Legg Mason ETF Investment Trust II
Prospectus August 1,
2023
CLEARBRIDGE
FOCUS VALUE ESG ETF
Cboe (Ticker
Symbol): CFCV
The
Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this Prospectus is accurate or complete. Any
statement to the contrary is a crime.
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INVESTMENT
PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE
VALUE |
Investment objective
ClearBridge
Focus Value ESG ETF (the “fund”) seeks long-term capital appreciation.
Fees and expenses of the
fund
The
accompanying table describes the fees and expenses that you may pay if you buy,
hold and sell shares of the fund. You may also be subject to additional fees,
such as brokerage commissions and other fees to financial intermediaries, which
are not reflected in the table and Example below. The management agreement
between Legg Mason ETF Investment Trust II (the “Trust”) and Legg Mason Partners
Fund Advisor, LLC (“LMPFA” or the “manager”) (the “Management Agreement”)
provides that the manager will pay all operating expenses of the fund, except
interest expenses, taxes, brokerage expenses, future Rule 12b‑1 fees (if any),
acquired fund fees and expenses, extraordinary expenses and the management fee
payable to the manager under the Management Agreement. The manager will also pay
all subadvisory fees of the fund.
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Shareholder
fees |
(fees paid directly from
your investment) |
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None |
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Annual fund
operating expenses (%) |
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(expenses that you pay each
year as a percentage of the value of your
investment) |
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Management
fees |
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0.49 |
Distribution
and/or service (12b‑1) fees |
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0.00 |
Other
expenses |
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None |
Acquired
fund fees and expenses |
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0.01 |
Total
annual fund operating expenses1 |
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0.50 |
1 |
Total annual
fund operating expenses do not correlate with the ratios of expenses to
average net assets reported in the financial highlights tables in the
fund’s Prospectus and in the fund’s shareholder reports, which reflect the
fund’s operating expenses and do not include acquired fund fees and
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:
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You
invest $10,000 in the fund for the time periods indicated
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• |
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Your
investment has a 5% return each year and the fund’s operating expenses
remain the same (except that any applicable fee waiver or expense
reimbursement is reflected only through its expiration date)
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You
may also incur usual and customary brokerage commissions and other charges when
buying or selling shares of the fund, which are not reflected in the example.
Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
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Number of years you own
your shares ($) |
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1 year |
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3 years |
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5 years |
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10 years |
ClearBridge
Focus Value ESG ETF |
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51 |
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160 |
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279 |
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629 |
Portfolio
turnover. The fund pays
transaction costs, such as commissions, when it buys and sells securities (or
“turns over” its portfolio). A higher portfolio turnover rate may indicate
higher transaction costs and may result in higher taxes when shares are held in
a taxable account. These costs, which are not reflected in 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 8% of the average value of its
portfolio.
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2 |
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ClearBridge Focus Value ESG
ETF |
Principal investment
strategies
The
fund seeks long-term capital appreciation. By employing fundamental research, in
an effort to identify securities with attractive risk-adjusted returns (where
the potential returns on the investment are favorable relative to the potential
risks of the investment), the fund’s portfolio management team constructs the
portfolio on a bottom‑up basis. Under normal circumstances, the fund invests at
least 80% of its net assets, plus borrowings for investment purposes, if any, in
equity securities, or other investments with similar economic characteristics,
of companies with large market capitalizations and which meet its financial and
environmental, social and governance (“ESG”) criteria. Large capitalization
companies are those companies with market capitalizations similar to companies
in the Russell 1000 Index (the “Index”). The size of the companies in the Index
changes with market conditions and the composition of the Index. Securities of
companies whose market capitalizations no longer meet this definition after
purchase by the fund still will be considered securities of large capitalization
companies for purposes of the fund’s 80% investment policy. The fund may also
invest up to 20% of its net assets in equity securities, or other investments
with similar economic characteristics, of companies with lower market
capitalizations that meet its financial and ESG criteria. Under normal
circumstances, the fund invests in a diversified portfolio typically consisting
of the securities of 30 to 40 issuers.
Determination
of whether a company meets the fund’s ESG standards is based on the subadviser’s
proprietary research approach. The subadviser will exercise judgment to
determine ESG best practices based on its over thirty-year history managing ESG
investment strategies through an established proprietary process. The subadviser
utilizes a fundamental, bottom‑up research approach that emphasizes company
analysis, management and stock selection. The subadviser’s proprietary research
and analysis generally incorporates information and data obtained from a variety
of third-party research providers as supplementary to the subadviser’s own
proprietary research and analysis. The subadviser has the right to change the
third-party service providers that support this process at any time.
In
addition, certain types of companies are excluded from the investment universe.
Companies in the tobacco and coal industries are excluded, and companies earning
a significant portion of their revenue (in general, approximately 10‑15% or
more) from controversial arms (e.g., nuclear, chemical and biological weapons;
cluster munitions and anti-personnel landmines) or gambling are also excluded.
The subadviser may modify this list of prohibited investments, including revenue
thresholds or any particular exclusion, at any time, without shareholder
approval or notice.
The
ESG evaluation is integrated into a thorough assessment of investment worthiness
based on financial criteria as well as ESG considerations including innovative
workplace policies, employee benefits and programs; environmental management
system strength, eco‑efficiency, and life-cycle analysis; community involvement,
strategic philanthropy, and reputation management; and strong corporate
governance and independence of the board. The ESG analysis is conducted by the
subadviser’s sector analysts on a sector-specific basis, and a proprietary ESG
rating is assigned to each company. The weightings of the E, S and G factors are
determined by the subadviser for each respective sector and sub‑sectors.
All
companies are assigned a proprietary ClearBridge ESG rating (B, A, AA, AAA).
Companies that score a rating of “B” are considered uninvestable. The
subadviser’s proprietary ESG ratings assesses whether a company focuses on ESG
factors, integrates ESG factors into its business model, and measures such
efforts. Companies that the subadviser believes have not focused on ESG factors
or have a poor ESG record are assigned a rating of “B.” The subadviser uses a
variety of ESG factors, which may change from time to time, as part of its
rating process. These factors are further described below under “More on the
fund’s investments – Selection process.” Further, to the extent that there is a
material/substantial issue with any one of the E, S or G components with respect
to a company, such company will be assigned a “B” rating. The subadviser’s ESG
ratings are formally reviewed at least annually. In addition, the subadviser’s
research analysts monitor the companies included in the Fund’s portfolio on an
ongoing basis to assess the continued appropriateness of such ratings.
The
subadviser seeks to invest over the long-term in large-capitalization companies
that the subadviser considers to be of high quality with competitive advantages
that can be maintained as evidenced by high returns on capital, strong balance
sheets, and capable management teams that allocate capital in an efficient
manner. The subadviser seeks to invest in leadership companies where the
portfolio managers believe the market price underestimates the magnitude of
future growth. Leadership may be assessed both quantitatively and qualitatively.
The subadviser seeks to select securities of companies that are category leaders
with characteristics to sustain that position and grow market share
consistently. The subadviser performs rigorous analysis to understand company
fundamentals, key competitive dynamics, and industry structure with the belief
that the best business models win over time. The subadviser seeks to identify
social or economic trends that will have an impact on the economy as a whole to
support multi-year investment opportunities, allowing for compounding of
earnings and cash flow. The subadviser seeks companies with self-funding
business models with significant recurring revenue and businesses with the
ability to generate superior free cash flow over time. In addition, the
subadviser takes a disciplined approach to valuation and stress tests the
sustainability of profitability and growth. The subadviser will also consider
emerging companies with promising future prospects that may not yet have
demonstrated substantial profitability.
The
subadviser will utilize fundamental analysis to identify investment candidates
with these attributes, and evaluate industry dynamics, the strength of the
business model and management skill. Valuation will be carefully examined using
a variety of techniques that depend on the type of company being researched.
Methods typically used are discounted cash flow analysis, market implied growth
and returns relative to the subadviser’s expectations, multiple comparisons and
scenario analysis. The subadviser will sell a security if the issuer no longer
meets its financial or ESG criteria.
It
is also the subadviser’s intention to engage and encourage management to improve
in certain ESG areas identified by the subadviser through the sector analysts’
lead engagement. The subadviser engages and encourages management to improve in
certain ESG areas in a variety of ways, including through ESG engagement
meetings with management personnel of companies to discuss different topics
relevant to the company’s
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ClearBridge Focus Value ESG
ETF |
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3 |
business
operations, such as labor standards, workforce diversity, supply chain,
environmental targets, carbon intensity, reputation, and executive compensation;
applying proprietary methodologies to assess the outcome and progress of these
meetings to inform the subadviser’s ESG rating of the companies; and through
proxy voting.
Principal risks
Risk
is inherent in all investing. The value of your investment in the fund, as well
as the amount of return you receive on your investment, may fluctuate
significantly. You may lose part or all of your investment in the fund or your
investment may not perform as well as other similar investments.
An investment in the fund is not insured
or guaranteed by the Federal Deposit Insurance Corporation or by any bank or
government agency. The following is a summary description of
certain risks of investing in the fund.
