
enter into an agreement with the Trust on behalf of a Fund prior to exceeding
the limits imposed by Section 12(d)(1).
UNDERLYING
INDICES
Nasdaq
(the “Index Provider”) developed the methodology for each underlying index
listed below with input from the Fund's advisor. The Index Provider sponsors and
owns each index, determines the composition and relative weightings of the
securities in the index, and publishes information regarding the market value of
the index. The Index Provider is not affiliated with the Fund or the
advisor.
Nasdaq
Developed Select Leaders Core Index (NQDMSLCN)
This
Index is designed to provide exposure to companies within the Nasdaq Developed
Market Ex-US Ex-Korea Large Mid Cap Index (the "Parent Index") that exhibit high
degrees of sustainable shareholder yield, pricing power, and strong
momentum.
Index
eligibility is limited to common stocks, ordinary shares, depositary receipts,
shares of beneficial interest and REITs.
To
be eligible for inclusion in the Index, a security must be in the top 50% of the
Parent Index by aggregate market cap, or (if not in the top 50% by market cap)
in the top 33% of the final rank (as described below). One security per issuer
is permitted, and securities are not eligible if the issuer has entered into a
definitive agreement that would result in the security being ineligible or is
currently in bankruptcy proceedings.
Securities
in the Parent Index are divided into two groups - the top 50% by market cap, and
the bottom 50% by market cap. The bottom 50% is ranked using a currency-neutral
approach (each currency maintains similar weight as the initial universe of
stocks). Selected names are then equally weighted within each currency (all
names selected are over-weighted).
Securities
are ranked using the following model criteria:
•Pricing
Power (Quality Growth Factor) - Factors that demonstrate consistent sales
growth, earnings quality and growth, and profitability, with low price
volatility.
•Shareholder
Yield (Value Factor) - Factors that identify companies possessing the ability to
sustain total shareholder yield in the form of dividends, share repurchases, and
cash flow generation.
•Momentum
- Factors that analyze the term structure of stock prices (i.e. evaluating
price momentum over multiple horizons) to determine sustainability.
The
Index employs a modified market cap weighted methodology. At the rebalancing,
the Index is rebalanced based on the ranking results described above. Securities
in the top 50% by market cap receive 50% of the weight in the Index and are
float adjusted market cap weighted, with a tilt to reflect ranking. Securities
in the bottom 50% by market cap receive the remaining 50% of the weight in the
Index, using the currency-neutral approach described above, and then equally
weighted.
The
Index is evaluated semi-annually in May and November. Additionally, if at any
time during the year a security no longer meets the eligibility criteria, or is
otherwise determined to have become ineligible for inclusion in the Index, the
security is removed from the Index and is not replaced.
Nasdaq
may, from time to time, exercise reasonable discretion as it deems appropriate
in order to ensure Index integrity.
Nasdaq
Global Millennial Opportunity Index (NQGMOI)
The
Nasdaq Global Millennial Opportunity Index is designed to provide exposure to
companies within the Nasdaq Global Index that are impacted by the spending and
lifestyle activities of the Millennial generation, which refers to people born
from 1980 to the mid-2000s. Index eligibility is limited to specific
security types. To be eligible for inclusion in the Index, a security must be a
component of the Nasdaq Global Index. However, an exchange-listed security that
is not a component of the Nasdaq Global Index may be eligible if it otherwise
meets all of the eligibility criteria.
Each
security's exposure to Millennials is determined using a proprietary, multi-step
research process. First, fundamental research is conducted on trends related to
the millennial generation, including but not limited to: consumer spending data,
consumer behavior, technology and demographics. Based on this analysis, key
categories are identified that appear to be most reflective of how the
millennial generation spends time and money. As of May 22, 2016, eight key
themes related to Millennials have been identified: technology (such as devices,
eCommerce, apps, and games); consumer goods (such as clothing and travel);
drinking, dining, and health/wellness; households; financials (such as FinTech
and wealth management); education; women as consumers (including child care,
clothing, beauty and cosmetics); and sharing economy (such as car rental,
lending services, and self-storage). These themes may change over time.
Using
a variety of sources (including, but not limited to: industry reports,
investment research and financial statements published by companies), companies
with significant exposures to these themes are identified. Companies identified
at this stage are then considered for further analysis, which ultimately
determines their eligibility for inclusion in the Index.
In
the final step of the research process, companies are evaluated based on
quantitative and qualitative factors using the fundamental research conducted on
trends related to the millennial generation. A composite analysis scores these
companies to determine the companies that are most reflective of Millennial
companies. Each is identified as having low, medium, or high exposure to
Millennials based on the materiality of the company's exposure to
Millennial-related themes and the potential role of Millennials in driving
long-term growth.
To
be eligible for the Index, a security must have high or medium exposure to
Millennials. "Medium exposure" means that Millennials-related products,
technologies, services and solutions are an
important factor
of the company's business model, strategy and research and development, and are
material to sales and/or growth. "High exposure" means that Millennials-related
products, technologies, services and solutions are core
to the company's business model, strategy and research and development, and are
material to sales and/or growth.