Value investing
risk. The value approach to investing
involves the risk that stocks may remain undervalued for long periods,
undervaluation may become more severe, or perceived undervaluation may actually
represent intrinsic value. Value stocks may underperform the overall equity
market for an extended period while the market favors growth stocks. A value
stock may not increase in price as anticipated by the subadviser if other
investors fail to recognize the company’s value and bid up the price or the
factors that the subadviser believes will increase the price of the security do
not occur or do not have the anticipated effect. Value stocks may go in and out
of favor over time and the subadviser may sell a security prior to the security
realizing a gain in connection with changed market perception regarding the
value of the security.
Issuer
risk. The market price of a security can
go up or down more than the market as a whole and can perform differently from
the value of the market as a whole, due to factors specifically relating to the
security’s issuer, such as disappointing earnings reports by the issuer,
unsuccessful products or services, loss of major customers, changes in
management, corporate actions, negative perception in the marketplace, or major
litigation or changes in government regulations affecting the issuer or the
competitive environment. An individual security may also be affected by factors
relating to the industry or sector of the issuer. The fund may experience a
substantial or complete loss on an individual security. A change in financial
condition or other event affecting a single issuer may adversely impact the
industry or sector of the issuer or securities markets as a whole.
ESG investment
strategy risk. The fund’s ESG investment strategy limits the
types and number of investment opportunities available to the fund and, as a
result, the fund may underperform other funds that do not have an ESG focus. The
fund’s ESG investment strategy may result in the fund investing in securities or
industry sectors that underperform the market as a whole, or forgoing
opportunities to invest in securities that might otherwise be advantageous to
buy. The fund may also underperform other funds that apply different ESG
standards. In addition, the subadviser may be unsuccessful in creating a
portfolio composed of companies that exhibit positive ESG characteristics. In evaluating a security or issuer based on
ESG criteria, the subadviser may use information and data from third-party
providers of ESG research, which may be incomplete, inaccurate or unavailable.
There is no uniform set of ESG standards, and different third party providers
may provide different or inconsistent information and data. There may be
limitations with respect to availability of ESG data in certain sectors, as well
as limited availability of investments with positive ESG assessments in certain
sectors. As a result, there is a risk that the subadviser’s analysis may be
conducted based on incomplete or inaccurate information. The subadviser’s
evaluation of ESG criteria is subjective and may change over time.
Large capitalization
company risk. Large capitalization
companies may fall out of favor with investors based on market and economic
conditions. In addition, larger companies may not be able to attain the high
growth rates of successful smaller companies and may be less capable of
responding quickly to competitive challenges and industry changes. As a result,
the fund’s value may not rise as much as, or may fall more than, the value of
funds that focus on companies with smaller market capitalizations.
Small and
mid‑capitalization company risk. The
fund will be exposed to additional risks as a result of its investments in the
securities of small and mid‑capitalization companies. Small and
mid‑capitalization companies may fall out of favor with investors; may have
limited product lines, operating histories, markets or financial resources; or
may be dependent upon a limited management group. The prices of securities of
small and mid‑capitalization companies generally are more volatile than those of
large capitalization companies and are more likely to be adversely affected than
large capitalization companies by changes in earnings results and investor
expectations or poor economic or market conditions, including those experienced
during a recession. Securities of small and mid‑capitalization companies may
underperform large capitalization companies, may be harder to sell at times and
at prices the portfolio managers believe appropriate and may have greater
potential for losses.
Stock market and
equity securities risk. The stock
markets are volatile and the market prices of the fund’s equity securities may
decline generally. Equity securities may include warrants, rights,
exchange-traded and over‑the‑counter common stocks, preferred stock, depositary
receipts, trust certificates, limited partnership interests and shares of other
investment companies, including exchange-traded funds and real estate investment
trusts. Equity securities may have greater price volatility than other asset
classes, such as fixed income securities, and may fluctuate in price based on
actual or perceived changes in a company’s financial condition and overall
market and economic conditions and perceptions. If the market prices of the
equity securities owned by the fund fall, the value of your investment in the
fund will decline.
Valuation
risk. The sales price the fund could
receive upon the sale of any particular portfolio investment may differ from the
fund’s valuation of the investment, particularly for securities that trade in
thin or volatile markets or that are valued using a fair value methodology.
These differences may increase significantly and affect fund investments more
broadly during periods of market volatility. Authorized Participants who
purchase or redeem fund shares on days when the fund is holding fair-valued
securities may receive fewer or more shares or lower or higher redemption
proceeds than they would have received if the fund had not fair-valued
securities or had used a different valuation methodology. The fund’s ability to
value its investments may be impacted by technological issues and/or errors by
pricing services or other third party service providers. The valuation of the
fund’s investments involves subjective judgment.
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4 |
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ClearBridge Focus Value ESG
ETF |
Industry or sector
focus risk. The fund may be susceptible
to an increased risk of loss, including losses due to events that adversely
affect the fund’s investments more than the market as a whole, to the extent
that the fund may, from time to time, have greater exposure to the securities of
a particular issuer or issuers within the same industry or sector.
Market events
risk. The market values of securities or
other assets will fluctuate, sometimes sharply and unpredictably, due to changes
in general market conditions, overall economic trends or events, governmental
actions or intervention, actions taken by the U.S. Federal Reserve or foreign
central banks, market disruptions caused by trade disputes or other factors,
political developments, armed conflicts, economic sanctions and countermeasures
in response to sanctions, major cybersecurity events, investor sentiment, the
global and domestic effects of a pandemic, and other factors that may or may not
be related to the issuer of the security or other asset. Economies and financial
markets throughout the world are increasingly interconnected. Economic,
financial or political events, trading and tariff arrangements, public health
events, terrorism, wars, natural disasters and other circumstances in one
country or region could have profound impacts on global economies or markets. As
a result, whether or not the fund invests in securities of issuers located in or
with significant exposure to the countries or markets directly affected, the
value and liquidity of the fund’s investments may be negatively affected. Other
securities or markets could be similarly affected by past or future geopolitical
or other events or conditions. Furthermore, events involving limited liquidity,
defaults, non‑performance or other adverse developments that affect one
industry, such as the financial services industry, or concerns or rumors about
any events of these kinds, have in the past and may in the future lead to
market-wide liquidity problems, may spread to other industries, and could
negatively affect the value and liquidity of the fund’s investments.
The
fallout from the COVID‑19 pandemic and its subsequent variants, and the
long-term impact on economies, markets, industries and individual issuers, are
not known. Some sectors of the economy and individual issuers have experienced
or may experience particularly large losses. Periods of extreme volatility in
the financial markets; reduced liquidity of many instruments; and disruptions to
supply chains, consumer demand and employee availability, may continue for some
time. The U.S. government and the Federal Reserve, as well as certain foreign
governments and central banks, have taken extraordinary actions to support local
and global economies and the financial markets in response to the COVID‑19
pandemic. This and other government intervention into the economy and financial
markets may not work as intended, and have resulted in a large expansion of
government deficits and debt, the long term consequences of which are not known.
In addition, the COVID‑19 pandemic, and measures taken to mitigate its effects,
could result in disruptions to the services provided to the fund by its service
providers.
Market trading
risk. The fund faces numerous market
trading risks, including the potential lack of an active market for fund shares,
losses from trading in secondary markets, periods of high volatility and
disruptions in the creation/redemption process. Any of these factors, among
others, may lead to the fund’s shares trading at a premium or discount to net
asset value.
Absence of active market. Although shares of the fund are listed for trading
on one or more stock exchanges, there can be no assurance that an active trading
market for such shares will develop or be maintained by market makers or
Authorized Participants. Authorized Participants are not obligated to execute
purchase or redemption orders for Creation Units. In periods of market
volatility, market makers and/or Authorized Participants may be less willing to
transact in fund shares. The absence of an active market for the fund’s shares
may contribute to the fund’s shares trading at a premium or discount to net
asset value.
Shares of the fund may trade at prices other than net
asset value. Shares of the fund
trade on stock exchanges at prices at, above or below the fund’s most recent net
asset value. The net asset value of the fund is calculated at the end of each
business day and fluctuates with changes in the market value of the fund’s
holdings. The trading price of the fund’s shares fluctuates continuously
throughout trading hours based on both market supply of and demand for fund
shares and the underlying value of the fund’s portfolio holdings or net asset
value. As a result, the trading prices of the fund’s shares may deviate
significantly from net asset value during periods of market volatility,
including during periods of high redemption requests or other unusual market
conditions. ANY OF THESE FACTORS, AMONG OTHERS, MAY LEAD TO THE FUND’S SHARES
TRADING AT A PREMIUM OR DISCOUNT TO NET ASSET VALUE.
Assets under
management risk. From time to time, a
third party, LMPFA and/or affiliates of LMPFA or the fund may invest in the fund
and hold its investment for a period of time in order for the fund to achieve
size or scale. There can be no assurance that any such entity will not redeem
its investment, that it will not redeem at an inopportune time for the fund or
that the size of the fund will be maintained at a level necessary to enable the
fund to remain viable. Such redemption may cause the fund to sell assets (or
invest cash) at disadvantageous times or prices, increase or accelerate taxable
gains or transaction costs and may negatively affect the fund’s net asset value,
market price, performance, or ability to satisfy redemptions in a timely manner.
Volatility
risk. The market prices of the
securities or other assets in the fund’s portfolio may fluctuate, sometimes
rapidly and unpredictably. The price of a security may fluctuate due to factors
affecting markets generally or particular industries. The market price of a
security or other asset may also be more volatile than the market as a whole.
This volatility may affect the fund’s net asset value. Securities or other
assets in the fund’s portfolio may be subject to price volatility and the prices
may not be any less volatile than the market as a whole and could be more
volatile. Events or financial circumstances affecting individual securities or
sectors may increase the volatility of the fund.
Authorized
Participant concentration risk. Only an
Authorized Participant may engage in creation or redemption transactions
directly with the fund. “Authorized Participants” are broker-dealers that are
permitted to create and redeem shares directly with the fund and who have
entered into agreements with the fund’s distributor. A limited number of
institutions act as Authorized Participants in respect of the fund. To the
extent that these institutions exit the business or are unable to process
creation and/or redemption orders with respect to the fund and no other
Authorized Participant
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ClearBridge Focus Value ESG
ETF |
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5 |
steps
forward to create or redeem, in either of these cases, fund shares may trade at
a premium or discount to net asset value and possibly face trading halts and/or
delisting. Authorized Participant concentration risk may be heightened for ETFs
that invest in foreign securities.
Cybersecurity
risk. Cybersecurity incidents, whether
intentionally caused by third parties or otherwise, may allow an unauthorized
party to gain access to fund assets, fund or customer data (including private
shareholder information) or proprietary information, cause the fund, the
manager, the subadvisers, Authorized Participants, the relevant listing exchange
and/or their service providers (including, but not limited to, fund accountants,
custodians, sub‑custodians, transfer agents and financial intermediaries) to
suffer data breaches, data corruption or loss of operational functionality, or
prevent fund investors from purchasing, redeeming or exchanging shares,
receiving distributions or receiving timely information regarding the fund or
their investment in the fund. The fund, the manager, and the subadvisers have
limited ability to prevent or mitigate cybersecurity incidents affecting third
party service providers, and such third party service providers may have limited
indemnification obligations to the fund, the manager, and/or the subadvisers.
Cybersecurity incidents may result in financial losses to the fund and its
shareholders, and substantial costs may be incurred in order to prevent or
mitigate any future cybersecurity incidents. Issuers of securities in which the
fund invests are also subject to cybersecurity risks, and the value of these
securities could decline if the issuers experience cybersecurity incidents.
Because
technology is frequently changing, new ways to carry out cyber attacks are
always developing. Therefore, there is a chance that some risks have not been
identified or prepared for, or that an attack may not be detected, which puts
limitations on the fund’s ability to plan for or respond to a cyber attack. Like
other funds and business enterprises, the fund, the manager, the subadvisers,
Authorized Participants, the relevant listing exchange and their service
providers are subject to the risk of cyber incidents occurring from time to
time.
Portfolio management
risk. The value of your investment may
decrease if the subadviser’s judgment about the attractiveness or value of, or
market trends affecting, a particular security, industry, sector or region, or
about market movements, is incorrect or does not produce the desired results, or
if there are imperfections, errors or limitations in the models, tools and data
used by the subadviser. In addition, the fund’s investment strategies or
policies may change from time to time. Those changes may not lead to the results
intended by the subadviser and could have an adverse effect on the value or
performance of the fund.
Trading issues
risk. Trading in fund shares on
CBOE BZX may be halted in certain circumstances. There can be no assurance that
the requirements of CBOE BZX necessary to maintain the listing of the fund will
continue to be met.
Illiquidity
risk. Some assets held by the fund may
be or become impossible or difficult to sell and some assets that the fund wants
to invest in may be impossible or difficult to purchase, particularly during
times of market turmoil or due to adverse changes in the conditions of a
particular issuer. These illiquid assets may also be difficult to value. Markets
may become illiquid when, for instance, there are few, if any, interested buyers
or sellers or when dealers are unwilling or unable to make a market for certain
securities. If the fund is forced to sell an illiquid asset to meet redemption
requests or other cash needs, or to try to limit losses, the fund may be forced
to sell at a substantial loss or may not be able to sell at all. The fund may
not receive its proceeds from the sale of certain securities for an extended
period (for example, several weeks or even longer).
Small fund
risk. When the fund’s size is
small, the fund may experience low trading volume and wide bid/ask spreads. In
addition, the fund may face the risk of being delisted if the fund does not meet
certain conditions of the listing exchange. If the fund does not attract
additional assets, the fund’s expenses will continue to be spread over a small
asset base.
Risk of investing in
fewer issuers. To the extent the
fund invests its assets in a small number of issuers, or in issuers in related
businesses or that are subject to related operating risks, the fund will be more
susceptible to negative events affecting those issuers.
These
and other risks are discussed in more detail in the Prospectus or in the
Statement of Additional Information.
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6 |
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ClearBridge Focus Value ESG
ETF |
Performance
The
accompanying bar chart and table provide some indication of the risks of
investing in the fund. The bar chart
shows changes in the fund’s performance from year to year. The table shows the
average annual total returns of the fund and also compares the fund’s
performance with the average annual total returns of an index or other
benchmark. The fund makes updated performance information,
including its current net asset value, available at www.franklintempleton.com/etfproducts
(select fund), or by calling the fund at 1‑877‑721‑1926.
The fund’s past performance
(before and after taxes) is not necessarily an indication of how the fund will
perform in the
future.
Effective
July 1, 2021, the fund changed its name from ClearBridge Focus Value ETF to
ClearBridge Focus Value ESG ETF and adopted the fund’s current ESG related
investment strategies.
Best Quarter (12/31/2022): 13.30 Worst
Quarter (06/30/2022): (14.71)
The
year‑to‑date return as of the
most recent calendar quarter, which ended June 30, 2023, was
8.69
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Average annual
total returns (%) |
(for periods ended
December 31, 2022) |
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1 year |
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Since inception |
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Inception date |
Return
before taxes |
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(12.43) |
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11.82 |
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05/27/2020 |
Return
after taxes on distributions |
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(13.07) |
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10.67 |
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Return
after taxes on distributions and sale of fund shares |
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(7.03) |
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9.01 |
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Russell
1000 Value Index (reflects no deduction for fees, expenses or taxes) |
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(7.54) |
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13.87 |
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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, and the
after‑tax returns shown are not relevant to investors who hold their fund shares
through tax‑advantaged arrangements, such as 401(k) plans or individual
retirement accounts. Returns after taxes on
distributions and sale of fund shares are higher than returns before taxes for
certain periods shown because they reflect the tax benefit of capital losses
realized on the sale of fund shares.
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ClearBridge Focus Value ESG
ETF |
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7 |
Management
Investment
manager: Legg Mason Partners Fund
Advisor, LLC (“LMPFA”)
Subadviser: ClearBridge Investments, LLC (“ClearBridge”)
Portfolio
managers: Primary responsibility for the
day‑to‑day management of the fund lies with the following portfolio managers.
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Portfolio
manager |
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Title |
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Portfolio manager
of the fund since |
Robert
Feitler, Jr.* |
|
Managing
Director and Portfolio Manager of ClearBridge |
|
2020 |
Dmitry
Khaykin |
|
Managing
Director and Portfolio Manager of ClearBridge |
|
2020 |
Deepon
Nag** |
|
Director
and Portfolio Manager of ClearBridge |
|
December
2023 |
* |
It
is anticipated that Mr. Feitler will retire and step down as a member
of the fund’s portfolio management team effective on or about
December 31, 2023. |
** |
Effective
December 31, 2023, Mr. Nag will join the fund’s portfolio
management team. |
Purchase and sale of fund
shares
The
fund is an actively managed exchange-traded fund (“ETF”). Individual shares of
the fund are listed on a national securities exchange and are redeemable only by
Authorized Participants in aggregated blocks of shares or multiples thereof
(“Creation Units”).
Individual
shares of the fund may only be purchased and sold in the secondary market
through a broker-dealer at market prices. Because fund shares trade at market
prices rather than at net asset value, fund shares may trade at a price greater
than net asset value (a premium) or less than net asset value (a discount).
When
buying or selling shares in the secondary market, you may incur costs
attributable to the difference between the highest price a buyer is willing to
pay to purchase shares of the fund (bid) and the lowest price a seller is
willing to accept for shares of the fund (ask) (the “bid‑ask spread”).
The
fund will only issue or redeem Creation Units to Authorized Participants who
have entered into agreements with the fund’s distributor. The fund generally
will issue or redeem Creation Units in return for a designated portfolio of
securities (and an amount of cash) that the fund specifies each day.
You
may access recent information, including information on the fund’s net asset
value, market price, premiums and discounts, and bid‑ask spreads, on the fund’s
website at www.franklintempleton.com/etfproducts.
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Tax information
The
fund’s distributions are generally taxable and will be taxed as ordinary income,
capital gains, or some combination of both, unless you are investing through a
tax‑advantaged account, such as a 401(k) plan or an individual retirement
account, in which case your distributions may be taxed when withdrawn from such
tax‑advantaged account.
Payments to
broker/dealers and other financial intermediaries
If
you purchase shares of the fund through a broker-dealer or other financial
intermediary (such as a bank), LMPFA or other related companies pay the
intermediary for marketing activities and presentations, educational training
programs, conferences, the development of technology platforms and reporting
systems or other services related to the sale or promotion of the fund. 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.
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More on the fund’s
investment strategies, investments and risks
Introduction
The
fund is an actively managed exchange-traded fund (“ETF”), and the shares of the
fund are listed for trading on CBOE BZX. The market price for a share of the
fund may be different from the fund’s most recent net asset value (“NAV”).