Securities
with a market capitalization of less than $200M are excluded from being eligible
for the Index, as are duplicative securities (where companies are listed more
than once). Certain other securities may be excluded from the Index due to
operational concerns, for example, where it is difficult to gain access to the
market for the securities. Securities are also excluded if certain extraordinary
events have recently occurred, such as large-scale investigations or charges
against key executives.
The
remaining securities are then ranked based upon the following two factors:
quality growth and value. Every security receives a rank based upon the scores
for these two factors. Each of these two factors are then combined and
equally weighted.
Securities
of companies having high exposure to Millennials receive 70% of the weight of
the index. High exposure securities are broken down into two groups: large
cap (40% index weight) and small-mid-cap (30% index weight) and weighted as
follows:
•High
exposure, large cap securities in the top 50% of the two factor ranking receive
24% index weight;
•High
exposure, large cap securities in the bottom 50% of the two factor ranking
receive 16% index weight;
•High
exposure, small-mid cap securities in the top 50% of the two factor ranking
receive 18% index weight; and
•High
exposure, small-mid cap securities in the bottom 50% of the two factor ranking
receive 12% index weight.
Securities
of companies having medium exposure to Millennials receive 30% of the weight of
the index. In order to receive a weight in the index, medium exposure securities
must be ranked in the top 50% of the two factor ranking with respect to their
large or small-mid-cap counterparts.
•Medium
exposure, large cap securities in the top 50% of the two factor ranking receive
20% index weight;
•Medium
exposure, small-mid cap securities in the top 50% of the two factor ranking
receive 10% index weight.
As
described above, there are six eligible buckets of securities. Securities within
each of the six assigned buckets are equally weighted.
1.Large
cap, high exposure to Millennials, top 50% of the two factor ranking system (24%
index weight)
2.Large
cap, high exposure to Millennials, bottom 50% of the two factor ranking system
(16% index weight)
3.Small-mid-cap,
high exposure to Millennials, top 50% of the two factor ranking system (18%
index weight)
4.Small-mid-cap,
high exposure to Millennials, bottom 50% of the two factor ranking system (12%
index weight)
5.Large
cap, medium exposure to Millennials, top 50% of the two factor ranking system
(20% index weight)
6.Small-mid-cap,
medium exposure to Millennials, top 50% of the two factor ranking system (10%
index weight)
The
Index is rebalanced annually.
Nasdaq
US Health Care Innovators Index (NQHCIN)
The
Nasdaq US Health Care Innovators Index is designed to provide exposure to
non-mega cap US Health Care companies within the Nasdaq US Benchmark Index that
are "non-earners," which refers to early-stage companies that are not yet
consistently profitable. Index eligibility is limited to specific security types
only. To be eligible for inclusion in the Index, a security must be a component
of the Nasdaq US Benchmark Index and each security must be classified as Health
Care according to the Industry Classification Benchmark (ICB).
Securities
are ranked based upon their market cap, and the least liquid securities are
excluded. Those securities not ranked in the top 150 securities of the Nasdaq US
Benchmark Index by market cap are deemed eligible. If in the index in the prior
period, those securities with a rank in the top 80% by average daily dollar
trading volume (ADDTV) of the Nasdaq US Benchmark Index are deemed eligible. For
new securities to be eligible they must satisfy a liquidity threshold, using a
3-month ADDTV, of being in the Top 70% most liquid names with Nasdaq US
Benchmark Index. Lastly, securities considered to be non-earners by means of
having negative earnings over the prior 4, prior 8 or future 4 quarters at least
half of the time are deemed eligible. The index is rebalanced semi-annually in
April and October and employs a modified market cap weighting methodology. Final
eligible securities receive a maximum weight of 3% and all excess weight is
distributed proportionally across the remaining index securities.
Nasdaq
US Mega Cap Select Leaders Index (NQMCUSLT)
The
Nasdaq US Mega Cap Select Leaders Index uses a quantitative model designed to
provide exposure to equity securities of companies with the largest market
capitalizations in the Nasdaq US 500 Large Cap Index (the "Parent Index"), with
higher weights given to securities that are less volatile.
To
be eligible for the Index, a security must be in the top 50th percentile of the
Parent Index by aggregate company market capitalization. One security per
company is permitted.
The
Index employs a modified equal-dollar weighting methodology. Securities of
companies in the top 10% of aggregate market cap maintain company market cap
weight. Securities of companies that are not in the top 10% of aggregate
market cap are initially equal weighted and then volatility adjusted such that
those in the groups with lower volatility receive 1% higher weight than the
initial equal weighting, the middle groups maintain the equal weighting, and
those with higher volatility receive 1% lower weight than the initial equal
weighting. This process is employed so that the least volatile securities have
the highest weight and the most volatile securities have the lowest
weight.
The
Index is evaluated semi-annually in April and October. Security additions and
deletions are made effective after the close of trading on the last trading day
in April and October. Additionally, if at any time during the year other than
the evaluation, an Index Security no longer meets the eligibility criteria, or
is otherwise determined to have become ineligible for inclusion in the Index,
the security is removed from the Index and is not replaced.
The
Nasdaq US Price Setters Index (NQPRCE)
The
Nasdaq US Price Setters Index (NQPRCE) is designed to provide exposure to US
companies within the Nasdaq US Large Mid Cap Index which exhibit high degrees of
pricing power. The universe of securities is screened by a series of
quantitative and qualitative factors. The top-ranked securities are then
selected, and a proprietary weighting methodology is applied. Index eligibility
is limited to specific security types only. To be eligible for inclusion in the
Index, a security must be a component of the Nasdaq US Large Mid Cap Index
(NQUSBLM) and must be a top 550 name by market capitalization.
Securities
are ranked based upon the following eleven factors: Earnings per share ("EPS")
Growth (1 year), EPS Growth (3 year), operating margin, operating margin growth
(1 year), 12 months return volatility, sales growth (3 year), return on equity,
the coefficient of variation of 7 year EPS, earning quality, the standard
deviation of 7 year operating margin, and the coefficient of variation of second
fiscal year EPS estimate. The average of the 11 factor scores is taken to create
one score in a scale of 1 to 10 (1 = best). Then, a final rank is created based
upon the average score of each security, with full market cap determining the
outcome if there is a tie. Lastly, the top 150 securities by final rank are
selected. The Index employs a modified equal dollar weighting methodology such
that securities in the top 50 by rank receive 50% of the index weight, the top
51-100 receive 35% of the index weight, and the top 101-150 receive 15% of the
index weight. Each security’s Index market value is rebalanced annually in March
to an equal dollar value corresponding to an equal percent weight within each
bucket of 50 securities, with the aggregate market value of the Index totaling
the unadjusted market value of the eligible securities. In short, the top 50
names receive a weight of 1.0% each, the following 51-100 securities receive a
weight of 0.7% each and the following 101-150 securities receive a weight of
0.3% each.
Nasdaq
US Shareholder Yield Index (NQSHYL)
The
Nasdaq US Shareholder Yield Index (NQSHYL) is designed to provide exposure to US
companies within the Nasdaq US Large MidCap Index (NQUSBLM) which exhibit high
degrees of sustainable shareholder yield. The universe of securities is screened
by a series of quantitative and qualitative factors. The top-ranked securities
are then selected, and a proprietary weighting methodology is applied. Index
eligibility is limited to specific security types only. To be eligible for
inclusion in the Index, a security must be a component of the Nasdaq US Large
MidCap Index and the security must have paid a regular dividend in the prior
year.
Securities
are ranked based upon the following nine factors: dividend yield, buyback yield,
dividend payout per share, free cash flow to price, free cash flow growth 3-year
Sharpe ratio, EBITDA to debt, dividend yield historical valuation (3-year and
5-year), dividend growth (1-year, 3-year and 5-year), and free cash flow
(1-year, 3-year and 5-year). The average of the nine factor scores is taken to
create one score in a scale of 1 to 10 (1 = best). Then, a final rank is created
based upon the average score of each security with total shareholder yield
(dividend yield + buyback yield) determining the outcome if there is a tie.
Lastly, the final decile score (scale of 1 to 10; 1=best) is created by
utilizing the final rank. Securities in the top two deciles are then selected.
The Index employs a modified yield weighting methodology such that securities in
the top two deciles are weighted according to their dividend yields. Each
security’s Index market value is rebalanced annually in March to a value
corresponding to the modified yield weight. Final eligible securities receive a
maximum weight of 3% and all excess weight is distributed proportionally across
the remaining index securities.
Nasdaq
US Small Cap Select Leaders Index (NQUSSLT)
The
Nasdaq US Small Cap Select Leaders Index (NQUSSLT) is designed to provide
exposure to equity securities of U.S. small capitalization companies within the
Nasdaq US Small Cap Index (NQUSS) that exhibit the potential for high degrees of
sustainable shareholder yield, pricing power, and strong momentum, while
adjusting for liquidity and quality as determined by a quantitative model. Index
eligibility is limited to specific security types only. The security types
eligible for the index include common stocks, ordinary shares, depositary
receipts, shares of beneficial interest and REITs.
To
be eligible for inclusion in the Index, a security must:
•be
a component of the Nasdaq US Small Cap Index (NQUSS);
•be
in the top 90th percentile of the Nasdaq US Benchmark Index (NQUSB) in terms of
3-month Average Daily Dollar Volume;
•be
in the top 20th percentile of the Final Rank (process described below) in the
current period, or, be in the top 50th percentile of the Final Rank, if the
security was in the index in the prior period;
•have
a minimum 3-month trading history;
•may
not be issued by an issuer that has entered into a definitive agreement or other
arrangement which would likely result in the security no longer being Index
eligible; and
•may
not be issued by an issuer currently in bankruptcy proceedings.