ETFs
are funds that trade like other publicly traded securities. Unlike shares of a
mutual fund, which can be bought and redeemed from the issuing fund by all
shareholders at a price based on NAV, shares of the fund may be purchased or
redeemed directly from the fund at NAV solely by Authorized Participants. Also
unlike shares of a mutual fund, shares of the fund are listed on a national
securities exchange and trade in the secondary market at market prices that
change throughout the day.
Investment objective
The
fund seeks long-term capital appreciation.
Principal investment
strategies
Under
normal circumstances, the fund seeks to meet its investment objective by
investing at least 80% of its net assets, plus borrowings for investment
purposes, if any, in equity securities or other investments with similar
economic characteristics, of companies with large market capitalizations and
which meet its financial and environmental, social and governance (“ESG”)
criteria. The fund may also invest in companies that the subadviser believes are
making substantial progress toward becoming a leader in ESG policies. In
assessing whether a company is making substantial progress toward becoming a
leader in ESG, the subadviser considers the degree to which companies
acknowledge and respond to the ESG factors that emerge within their operating
arena. The subadviser evaluates a company’s capacity to manage the ESG drivers
of business performance by analyzing corporate policies, management systems and
practices, and a company’s track record in these areas. The subadviser primarily
relies on the company’s public reports and filings in assessing such progress
but is also informed by its engagement with management.
In
addition, certain types of companies are excluded from the investment universe.
Companies in the tobacco and coal industries are excluded, and companies earning
a significant portion of their revenue (in general, approximately 10‑15% or
more) from controversial arms (e.g., nuclear, chemical and biological weapons;
cluster munitions and anti-personnel landmines) or gambling are also excluded.
The subadviser may modify this list of prohibited investments, including revenue
thresholds or any particular exclusion, at any time, without shareholder
approval or notice.
Determination
of a company’s ESG standards is based on the subadviser’s proprietary research
approach. The subadviser will exercise judgment to determine ESG best practices
based on its over thirty-year history of managing ESG investment strategies
through an established proprietary process. The subadviser’s proprietary ESG
evaluation process is integrated with a fundamental, bottom‑up research approach
that emphasizes company analysis, management and stock selection. Research
analysts integrate ESG factors during analysis at the company-level, and work
directly with the portfolio management team to integrate the ESG factors into
the strategy. Thus, companies that are selected for inclusion in the Fund’s
portfolio meet both the financial and ESG criteria that are part of the
subadviser’s security selection process, with companies being weighted according
to the portfolio management team’s highest-conviction ideas with adjustments to
position sizes in order to manage portfolio risk.
The
subadviser’s proprietary research and analysis generally incorporates
information and data obtained from a variety of third-party research providers
as supplementary to the subadviser’s own proprietary research and analysis. The
subadviser has the right to change the third-party service providers that
support this process at any time.
The
ESG evaluation is integrated into a thorough assessment of investment worthiness
based on financial criteria as well as ESG considerations including innovative
workplace policies, employee benefits and programs; environmental management
system strength, eco‑efficiency (the concept of creating more goods and services
while using fewer resources and creating less waste and pollution) and
life-cycle analysis; community involvement, strategic philanthropy and
reputation management; and strong corporate governance and independence of the
board. The subadviser utilizes an integrated approach that does not segment the
investment process into distinct financial and ESG components, rather financial
criteria and ESG factors are considered throughout the investment process.
The
ESG analysis is conducted by the subadviser’s sector analysts on a
sector-specific basis, and a proprietary ESG rating is assigned to each company.
Each sector of the economy (e.g., technology, energy, retail) is likely to face
a different range of issues, given the different business environments in which
the sectors operate. Recognizing this, the subadviser’s sector analysts and
portfolio managers selectively emphasize those particular issues that the
subadviser believes are most relevant to a company’s performance. While ESG
characteristics and weightings are determined by company and sector, they also
share common traits such as transparency, management involvement, innovation,
long-term view, and willingness to engage investors on sustainability matters.
The
subadviser seeks to invest over the long term in large-capitalization companies
that the subadviser considers to be of high quality with competitive advantages
that can be maintained as evidenced by high returns on capital, strong balance
sheets, and capable management teams that allocate capital in an efficient
manner. The subadviser seeks to invest in leadership companies where the
portfolio managers believe the market price underestimates the magnitude of
future growth. Leadership may be assessed both quantitatively and qualitatively.
The subadviser seeks to select securities of companies that are category leaders
with characteristics to sustain that position and grow market share
consistently. The subadviser performs rigorous analysis to understand company
fundamentals, key competitive dynamics and industry structure with the belief
that the
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best
business models win over time. The subadviser seeks to identify social or
economic trends that will have an impact on the economy as a whole to support
multi-year investment opportunities, allowing for compounding of earnings and
cash flow. The subadviser seeks companies with self-funding business models with
significant recurring revenue and businesses with the ability to generate
superior free cash flow over time. In addition, the subadviser takes a
disciplined approach to valuation and stress tests the sustainability of
profitability and growth. The subadviser will also consider emerging companies
with promising future prospects that may not yet have demonstrated substantial
profitability.
The
subadviser will utilize fundamental analysis to identify investment candidates
with these attributes, and evaluate industry dynamics, the strength of the
business model and management skill. Valuation will be carefully examined using
a variety of techniques that depend on the type of company being researched.
Methods typically used are discounted cash flow analysis, market implied growth
and returns relative to the subadviser’s expectations, multiple comparisons and
scenario analysis.
It
is also the subadviser’s intention to engage and encourage management to improve
in certain ESG areas identified by the subadviser through the sector analysts’
lead engagements. The subadviser engages and encourages management to improve in
certain ESG areas in a variety of ways, including through ESG engagement
meetings with management personnel of companies to discuss different topics
relevant to the company’s business operations, such as labor standards,
workforce diversity, supply chain, environmental targets, carbon intensity,
reputation, and executive compensation; applying proprietary methodologies to
assess the outcome and progress of these meetings to inform the subadviser’s ESG
rating of the companies; and through proxy voting.
The
portfolio managers construct a portfolio of companies along the spectrum of
valuations, assigning weights accordingly to the team’s highest-conviction
ideas, and adjusting position sizes to manage portfolio risk. Through its
investment process the subadviser seeks to provide balanced and diversified
exposure while maintaining high active share (i.e., the extent to which the
Fund’s holdings diverge from the Fund’s benchmark index). Under normal
circumstances, the fund invests in a diversified portfolio typically consisting
of the securities of 30 to 40 issuers.
The
portfolio managers will exercise their judgment in applying the ESG ratings
system. All companies are assigned a proprietary ClearBridge ESG rating (B, A,
AA, AAA). Companies that score a rating of “B” are considered uninvestable. The
subadviser’s proprietary ESG ratings assesses whether a company focuses on ESG
factors, integrates ESG factors into its business model, and measures such
efforts. Companies that the subadviser believes have not focused on ESG factors
or have a poor ESG record are assigned a rating of “B.” Further, to the extent
that there is a material/substantial issue with any one of the E, S or G
components with respect to a company, such company will be assigned a “B”
rating. The subadviser’s ESG ratings are formally reviewed at least annually. In
addition, the subadviser’s research analysts monitor the companies included in
the Fund’s portfolio on an ongoing basis to assess the continued appropriateness
of such ratings. The subadviser uses a variety of ESG factors, which may change
from time to time, as part of its rating process. These factors are further
described below under “More on the fund’s investments – Selection process.”
Proxy
voting is a vital part of the management role. The portfolio managers are guided
by the ClearBridge Proxy Voting Policies and Procedures, which include proxy
guidelines for traditional governance, environmental and social proposals. In
addition, the portfolio managers generally support shareholder proposals that
promote good governance, greater corporate transparency, accountability and
ethical practices.
The
subadviser will sell a security if the issuer no longer meets its financial or
ESG criteria. In addition, the subadviser will seek to replace securities when
the company’s risk/reward profile is no longer favorable due to price
appreciation or if the company’s investment fundamentals have deteriorated
meaningfully relative to original expectations. Securities may also be sold to
permit investment in an issuer considered by the subadviser to be a more
attractive alternative.
Important information
The
fund’s investment objective may be changed by the Board of Trustees (the
“Board”) without shareholder approval upon 60 days’ prior written notice to
shareholders.
There
is no assurance that the fund will meet its investment objective.
The
fund’s 80% investment policy may be changed by the Board without shareholder
approval upon 60 days’ prior notice to shareholders. The fund’s other investment
strategies and policies may be changed from time to time without shareholder
approval, unless specifically stated otherwise in this Prospectus or in the
Statement of Additional Information.
The
portfolio managers utilize the subadviser’s fundamental research analysts who,
using their industry expertise, determine the material ESG (environmental,
social and governance) factors facing both individual companies and industry
sectors and engage with company management regarding the extent to which they
promote best practices of such factors. ESG factors may include, but are not
necessarily limited to, environmentally-friendly product initiatives, labor
audits of overseas supply chains and strong corporate governance. The choice of
ESG factors for any particular company reflects the specific industry.
More on the fund’s
investments
Equity investments
Equity
securities include exchange-traded and over‑the‑counter (“OTC”) common and
preferred stocks, warrants and rights, securities convertible into equity
securities, securities of other investment companies and real estate investment
trusts (“REITs”).