One
security per issuer is permitted. If an issuer has multiple securities, the
security with the highest dollar trading volume will be selected for possible
inclusion into the Index. Additional proprietary eligibility criteria may be
applied.
Securities
in the Nasdaq US Small Cap Index (NQUSS) are ranked according to their
individual Shareholder Yield, Price Setters, and Momentum ranks. These three
individual ranks determine the degree in which a security in the Nasdaq US Small
Cap Index (NQUSS) exhibits high degrees of sustainable shareholder yield (value
factor), pricing power (quality growth factor), and momentum, respectively.
These three individual ranks are then normalized by industry so that each
security has a Shareholder Yield, Price Setters, and Momentum rank that is based
on that security’s ICB Industry Classification. This allows for the three
individual ranks to be sector-neutral.
The
three individual normalized ranks are averaged to determine a preliminary Score
for each security. If the security was not in the Shareholder Yield Index (i.e.
it did not pay a dividend), then the Price Setters and Momentum ranks are
averaged to determine the preliminary Score for each security.
A
Final Rank is calculated by ranking the preliminary Score for each security
within each industry, where the higher Average Daily Dollar Volume breaks any
ties in the preliminary Score. This Final Rank is used in the Eligibility
screen, as described above, to determine the final basket of securities in the
Index.
The
Index is rebalanced semi-annually in April and October and employs a modified
market cap weighting methodology. The modified liquidity weighting is
derived by first calculating a liquidity score adjusted for volatility
(“liquidity-volatility score”). This process is done multiplying the 3-month
average daily dollar volume of an Index security by the average 3-month
volatility of the Nasdaq US Small Cap (NQUSS) universe and dividing that by the
3-month Volatility of the corresponding Index Security. Next, the
liquidity-volatility score is then used to determine the preliminary weight of
each security. The preliminary weight is derived by dividing the
liquidity-volatility score for each security by the sum of the
liquidity-volatility scores for all securities within each industry and
multiplying that by the NQUSS Benchmark Industry Weight for that security. The
final weight modifies the preliminary weight by capping each security weight at
0.7% and redistributing the excess weight evenly across all securities within
the same industry. Index Shares are then calculated multiplying the final weight
of each security derived above by the new market value of the Index and dividing
that by its corresponding Last Sale Price. The changes are effective after the
close of trading on the last trading day in April and October.
Index
Rebalance Dates
During
extraordinary market conditions, the index provider may delay the scheduled
rebalancing of an index until a future date when conditions have
changed.
Other
Information
Nasdaq®
and
the above-listed indexes (the "Nasdaq Indexes"), are registered trademarks of
Nasdaq, Inc. (which with its affiliates is referred to as the “Corporations”)
and are licensed for use by PGI. The above-named Funds are not sponsored,
endorsed, sold or promoted by the Corporations. The Corporations have not passed
on the legality or suitability of, or the accuracy or adequacy of descriptions
and disclosures relating to, the Funds. The Corporations make no representation
or warranty, express or implied to the owners of the Funds or any member of the
public regarding the advisability of investing in securities generally or in the
Funds particularly, or the ability of the Indexes to track general stock market
performance. Except where Nasdaq serves as a fund's listing agent, the
Corporations' only relationship to PGI (“Licensee”) is in the licensing of the
Nasdaq®,
and certain trade names of the Corporations and the use of the Indexes which are
determined, composed and calculated by Nasdaq without regard to Licensee or the
Funds. Nasdaq has no obligation to take the needs of the Licensee or the owners
of the Funds into consideration in determining, composing or calculating the
Indexes. The Corporations are not responsible for and have not participated in
the determination of the timing of, prices at, or quantities of the Funds to be
issued or in the determination or calculation of the equation by which the Funds
is to be converted into cash. The Corporations have no liability in connection
with the administration, marketing or trading of the Funds.
The
Corporations do not guarantee the accuracy and/or uninterrupted calculation of
the Indexes or any data included therein. The Corporations make no warranty,
express or implied, as to results to be obtained by Licensee, owners of the
product(s), or any other person or entity from the use of the Indexes or any
data included therein. The Corporations make no express or implied warranties,
and expressly disclaim all warranties of merchantability or fitness for a
particular purpose or use with respect to the Indexes or any data included
therein. Without limiting any of the foregoing, in no event shall the
Corporations have any liability for any lost profits or special, incidental,
punitive, indirect, or consequential damages, even if notified of the
possibility of such damages.
The
Corporations do not guarantee the accuracy or completeness of the data on which
the Indicative Optimized Portfolio Value (IOPV) calculations are based or the
actual computation of the value of the IOPV, nor shall the Corporations be
responsible for any delays in the computation or dissemination of the IOPV
values. The Corporations make no warranty, express or implied, as to results to
be obtained by the Funds, owners of the Funds, or any other person or entity
from the use of the IOPV(s) or any data included therein. The Corporations make
no express or implied warranties, and expressly disclaim all warranties of
merchantability or fitness for a particular purpose or use with respect to the
IOPV(s) or any data included therein. Without limiting any of the foregoing, in
no event shall the Corporations have any liability for any lost profits or
special, incidental, punitive, indirect, or consequential damages, even if
notified of the possibility of such damages.
ADDITIONAL
FUND-SPECIFIC INFORMATION
Principal
International Adaptive Multi-Factor ETF (the “Fund”)
THIS
FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY MSCI INC. (“MSCI”) OR ANY
OF ITS AFFILIATES, INFORMATION PROVIDERS OR OTHER THIRD PARTY INVOLVED IN, OR
RELATED TO, COMPILING, COMPUTING OR CREATING ANY MSCI INDEX (COLLECTIVELY, THE
“MSCI PARTIES”). THE MSCI INDEXES ARE THE EXCLUSIVE PROPERTY OF MSCI. MSCI AND
THE MSCI INDEX NAMES ARE SERVICE MARK(S) OF MSCI OR ITS AFFILIATES AND HAVE BEEN
LICENSED FOR USE FOR CERTAIN PURPOSES BY PETF. NONE OF THE MSCI PARTIES MAKES
ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE ISSUER OR OWNERS OF
THIS FUND OR ANY OTHER PERSON OR ENTITY REGARDING THE ADVISABILITY OF INVESTING
IN FUNDS GENERALLY OR IN THIS FUND PARTICULARLY OR THE ABILITY OF ANY MSCI INDEX
TO TRACK CORRESPONDING STOCK MARKET PERFORMANCE. MSCI OR ITS AFFILIATES ARE THE
LICENSORS OF CERTAIN TRADEMARKS, SERVICE MARKS AND TRADE NAMES AND OF THE MSCI
INDEXES WHICH ARE DETERMINED, COMPOSED AND CALCULATED BY MSCI WITHOUT REGARD TO
THIS FUND OR THE ISSUER OR OWNERS OF THIS FUND OR ANY OTHER PERSON OR ENTITY.
NONE OF THE MSCI PARTIES HAS ANY OBLIGATION TO TAKE THE NEEDS OF THE ISSUER OR
OWNERS OF THIS FUND OR ANY OTHER PERSON OR ENTITY INTO CONSIDERATION IN
DETERMINING, COMPOSING OR CALCULATING THE MSCI INDEXES. NONE OF THE MSCI PARTIES
IS RESPONSIBLE FOR OR HAS PARTICIPATED IN THE DETERMINATION OF THE TIMING OF,
PRICES AT, OR QUANTITIES OF THIS FUND TO BE ISSUED OR IN THE DETERMINATION OR
CALCULATION OF THE EQUATION BY OR THE CONSIDERATION INTO WHICH THIS FUND IS
REDEEMABLE. FURTHER, NONE OF THE MSCI PARTIES HAS ANY OBLIGATION OR LIABILITY TO
THE ISSUER OR OWNERS OF THIS FUND OR ANY OTHER PERSON OR ENTITY IN CONNECTION
WITH THE ADMINISTRATION, MARKETING OR OFFERING OF THIS FUND.
ALTHOUGH
MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF
THE MSCI INDEXES FROM SOURCES THAT MSCI CONSIDERS RELIABLE, NONE OF THE MSCI
PARTIES WARRANTS OR GUARANTEES THE ORIGINALITY, ACCURACY AND/OR THE COMPLETENESS
OF ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. NONE OF THE MSCI PARTIES MAKES
ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE ISSUER OF
THE FUND, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY, FROM THE USE OF ANY
MSCI INDEX OR ANY DATA INCLUDED THEREIN. NONE OF THE MSCI PARTIES SHALL HAVE ANY
LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS OF OR IN CONNECTION WITH
ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. FURTHER, NONE OF THE MSCI PARTIES
MAKES ANY EXPRESS OR IMPLIED WARRANTIES OF ANY KIND, AND THE MSCI PARTIES HEREBY
EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, WITH RESPECT TO EACH MSCI INDEX AND ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL ANY OF THE
MSCI PARTIES HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE,
CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
No
purchaser, seller or holder of this security, product or Fund, or any other
person or entity, should use or refer to any MSCI trade name, trademark or
service mark to sponsor, endorse, market or promote this security without first
contacting MSCI to determine whether MSCI’s permission is required. Under no
circumstances may any person or entity claim any affiliation with MSCI without
the prior written permission of MSCI.