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Fixed income securities
Fixed
income securities represent obligations of corporations, governments and other
entities to repay money borrowed. Fixed income securities are commonly referred
to as “debt,” “debt obligations,” “bonds” or “notes.” The issuer of the fixed
income security usually pays a fixed, variable or floating rate of interest, and
repays the amount borrowed, usually at the maturity of the security. Some fixed
income securities, however, do not pay current interest but are sold at a
discount from their face values. Other fixed income securities may make periodic
payments of interest and/or principal. Some fixed income securities are
partially or fully secured by collateral supporting the payment of interest and
principal.
Distressed debt
securities
The
fund may invest in distressed debt securities. Distressed debt securities are
debt securities that are subject to bankruptcy proceedings or are in default or
are at imminent risk of being in default. Distressed debt securities are
speculative and involve substantial risk. Generally, the fund will invest in
distressed debt securities when the portfolio managers believe they offer
significant potential for higher returns or can be exchanged for other
securities (e.g., equity securities)
that offer this potential. However, there can be no assurance that the issuer
will make an exchange offer or adopt a plan of reorganization. The fund will
generally not receive interest payments on the distressed debt securities and
may incur costs to protect its investment. In addition, principal may not be
repaid. Distressed debt securities and any securities received in an exchange
may be difficult to sell and may be subject to restriction on resale.
Foreign investments
The
fund may invest up to 20% of its net assets (at the time of investment) in
foreign securities. The fund may invest directly in foreign issuers or invest in
depositary receipts. A depositary receipt is a type of negotiable (transferable)
financial security that demonstrates ownership of shares of a foreign issuer and
is an alternative to directly purchasing the underlying foreign security.
Sovereign debt
The
fund may invest in sovereign debt. Sovereign debt securities may include:
• |
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Fixed
income securities issued or guaranteed by governments, governmental
agencies or instrumentalities and their political subdivisions
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Fixed
income securities issued by government-owned, controlled or sponsored
entities |
• |
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Interests
issued for the purpose of restructuring the investment characteristics of
instruments issued by any of the above issuers |
• |
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Brady
Bonds, which are debt securities issued under the framework of the Brady
Plan as a means for debtor nations to restructure their outstanding
external indebtedness |
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Participations
in loans between governments and financial institutions
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Fixed
income securities issued by supranational entities such as the World Bank.
A supranational entity is a bank, commission or company established or
financially supported by the national governments of one or more countries
to promote reconstruction or development |
Sovereign
government and supranational debt involve many of the risks of foreign
investments as well as the risk of debt moratorium, repudiation or renegotiation
and the fund may be unable to enforce its rights against the issuers.
Short sales
A
short sale is a transaction in which the fund sells securities it does not own
in anticipation of a decline in the market price of the securities. The fund may
hold no more than 25% of its net assets (taken at the then current market value)
as required collateral for such sales at any one time.
Exchange-traded funds
(ETFs)
The
fund may invest in shares of open‑end management investment companies or unit
investment trusts that are traded on a stock exchange, called ETFs. ETFs are
investment companies that trade like stocks on a securities exchange at market
prices rather than net asset value. As a result, ETF shares may trade at a price
greater than net asset value (premium) or less than net asset value (discount).
The fund, if investing in an ETF, indirectly bears fees and expenses charged by
the ETF in addition to the fund’s direct fees and expenses. Investments in ETFs
are also subject to brokerage and other trading costs that could result in
greater expenses for the fund. The fund may invest in affiliated ETFs.
Exchange-traded notes
(ETNs)
The
fund may invest in ETNs, which are debt securities that combine certain aspects
of ETFs and bonds. ETNs, like ETFs, may be traded on stock exchanges and their
value depends on the performance of the underlying index and the credit rating
of the issuer. ETNs may be held to maturity, but unlike bonds there are no
periodic interest payments and principal is not protected.
Cash management
The
fund may hold cash pending investment, and may invest in money market funds and
other money market instruments (e.g., short-term U.S. government securities,
high grade commercial paper, bank obligations or repurchase agreements) for cash
management purposes. The amount of assets the fund may hold for cash management
purposes will depend on market conditions and the need to meet expected
redemption requests.
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Defensive investing
The
fund may depart from its principal investment strategies in response to adverse
market, economic or political conditions by taking temporary defensive
positions, including by investing in any type of money market instruments and
short-term debt securities or holding cash without regard to any percentage
limitations. If a significant amount of the fund’s assets is used for
defensive investing purposes, the fund will be less likely to achieve its
investment objective. Although the subadviser has the ability to take defensive
positions, it may choose not to do so for a variety of reasons, even during
volatile market conditions.
Other investments
The
fund may also use other strategies and invest in other investments that are
described, along with their risks, in the Statement of Additional Information
(“SAI”). However, the fund might not use all of the strategies and
techniques or invest in all of the types of investments described in this
Prospectus or in the SAI.
Percentage and other
limitations
The
fund’s compliance with its investment limitations and requirements described in
this Prospectus is usually determined at the time of investment. If such a
percentage limitation is complied with at the time of an investment, any
subsequent change resulting from a change in asset values or characteristics
will not constitute a violation of that limitation.
Selection process
The
portfolio managers emphasize individual security selection while spreading the
fund’s investments among industries and sectors. The portfolio managers use
fundamental methods to identify stocks, primarily of larger capitalization
companies, that the portfolio managers believe have a high probability of
outperforming other stocks in the same industry or sector.
The
portfolio managers use quantitative parameters to select a universe of larger
capitalized companies that fit the fund’s general investment criteria. In
selecting individual securities from within this range, the portfolio managers
look for “value” attributes, such as:
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Low
stock price relative to earnings, book value and cash flow
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High
return on invested capital |
The
portfolio managers also consider various ESG factors, including but not limited
to:
• |
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Supply
chain monitoring and standards (ethical sourcing, high degree of
transparency on a company’s global workforce) |
• |
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Environmental
considerations (greenhouse gas emissions targets and achievements, waste
minimization and natural resource scarcity policies, environmental
management systems) |
• |
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The
regulatory framework to which the company is subject
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Workplace
safety standards |
• |
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Labor
relations (labor management, employee sentiment, diversity, employee
training and retention programs, workplace safety standards)
|
• |
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Community
impact (does the company serve and have a positive impact on the
communities in which they operate through actions such as volunteerism and
strategic giving) |
• |
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Green
products and services (does the company utilize recyclable materials in
production, does the company provide and/or utilize products or services
intended to reduce environmental impact) |
• |
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Continuous
improvements in energy efficiency in products and operations
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Executive
compensation, independence and diversity of the board
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Capital
allocation policy (does company allocate capital in ways that are
consistent with ESG best practices and the best interests of shareholders)
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More on risks of
investing in the fund
Following
is more information on the principal risks summarized above and additional risks
of investing in the fund.
Value investing
risk. The value approach to investing
involves the risk that stocks may remain undervalued for long periods,
undervaluation may become more severe, or perceived undervaluation may actually
represent intrinsic value. Value stocks may underperform the overall equity
market for an extended period while the market favors growth stocks. A value
stock may not increase in price as anticipated by the subadviser if other
investors fail to recognize the company’s value and bid up the price or the
factors that the subadviser believes will increase the price of the security do
not occur or do not have the anticipated effect. Value stocks may go in and out
of favor over time and the subadviser may sell a security prior to the security
realizing a gain in connection with changed market perception regarding the
value of the security.
Issuer
risk. The market price of a security can
go up or down more than the market as a whole and can perform differently from
the value of the market as a whole, due to factors specifically relating to the
security’s issuer, such as disappointing earnings reports by the issuer,
unsuccessful products or services, loss of major customers, changes in
management, corporate actions, negative perception in the marketplace, or major
litigation or changes in government regulations affecting the issuer or the
competitive environment. An individual security may also be affected by factors
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relating
to the industry or sector of the issuer. The fund may experience a substantial
or complete loss on an individual security. A change in financial condition or
other event affecting a single issuer may adversely impact the industry or
sector of the issuer or securities markets as a whole.
ESG investment
strategy risk. The fund’s ESG investment strategy limits the
types and number of investment opportunities available to the fund and, as a
result, the fund may underperform other funds that do not have an ESG focus. The
fund’s ESG investment strategy may result in the fund investing in securities or
industry sectors that underperform the market as a whole, or forgoing
opportunities to invest in securities that might otherwise be advantageous to
buy. The fund may also underperform other funds that apply different ESG
standards. In addition, the subadviser may be unsuccessful in creating a
portfolio composed of companies that exhibit positive ESG characteristics. In evaluating a security or issuer based on
ESG criteria, the subadviser may use information and data from third-party
providers of ESG research, which may be incomplete, inaccurate or unavailable.
There is no uniform set of ESG standards, and different third party providers
may provide different or inconsistent information and data. There may be
limitations with respect to availability of ESG data in certain sectors, as well
as limited availability of investments with positive ESG assessments in certain
sectors. As a result, there is a risk that the subadviser’s analysis may be
conducted based on incomplete or inaccurate information. The subadviser’s
evaluation of ESG criteria is subjective and may change over time.
Large capitalization
company risk. Large capitalization
companies may fall out of favor with investors based on market and economic
conditions. In addition, larger companies may not be able to attain the high
growth rates of successful smaller companies and may be less capable of
responding quickly to competitive challenges and industry changes. As a result,
the fund’s value may not rise as much as, or may fall more than, the value of
funds that focus on companies with smaller market capitalizations.