Principal
U.S. Large-Cap Adaptive Multi-Factor ETF and Principal U.S. Small-Cap Adaptive
Multi-Factor ETF (the “Funds”)
The
"S&P 500” and the “S&P 600” (each, the “Index”) each is a product of
S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and has been licensed
for use by the Funds. Standard & Poor’s® and S&P® are registered
trademarks of Standard & Poor’s Financial Services LLC (“S&P”). Dow
Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow
Jones”). It
is not possible to invest directly in an index. These
Funds are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones,
S&P, or any of their respective affiliates (collectively, “S&P Dow Jones
Indices”). Neither S&P Dow Jones Indices nor any third party licensor make
any representation or warranty, express or implied, to the owners of the Funds
or any member of the public regarding the advisability of investing in
securities generally or in the Funds particularly or the ability of the Index to
track general market performance. Past performance of an index is not an
indication or guarantee of future results. S&P Dow Jones Indices’ and any
third party licensor’s only relationship to PETF and the Funds with respect to
the Index is
the licensing of the Index and certain trademarks, service marks and/or trade
names of S&P Dow Jones Indices and/or its licensors. The Index is
determined, composed and calculated by S&P Dow Jones Indices or a third
party licensor without regard to PETF or the Funds. S&P Dow Jones Indices
and any third party licensor have no obligation to take the needs of PETF or the
owners of the Funds into consideration in determining, composing or calculating
the Index. Neither S&P Dow Jones
Indices
nor any third party licensor are responsible for and have not participated in
the determination of the prices, and amount of the Funds or the timing of the
issuance or sale of the Funds or in the determination or calculation of the
equation by which the Funds is to be converted into cash, surrendered or
redeemed, as the case may be. S&P Dow Jones Indices and any third party
licensor have
no obligation or liability in connection with the administration, marketing or
trading of the Funds. There is no assurance that investment products based on
the Index will accurately track index performance or provide positive investment
returns. S&P Dow Jones Indices LLC is not an investment or tax advisor. A
tax advisor should be consulted to evaluate the impact of any tax-exempt
securities on portfolios and the tax consequences of making any particular
investment decision. Inclusion of a security within an index is not a
recommendation by S&P Dow Jones Indices to buy, sell, or hold such security,
nor is it considered to be investment advice.
NEITHER
S&P DOW JONES INDICES NOR THIRD PARTY LICENSOR GUARANTEES
THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE INDEX OR ANY
DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR
WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT
THERETO. S&P DOW JONES INDICES AND ANY THIRD PARTY LICENSOR SHALL
NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS
THEREIN. S&P DOW JONES INDICES AND ANY THIRD PARTY LICENSOR MAKE NO EXPRESS
OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES, OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY
PETF, OWNERS OF THE FUNDS ,
OR
ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR WITH RESPECT TO ANY DATA
RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER
SHALL S&P DOW JONES INDICES OR ANY THIRD PARTY LICENSOR BE
LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES
INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR
GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES,
WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD
PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES
INDICES AND PETF ,
OTHER
THAN THE LICENSORS OF S&P DOW JONES INDICES.
APPENDIX
A – DESCRIPTION OF BOND RATINGS
Moody's
Investors Service, Inc. Rating Definitions:
Long-Term
Obligation Ratings
Ratings
assigned on Moody's global long-term obligation rating scales are
forward-looking opinions of the relative credit risk of financial obligations
issued by non-financial corporates, financial institutions, structured finance
vehicles, project finance vehicles, and public sector entities. Long-term
ratings are assigned to issuers or obligations with an original maturity of one
year or more and reflect both on the likelihood of a default or impairment on
contractual financial obligations and the expected financial loss suffered in
the event of default or impairment.1
1
For
certain structured finance, preferred stock and hybrid securities in which
payment default events are either not defined or do not match investor’s
expectations for timely payment,
the ratings reflect the likelihood of impairment and the expected financial loss
in the event of impairment.
Aaa:
Obligations rated Aaa are judged to be of the highest
quality, subject to the lowest level of credit risk.
Aa:
Obligations rated Aa are judged to be of high quality
and are subject to very low credit risk.
A:
Obligations rated A are considered upper-medium grade
and are subject to low credit risk.
Baa:
Obligations rated Baa are subject to moderate credit
risk. They are considered medium-grade and as such may possess certain
speculative characteristics.
Ba:
Obligations rated Ba are judged to be speculative and
are subject to substantial credit risk.
B:
Obligations rated B are considered speculative and are
subject to high credit risk.
Caa:
Obligations rated Caa are judged to be speculative of
poor standing and are subject to very high credit risk.
Ca:
Obligations rated Ca are highly speculative and are
likely in, or very near, default, with some prospect of recovery of principal
and interest.
C:
Obligations rated C are the lowest rated class of bonds
and are typically in default, with little prospect for recovery of principal or
interest.
NOTE:
Moody's appends numerical modifiers, 1, 2, and 3 to each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category, the modifier 2 indicates
a mid-range ranking, and the modifier 3 indicates a ranking in the lower end of
that generic rating category. Additionally, a “(hyb)” indicator is appended to
all ratings of hybrid securities issued by banks, issuers, financial companies,
and securities firms.*
*
By their terms, hybrid securities allow for the omission of scheduled dividends,
interest, or principal payments, which can potentially result in impairment if
such an omission occurs. Hybrid securities may also be subject to contractually
allowable write-downs of principal that could result in impairment.
Together the hybrid indicator, the long-term obligation rating assigned to a
hybrid security is an expression of the relative credit risk associated with
that security.