Small and
mid‑capitalization company risk. The
fund will be exposed to additional risks as a result of its investments in the
securities of small and mid‑capitalization companies. Small and
mid‑capitalization companies may fall out of favor with investors; may have
limited product lines, operating histories, markets or financial resources; or
may be dependent upon a limited management group. The prices of securities of
small and mid‑capitalization companies generally are more volatile than those of
large capitalization companies and are more likely to be adversely affected than
large capitalization companies by changes in earnings results and investor
expectations or poor economic or market conditions, including those experienced
during a recession. Securities of small and mid‑capitalization companies may
underperform large capitalization companies, may be harder to sell at times and
at prices the portfolio managers believe appropriate and may have greater
potential for losses.
Stock market and
equity securities risk. The stock
markets are volatile and the market prices of the fund’s equity securities may
decline generally. Equity securities may include warrants, rights,
exchange-traded and over‑the‑counter common stocks, preferred stock, depositary
receipts, trust certificates, limited partnership interests and shares of other
investment companies, including exchange-traded funds and real estate investment
trusts. Equity securities may have greater price volatility than other asset
classes, such as fixed income securities, and may fluctuate in price based on
actual or perceived changes in a company’s financial condition and overall
market and economic conditions and perceptions. If the market prices of the
equity securities owned by the fund fall, the value of your investment in the
fund will decline.
Valuation
risk. Many factors may influence the
price at which the fund could sell any particular portfolio investment. The
sales price may well differ—higher or lower—from the fund’s last valuation, and
such differences could be significant, particularly for illiquid securities and
securities that trade in relatively thin markets and/or markets that experience
extreme volatility. These differences may increase significantly and affect fund
investments more broadly during periods of market volatility. If market
conditions make it difficult to value some investments, the fund may value these
investments using more subjective methods, such as fair value methodologies.
Valuation methodologies may be further impacted by technological issues and/or
errors by pricing vendors or their personnel. Authorized Participants who
purchase or redeem fund shares on days when the fund is holding fair-valued
securities may receive fewer or more shares, or lower or higher redemption
proceeds, than they would have received if the fund had not fair-valued
securities or had used a different valuation methodology. The value of non‑U.S.
securities, certain fixed income securities and currencies, as applicable, may
be materially affected by events after the close of the markets in which they
are traded, but before the fund determines its net asset value. The fund’s
ability to value its investments may be impacted by technological issues and/or
errors by pricing services or other third party service providers. The valuation
of the fund’s investments involves subjective judgment.
Industry or sector
focus risk. The fund may be susceptible
to an increased risk of loss, including losses due to events that adversely
affect the fund’s investments more than the market as a whole, to the extent
that the fund may, from time to time, have greater exposure to the securities of
a particular issuer or issuers within the same industry or sector.
Financial services
sector risk. Companies in the financial
services sector of an economy are subject to extensive and increasing
governmental regulation and intervention, which may adversely affect the scope
of their activities, the prices they can charge, the amount of capital they must
maintain and, potentially, their size. Governmental regulation may change
frequently and may have significant adverse consequences for companies in the
financials sector, including effects not intended by such regulation. The impact
of more stringent capital requirements, or recent or future regulation in
various countries of any individual financial company or of the financials
sector as a whole, cannot be predicted. Certain risks may impact the value of
investments in the financials sector more severely than those of investments
outside this sector, including the risks associated with companies that operate
with substantial financial leverage. Companies in the financials sector may also
be adversely affected by increases in interest rates and loan losses, decreases
in the availability of money or asset valuations, credit rating downgrades and
adverse conditions in other related markets. Insurance companies, in particular,
may be subject to severe price competition and/or rate regulation, which may
have an adverse impact on their profitability. The financial services sector is
particularly sensitive to fluctuations in interest rates. The financials sector
is also a target for cyber attacks, and may experience technology malfunctions
and disruptions. In recent years, cyber attacks and technology failures have
become increasingly frequent in this sector and have reportedly caused losses to
companies in this sector, which may negatively impact a fund.
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Interconnectedness
or interdependence among financial services companies increases the risk that
the financial distress or failure of one financial services company may
materially and adversely affect a number of other financial services companies
or the financial services sector as a whole.
Market events
risk. The market values of securities or
other assets will fluctuate, sometimes sharply and unpredictably, due to changes
in general market conditions, overall economic trends or events, governmental
actions or intervention, actions taken by the U.S. Federal Reserve or foreign
central banks, market disruptions caused by trade disputes or other factors,
political developments, armed conflicts, economic sanctions and countermeasures
in response to sanctions, major cybersecurity events, investor sentiment, the
global and domestic effects of a pandemic, and other factors that may or may not
be related to the issuer of the security or other asset. Economies and financial
markets throughout the world are increasingly interconnected. Economic,
financial or political events, trading and tariff arrangements, public health
events, terrorism, wars, natural disasters and other circumstances in one
country or region could have profound impacts on global economies or markets. As
a result, whether or not the fund invests in securities of issuers located in or
with significant exposure to the countries or markets directly affected, the
value and liquidity of the fund’s investments may be negatively affected. Other
securities or markets could be similarly affected by past or future geopolitical
or other events or conditions. Furthermore, events involving limited liquidity,
defaults, non‑performance or other adverse developments that affect one
industry, such as the financial services industry, or concerns or rumors about
any events of these kinds, have in the past and may in the future lead to
market-wide liquidity problems, may spread to other industries, and could
negatively affect the value and liquidity of the fund’s investments.
The
fallout from the COVID‑19 pandemic and its subsequent variants, and the
long-term impact on economies, markets, industries and individual issuers, are
not known. Some sectors of the economy and individual issuers have experienced
or may experience particularly large losses. Periods of extreme volatility in
the financial markets; reduced liquidity of many instruments; and disruptions to
supply chains, consumer demand and employee availability, may continue for some
time. The U.S. government and the Federal Reserve, as well as certain foreign
governments and central banks, have taken extraordinary actions to support local
and global economies and the financial markets in response to the COVID‑19
pandemic. This and other government intervention into the economy and financial
markets may not work as intended, and have resulted in a large expansion of
government deficits and debt, the long term consequences of which are not known.
In addition, the COVID‑19 pandemic, and measures taken to mitigate its effects,
could result in disruptions to the services provided to the fund by its service
providers.
Market trading risk.
Absence of active market. Although shares of the fund are listed for trading on
one or more stock exchanges, there can be no assurance that an active trading
market for such shares will develop or be maintained by market makers or
Authorized Participants. Authorized Participants are not obligated to execute
purchase or redemption orders for Creation Units. In periods of market
volatility, market makers and/or Authorized Participants may be less willing to
transact in fund shares. The absence of an active market for the fund’s shares
may contribute to the fund’s shares trading at a premium or discount to net
asset value.
Risk of secondary listings. The fund’s shares may be listed or traded on U.S.
and non‑U.S. stock exchanges other than the U.S. stock exchange where the fund’s
primary listing is maintained, and may otherwise be made available to non‑U.S.
investors through funds or structured investment vehicles similar to depositary
receipts. There can be no assurance that the fund’s shares will continue to
trade on any such stock exchange or in any market or that the fund’s shares will
continue to meet the requirements for listing or trading on any exchange or in
any market. The fund’s shares may be less actively traded in certain markets
than in others, and investors are subject to the execution and settlement risks
and market standards of the market where they or their broker direct their
trades for execution. Certain information available to investors who trade fund
shares on a U.S. stock exchange during regular U.S. market hours may not be
available to investors who trade in other markets, which may result in secondary
market prices in such markets being less efficient.
Secondary market trading risk. Shares of the fund may trade in the secondary market
at times when the fund does not accept orders to purchase or redeem shares. At
such times, shares may trade in the secondary market with more significant
premiums or discounts than might be experienced at times when the fund accepts
purchase and redemption orders.
Secondary
market trading in fund shares may be halted by a stock exchange because of
market conditions or for other reasons. In addition, trading in fund shares on a
stock exchange or in any market may be subject to trading halts caused by
extraordinary market volatility pursuant to “circuit breaker” rules on the stock
exchange or market.
Shares
of the fund, similar to shares of other issuers listed on a stock exchange, may
be sold short and are therefore subject to the risk of increased volatility and
price decreases associated with being sold short.
Shares of the fund may trade at prices other than net
asset value. Shares of the fund
trade on stock exchanges at prices at, above or below the fund’s most recent net
asset value. The net asset value of the fund is calculated at the end of each
business day and fluctuates with changes in the market value of the fund’s
holdings. The trading price of the fund’s shares fluctuates continuously
throughout trading hours based on both market supply of and demand for fund
shares and the underlying value of the fund’s portfolio holdings or net asset
value. As a result, the trading prices of the fund’s shares may deviate
significantly from net asset value during periods of market volatility,
including during periods of high redemption requests or other unusual market
conditions. Additionally, in stressed market conditions, the market for the
fund’s shares may become less liquid in response to deteriorating liquidity in
the markets for the fund’s portfolio holdings, which may cause a significant
variance in the market price of the fund’s shares and their underlying value and
wider bid/ask spreads. ANY OF THESE FACTORS, AMONG OTHERS, MAY LEAD TO THE
FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NET ASSET VALUE. However,
because shares can be created and redeemed in Creation Units at net asset value,
the subadviser believes that large discounts or premiums to the net asset value
of the fund are not likely to be sustained over the
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long
term (unlike shares of many closed‑end funds, which frequently trade at
appreciable discounts from, and sometimes at premiums to, their net asset
values). While the creation/redemption feature is designed to make it more
likely that the fund’s shares normally will trade on stock exchanges at prices
close to the fund’s next calculated net asset value, exchange prices are not
expected to correlate exactly with the fund’s net asset value due to timing
reasons, supply and demand imbalances and other factors. In addition,
disruptions to creations and redemptions, including disruptions at market
makers, Authorized Participants, or market participants, or during periods of
significant market volatility, may result in trading prices for shares of the
fund that differ significantly from its net asset value. Authorized Participants
may be less willing to create or redeem fund shares if there is a lack of an
active market for such shares or its underlying investments, which may
contribute to the fund’s shares trading at a discount to net asset value.
Costs of buying or selling fund
shares. Buying or selling fund
shares on an exchange involves two types of costs that apply to all securities
transactions. When buying or selling shares of the fund through a broker, you
will likely incur a brokerage commission and other charges. In addition, you may
incur the cost of the “spread”; that is, the difference between what investors
are willing to pay for fund shares (the “bid” price) and the price at which they
are willing to sell fund shares (the “ask” price). There may also be regulatory
and other charges that are incurred as a result of trading activity. The spread
varies over time for shares of the fund based on trading volume and market
liquidity, and is generally narrower if the fund has more trading volume and
market liquidity and wider if the fund has less trading volume and market
liquidity. In addition, increased market volatility may cause increased spreads.
Because of the costs inherent in buying or selling fund shares, frequent trading
may detract significantly from investment results and an investment in fund
shares may not be advisable for investors who anticipate regularly trading in
fund shares.
Assets under
management risk. From time to time, a
third party, LMPFA and/or affiliates of LMPFA or the fund may invest in the fund
and hold its investment for a period of time in order for the fund to achieve
size or scale. There can be no assurance that any such entity will not redeem
its investment, that it will not redeem at an inopportune time for the fund or
that the size of the fund will be maintained at a level necessary to enable the
fund to remain viable. Such redemption may cause the fund to sell assets (or
invest cash) at disadvantageous times or prices, increase or accelerate taxable
gains or transaction costs and may negatively affect the fund’s net asset value,
market price, performance, or ability to satisfy redemptions in a timely manner.
Volatility
risk. The value of the securities or
other assets in the fund’s portfolio may fluctuate, sometimes rapidly and
unpredictably. The value of a security or other asset may fluctuate due to
factors affecting markets generally or particular industries. The value of a
security may also be more volatile than the market as a whole. This volatility
may affect the fund’s net asset value. Securities or other assets in the fund’s
portfolio may be subject to price volatility and the prices may not be any less
volatile than the market as a whole and could be more volatile. Events or
financial circumstances affecting individual securities or sectors may increase
the volatility of the fund.
Authorized
Participant concentration risk. Only an
Authorized Participant may engage in creation or redemption transactions
directly with the fund. “Authorized Participants” are broker-dealers that are
permitted to create and redeem shares directly with the fund and who have
entered into agreements with the fund’s distributor. A limited number of
institutions act as Authorized Participants in respect of the fund. To the
extent that these institutions exit the business or are unable to process
creation and/or redemption orders with respect to the fund and no other
Authorized Participant steps forward to create or redeem, in either of these
cases, fund shares may trade at a premium or discount to net asset value and
possibly face trading halts and/or delisting. Authorized Participant
concentration risk may be heightened for ETFs that invest in foreign securities.
Cybersecurity
risk. Cybersecurity incidents, whether
intentionally caused by third parties or otherwise, may allow an unauthorized
party to gain access to fund assets, fund or customer data (including private
shareholder information) or proprietary information, cause the fund, the
manager, the subadvisers, Authorized Participants, the relevant listing exchange
and/or their service providers (including, but not limited to, fund accountants,
custodians, sub‑custodians, transfer agents and financial intermediaries) to
suffer data breaches, data corruption or loss of operational functionality, or
prevent fund investors from purchasing, redeeming or exchanging shares,
receiving distributions or receiving timely information regarding the fund or
their investment in the fund. The fund, the manager, and the subadvisers have
limited ability to prevent or mitigate cybersecurity incidents affecting third
party service providers, and such third party service providers may have limited
indemnification obligations to the fund, the manager, and/or the subadvisers.
Cybersecurity incidents may result in financial losses to the fund and its
shareholders, and substantial costs may be incurred in order to prevent or
mitigate any future cybersecurity incidents. Issuers of securities in which the
fund invests are also subject to cybersecurity risks, and the value of these
securities could decline if the issuers experience cybersecurity incidents.
Because
technology is frequently changing, new ways to carry out cyber attacks are
always developing. Therefore, there is a chance that some risks have not been
identified or prepared for, or that an attack may not be detected, which puts
limitations on the fund’s ability to plan for or respond to a cyber attack. Like
other funds and business enterprises, the fund, the manager, the subadvisers,
Authorized Participants, the relevant listing exchange and their service
providers are subject to the risk of cyber incidents occurring from time to
time.
Portfolio management
risk. The value of your investment may
decrease if the subadviser’s judgment about the attractiveness or value of, or
market trends affecting, a particular security, industry, sector or region, or
about market movements, is incorrect or does not produce the desired results, or
if there are imperfections, errors or limitations in the models, tools and data
used by the subadviser. In addition, the fund’s investment strategies or
policies may change from time to time. Those changes may not lead to the results
intended by the subadviser and could have an adverse effect on the value or
performance of the fund.
Trading issues
risk. Trading in shares of the fund on
CBOE BZX may be halted due to market conditions or for reasons that, in the view
of CBOE BZX, make trading in shares inadvisable. In addition, trading in shares
on CBOE BZX is subject to trading halts caused by extraordinary market
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volatility
pursuant to CBOE BZX’s “circuit breaker” rules. There can be no assurance that
the requirements of CBOE BZX necessary to maintain the listing of the fund will
continue to be met or will remain unchanged.
Illiquidity
risk. Illiquidity risk exists when
particular investments are impossible or difficult to sell. Although most of the
fund’s investments must be liquid at the time of investment, investments may be
or become illiquid after purchase by the fund, particularly during periods of
market turmoil. Markets may become illiquid when, for instance, there are few,
if any, interested buyers or sellers or when dealers are unwilling or unable to
make a market for certain securities. As a general matter, dealers have been
less willing to make markets for fixed income securities. When the fund holds
illiquid investments, the portfolio may be harder to value, especially in
changing markets, and if the fund is forced to sell these investments to meet
redemption requests or for other cash needs, or to try to limit losses, the fund
may be forced to sell at a substantial loss or may not be able to sell at all.
The fund may experience heavy redemptions that could cause the fund to liquidate
its assets at inopportune times or at a loss or depressed value, which could
cause the value of your investment to decline. In addition, when there is
illiquidity in the market for certain investments, the fund, due to limitations
on illiquid investments, may be unable to achieve its desired level of exposure
to a certain sector.
Small fund
risk. When the fund’s size is
small, the fund may experience low trading volume and wide bid/ask spreads. In
addition, the fund may face the risk of being delisted if the fund does not meet
certain conditions of the listing exchange. If the fund were to be required to
delist from the listing exchange, the value of the fund may rapidly decline. In
addition, any resulting liquidation of the fund could cause the fund to incur
elevated transaction costs for the fund and negative tax consequences for its
shareholders. Shareholders of smaller funds may bear proportionally higher
expenses than those of a fund with greater assets.
Risk of investing in
fewer issuers. To the extent the
fund invests its assets in a small number of issuers, or in issuers in related
businesses or that are subject to related operating risks, the fund will be more
susceptible to negative events affecting those issuers.
Cash management and
defensive investing risk. The value of
the investments held by the fund for cash management or defensive investing
purposes can fluctuate. Like other fixed income securities, they are subject to
risk, including market, interest rate and credit risk. If the fund holds cash
uninvested, the cash will be subject to the credit risk of the depository
institution holding the cash and the fund will not earn income on the cash. If a
significant amount of the fund’s assets is used for cash management or defensive
investing purposes, the fund will be less likely to achieve its investment
objective. Defensive investing may not work as intended and the value of an
investment in the fund may still decline.
Credit
risk. The value of your investment
in the fund could decline if the issuer of a security held by the fund or
another obligor for that security (such as a party offering credit enhancement)
fails to pay, otherwise defaults, is perceived to be less creditworthy, becomes
insolvent or files for bankruptcy. The value of your investment in the fund
could also decline if the credit rating of a security held by the fund is
downgraded or the credit quality or value of any assets underlying the security
declines. Changes in actual or perceived creditworthiness may occur quickly. If
the fund enters into financial contracts (such as certain derivatives,
repurchase agreements, reverse repurchase agreements, and when-issued, delayed
delivery and forward commitment transactions), the fund will be subject to the
credit risk presented by the counterparty. In addition, the fund may incur
expenses in an effort to protect the fund’s interests or to enforce its rights
against an issuer, guarantor or counterparty or may be hindered or delayed in
exercising those rights. Credit risk is broadly gauged by the credit
ratings of the securities in which the fund invests. However, ratings are only
the opinions of the companies issuing them and are not guarantees as to
quality. Securities rated in the lowest category of investment grade
(Baa/BBB) may possess certain speculative characteristics. Credit risk is
typically greatest for the fund’s high yield debt securities (“junk” bonds),
which are rated below the Baa/BBB categories or unrated securities of comparable
quality.