SHORT-TERM
NOTES: Short-term ratings are assigned to obligations with an original maturity
of thirteen months or less and reflect both on the likelihood of default or
impairment on contractual financial obligations and the expected financial loss
suffered in the event of default. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment ability of rated issuers:
Issuers
rated Prime-1 (or related supporting institutions) have a superior ability to
repay short-term debt obligations.
Issuers
rated Prime-2 (or related supporting institutions) have a strong ability to
repay short-term debt obligations.
Issuers
rated Prime-3 (or related supporting institutions) have an acceptable ability to
repay short-term obligations.
Issuers
rated Not Prime do not fall within any of the Prime rating
categories.
US
MUNICIPAL SHORT-TERM DEBT: The Municipal Investment Grade (MIG) scale is used to
rate US municipal bonds of up to five years maturity. MIG ratings are divided
into three levels - MIG 1 through MIG 3 - while speculative grade short-term
obligations are designated SG.
MIG
1 denotes superior credit quality, afforded excellent protection from highly
reliable liquidity support, or demonstrated broad-based access to the market for
refinancing.
MIG
2 denotes strong credit quality with ample margins of protection, although not
as large as in the preceding group.
MIG
3 notes are of acceptable credit quality. Liquidity and cash-flow protection may
be narrow and market access for refinancing is likely to be less
well-established.
SG
denotes speculative-grade credit quality and may lack sufficient margins of
protection.
Description
of S&P Global Ratings' Credit Rating Definitions:
S&P
Global's credit rating, both long-term and short-term, is a forward-looking
opinion of the creditworthiness of an obligor with respect to a specific
obligation. This assessment takes into consideration the creditworthiness of
guarantors, insurers, or other forms of credit enhancement on the
obligation.
The
credit rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The
ratings are statements of opinion as of the date they are expressed furnished by
the issuer or obtained by S&P Global Ratings from other sources S&P
Global Ratings considers reliable. S&P Global Ratings does not perform an
audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or for other
circumstances.
The
ratings are based, in varying degrees, on the following
considerations:
•Likelihood
of payment - capacity and willingness of the obligor to meet its financial
commitment on an obligation in accordance with the terms of the
obligation;
•Nature
of and provisions of the financial obligation;
•Protection
afforded by, and relative position of, the financial obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditor's rights.
LONG-TERM
CREDIT RATINGS:
AAA:
Obligations rated ‘AAA’ have the highest rating assigned
by S&P Global Ratings. The obligor’s capacity to meet its financial
commitment on the obligation is extremely strong.
AA:
Obligations rated ‘AA’ differ from the highest-rated
issues only in small degree. The obligor’s capacity to meet its financial
commitment on the obligation is very strong.
A:
Obligations rated ‘A’ have a strong capacity to meet
financial commitment on the obligation although they are somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than obligations in higher-rated categories.
BBB:
Obligations rated ‘BBB’ exhibit adequate protection
parameters; however, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to meet financial commitment on the
obligation.
BB,
B, CCC, Obligations rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and
‘C’ are regarded, on balance, as having significant
CC,
and C: speculative characteristics. ‘BB’ indicates the
lowest degree of speculation and ‘C’ the highest degree of speculation. While
such obligations will likely have some quality and protective characteristics,
these may be outweighed by large uncertainties or major risk exposures to
adverse conditions.
BB: Obligations
rated ‘BB’ are less vulnerable to nonpayment than other speculative issues.
However it faces major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor’s inadequate
capacity to meet its financial commitment on the obligation.
B: Obligations
rated ‘B’ are more vulnerable to nonpayment than ‘BB’ but the obligor currently
has the capacity to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair this
capacity.
CCC: Obligations
rated ‘CCC’ are currently vulnerable to nonpayment and is dependent upon
favorable business, financial, and economic conditions for the obligor to meet
its financial commitment on the obligation. If adverse business, financial, or
economic conditions occur, the obligor is not likely to have the capacity to
meet its financial commitment on the obligation.
CC: Obligations
rated ‘CC’ are currently highly vulnerable to nonpayment. The ‘CC’ rating is
used when a default has not yet occurred but S&P Global Ratings expects
default to be a virtual certainty, regardless of anticipated time to
default.
C:
The rating ‘C’ is highly vulnerable to nonpayment, the
obligation is expected to have lower relative seniority or lower ultimate
recovery compared to higher rated obligations.
D:
Obligations rated ‘D’ are in default, or in breach of an
imputed promise. For non-hybrid capital instruments, the ‘D’ rating category is
used when payments on an obligation are not made on the date due, unless S&P
Global Ratings believes that such payments will be made within five business
days in the absence of a stated grace period or within the earlier of the stated
grace period or 30 calendar days. The rating will also be used upon filing for
bankruptcy petition or the taking of similar action and where default is a
virtual certainty. If an obligation is subject to a distressed exchange offer
the rating is lowered to ‘D’.
Plus
(+) or Minus (-): The ratings from ‘AA’ to ‘CCC’ may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
NR:
Indicates that no rating has been requested, that there
is insufficient information on which to base a rating or that S&P Global
Ratings does not rate a particular type of obligation as a matter of
policy.
SHORT-TERM
CREDIT RATINGS: Ratings are graded into four categories, ranging from ‘A-1’ for
the highest quality obligations to ‘D’ for the lowest.
A-1:
This is the highest category. The obligor’s capacity to
meet its financial commitment on the obligation is strong. Within this category,
certain obligations are designated with a plus sign (+). This indicates that the
obligor’s capacity to meet its financial commitment on these obligations is
extremely strong.
A-2:
Issues carrying this designation are somewhat more
susceptible to the adverse effects of the changes in circumstances and economic
conditions than obligations in higher rating categories. However, the obligor’s
capacity to meet its financial commitment on the obligation is
satisfactory.
A-3:
Issues carrying this designation exhibit adequate
capacity to meet their financial obligations. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet it financial commitment on the
obligation.
B:
Issues rated ‘B’ are regarded as vulnerable and have
significant speculative characteristics. The obligor has capacity to meet
financial commitments; however, it faces major ongoing uncertainties which could
lead to obligor’s inadequate capacity to meet its financial
obligations.
C:
This rating is assigned to short-term debt obligations
that are currently vulnerable to nonpayment and is dependent upon favorable
business, financial, and economic conditions to meet its financial commitment on
the obligation.
D:
This rating indicates that the issue is either in
default or in breach of an imputed promise. For non-hybrid capital instruments,
the ‘D’ rating category is used when payments on an obligation are not made on
the date due, unless S&P Global Ratings believes that such payments will be
made within five business days in the absence of a stated grace period or within
the earlier of the stated grace period or 30 calendar days. The rating will also
be used upon filing for bankruptcy petition or the taking of similar action and
where default is a virtual certainty. If an obligation is subject to a
distressed exchange offer the rating is lowered to ‘D’.
MUNICIPAL
SHORT-TERM NOTE RATINGS: S&P Global Ratings rates U.S. municipal notes with
a maturity of less than three years as follows:
SP-1:
A strong capacity to pay principal and interest. Issues
that possess a very strong capacity to pay debt service is given a "+"
designation.
SP-2:
A satisfactory capacity to pay principal and interest,
with some vulnerability to adverse financial and economic changes over the terms
of the notes.
SP-3:
A speculative capacity to pay principal and interest.
APPENDIX
B – FINANCIAL HIGHLIGHTS
To
be filed by amendment.
ADDITIONAL
INFORMATION
Additional
information about the Funds is available in the Statement of Additional
Information dated _____________, which is incorporated by reference into this
prospectus. Additional information about each Fund’s investments is available in
the Fund’s annual and semi-annual reports to shareholders. In each Fund’s annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund’s performance during the last
fiscal year. The Statement of Additional Information and each Fund’s annual and
semi-annual reports can be obtained free of charge by writing Principal
Exchange-Traded Funds, c/o ALPS Distributors, Inc., 1290 Broadway, Suite
1000, Denver, CO 80203. In addition, the Fund makes its Statement of Additional
Information and annual and semi-annual reports available, free of charge, on our
website www.principaletfs.com. To request this and other information about the
Fund and to make shareholder inquiries, telephone 1-800-222-5852.
Reports
and other information about the Fund are available on the EDGAR Database on the
Commission’s internet site at www.sec.gov. Copies of this information may be
obtained, upon payment of a duplicating fee, by electronic request at the
following e-mail address: [email protected].
The
Fund has entered into a management agreement with Principal Global Investors,
LLC (“PGI”). The Fund and/or PGI, on behalf of the Funds, enter into contractual
arrangements with various parties, including, among others, the Funds’
distributor, transfer agent and custodian, who provide services to the Funds.
These arrangements are between the Fund and/or PGI and the applicable service
provider. Shareholders are not parties to, or intended to be third-party
beneficiaries of, any of these arrangements. Such arrangements are not intended
to create in any individual shareholder or group of shareholders any right,
including the right to enforce such arrangements against the service providers
or to seek any remedy thereunder against PGI or any other service provider,
either directly or on behalf of the Fund or any individual series (or fund).
This
prospectus provides information that you should consider in determining whether
to purchase shares of a Fund. This prospectus, the Statement of Additional
Information, or the contracts that are exhibits to the Fund’s registration
statement are not intended to give rise to any agreement or contract between the
Fund and/or any fund and any investor, or give rise to any contract or other
rights in any individual shareholder, group of shareholders or other person
other than any rights conferred explicitly by federal or state securities laws
that may not be waived.
The
U.S. government does not insure or guarantee an investment in any Funds.
Shares
of the Funds are not deposits or obligations of, or guaranteed or endorsed by,
Principal Bank or any other financial institution, nor are shares of the Funds
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency.
Principal
Exchange-Traded Funds SEC File 811-23029