Prepayment or call
risk. Many fixed income securities give
the issuer the option to repay or call the security prior to its maturity date.
Issuers often exercise this right when interest rates fall. Accordingly, if the
fund holds a fixed income security subject to prepayment or call risk, it may
not benefit fully from the increase in value that other fixed income securities
generally experience when interest rates fall. Upon prepayment of the
security, the fund would also be forced to reinvest the proceeds at then current
yields, which would be lower than the yield of the security that was paid off.
In addition, if the fund purchases a fixed income security at a premium (at a
price that exceeds its stated par or principal value), the fund may lose the
amount of the premium paid in the event of prepayment. Prepayment further tends
to reduce the yield to maturity and the average life of the security.
Extension
risk. When interest rates rise,
repayments of fixed income securities may occur more slowly than anticipated,
extending the effective duration of these fixed income securities at below
market interest rates and causing their market prices to decline more than they
would have declined due to the rise in interest rates alone. This may cause the
fund’s share price to be more volatile.
Defaulted or
distressed debt securities risk.
Distressed securities are speculative and involve substantial risks in addition
to the risks of investing in junk bonds. The fund will generally not receive
interest payments on the distressed securities and may incur costs to protect
its investment. In addition, distressed securities involve the substantial risk
that principal will not be repaid. These securities may present a substantial
risk of default or may be in default at the time of investment. The fund may
incur additional expenses to the extent it is required to seek recovery upon a
default in the payment of principal of or interest on its portfolio holdings. In
any reorganization or liquidation proceeding relating to a portfolio company,
the fund may lose its entire investment or may be required to accept cash or
securities with a value less than its original investment. Distressed securities
and any securities received in an exchange for such securities may be subject to
restrictions on resale.
Foreign investments
risk. The fund’s investments in
securities of foreign issuers or issuers with significant exposure to foreign
markets involve additional risk as compared to investments in U.S. securities or
issuers with predominantly domestic exposure, such as less liquid, less
regulated, less transparent and more volatile markets. The markets for some
foreign securities are relatively new, and the rules and policies relating to
these markets are not fully developed and may change. The value of the fund’s
investments may decline because of factors affecting the particular issuer
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as
well as foreign markets and issuers generally, such as unfavorable or
unsuccessful government actions, tariffs and trade disputes, economic sanctions,
reduction of government or central bank support, inadequate accounting standards
and auditing and financial recordkeeping requirements, lack of information,
political, economic, financial or social instability, terrorism, armed conflicts
and other geopolitical events. Geopolitical or other events such as
nationalization or expropriation could even cause the loss of the fund’s entire
investment in one or more countries.
The
Public Company Accounting Oversight Board, which regulates auditors of U.S.
public companies, may, from time to time, be unable to inspect audit work papers
in certain foreign countries. Investors in foreign countries often have limited
rights and few practical remedies to pursue shareholder claims, including class
actions or fraud claims, and the ability of the Securities and Exchange
Commission, the U.S. Department of Justice and other authorities to bring and
enforce actions against foreign issuers or foreign persons is limited. Foreign
investments may also be adversely affected by U.S. government or international
interventions, restrictions or economic sanctions, which could negatively affect
the value of an investment or result in the fund selling an investment at a
disadvantageous time.
The
value of the fund’s foreign investments may also be affected by foreign tax
laws, special U.S. tax considerations and restrictions on receiving the
investment proceeds from a foreign country. Dividends or interest on, or
proceeds from the sale or disposition of, foreign securities may be subject to
non‑U.S. withholding or other taxes.
It
may be difficult for the fund to pursue claims against a foreign issuer or other
parties in the courts of a foreign country. Some securities issued by non‑U.S.
governments or their subdivisions, agencies and instrumentalities may not be
backed by the full faith and credit of such governments. Even where a security
is backed by the full faith and credit of a government, it may be difficult for
the fund to pursue its rights against the government. In the past, some non‑U.S.
governments have defaulted on principal and interest payments.
If
the fund buys securities denominated in a foreign currency, receives income in
foreign currencies, or holds foreign currencies from time to time, the value of
the fund’s assets, as measured in U.S. dollars, can be affected unfavorably by
changes in exchange rates relative to the U.S. dollar or other foreign
currencies. Currency exchange rates can be volatile, and are affected by factors
such as general economic and political conditions, the actions of the U.S. and
foreign governments or central banks, the imposition of currency controls and
speculation. The fund may be unable or choose not to hedge its foreign currency
exposure.
In
certain foreign markets, settlement and clearance of trades may experience
delays in payment for or delivery of securities not typically associated with
settlement and clearance of U.S. investments. Settlement of trades in these
markets can take longer than in other markets and the fund may not receive its
proceeds from the sale of certain securities for an extended period (possibly
several weeks or even longer) due to, among other factors, low trading volumes
and volatile prices. The custody or holding of securities, cash and other assets
by local banks, agents and depositories in securities markets outside the United
States may entail additional risks. Governments or trade groups may compel local
agents to hold securities in designated depositories that may not be subject to
independent evaluation. Local agents are held only to the standards of care of
their local markets, and thus may be subject to limited or no government
oversight. In extreme cases, the fund’s securities may be misappropriated or the
fund may be unable to sell its securities. In general, the less developed a
country’s securities market is, the greater the likelihood of custody problems.
Sovereign debt
risk. Sovereign government and
supranational debt involve many of the risks of foreign investments as well as
the risk of debt moratorium, repudiation or renegotiation, and the fund may be
unable to enforce its rights against the issuers.
Investment in other
investment companies risk. Investments
in other investment companies are subject to market and portfolio selection
risk, as well as portfolio management risk. If the fund acquires shares of
investment companies, including ones affiliated with the fund, shareholders bear
both their proportionate share of expenses in the fund (including management and
advisory fees) and, indirectly, the expenses of the investment companies (to the
extent not offset by LMPFA or its affiliates through waivers).
Short sales
risk. If the price of the security sold
short increases between the time of the short sale and the time the fund
replaces the borrowed security, the fund will realize a loss, which may be
substantial. A fund that engages in a short sale or short position may lose more
money than the actual cost of the short sale or short position and its potential
losses may be unlimited if the fund does not own the security sold short or the
reference instrument and it is unable to close out of the short sale or short
position.
Operational
risk. Your ability to transact with
the fund or the valuation of your investment may be negatively impacted because
of the operational risks arising from factors such as processing errors and
human errors, inadequate or failed internal or external processes, failures in
systems and technology (including those due to cybersecurity incidents), changes
in personnel, and errors caused by third party service providers or trading
counterparties. It is not possible to identify all of the operational risks that
may affect the fund or to develop processes and controls that eliminate or
mitigate the occurrence of such failures. The fund and its shareholders could be
negatively impacted as a result.
Redemptions by
affiliated funds and by other significant investors. The fund may be an investment option for mutual
funds and ETFs that are managed by LMPFA and its affiliates, including Franklin
Templeton investment managers, unaffiliated mutual funds and ETFs and other
investors with substantial investments in the fund. As a result, from time to
time, the fund may experience relatively large redemptions and could be required
to liquidate its assets at inopportune times or at a loss or depressed value,
which could cause the value of your investment to decline.
Cash transactions
risk.
ETFs generally are able to make in‑kind redemptions and avoid being taxed
on gain on the distributed portfolio securities at the fund level. To the extent
that the fund effects redemptions partly or entirely in cash, rather than
in‑kind, it may be required to sell portfolio securities in order to obtain the
cash needed to distribute redemption proceeds. If the fund recognizes gain on
these sales, this generally will cause the fund to recognize gain it might not
otherwise have recognized, or to recognize such gain sooner than would otherwise
be required if it were to
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distribute
portfolio securities in‑kind. The fund generally intends to distribute these
gains to shareholders to avoid being taxed on this gain at the fund level and
otherwise comply with the special tax rules that apply to it. This strategy may
cause shareholders to be subject to tax on gains they would not otherwise be
subject to, or at an earlier date than, if they had made an investment in a
different ETF. Moreover, cash transactions may have to be carried out over
several days if the securities market is relatively illiquid and may involve
considerable brokerage fees and taxes. These brokerage fees and taxes, which
will be higher than if the fund sold and redeemed its shares principally
in‑kind, could be imposed on the fund and thus decrease the fund’s NAV to the
extent they are not offset by the creation and redemption transaction fees paid
by purchasers and redeemers of Creation Units.
Please
note that there are other factors that could adversely affect your investment
and that could prevent the fund from achieving its investment objective. More
information about risks appears in the SAI. Before investing, you should
carefully consider the risks that you will assume.
Portfolio holdings
On
each business day, before the opening of regular trading on the fund’s primary
listing exchange, the fund will disclose on
www.franklintempleton.com/etfproducts (click on the name of the fund)
information about the fund’s portfolio holdings, including the identities and
quantities of such portfolio holdings, that will form the basis for the fund’s
calculation of its net asset value per share at the end of the business day. A
description of the fund’s policies and procedures with respect to the disclosure
of its portfolio holdings is available in the SAI.
Tax advantaged product
structure
Unlike
many conventional mutual funds which are only bought and sold at closing net
asset values, the shares of the fund have been designed to be created and
redeemed principally in‑kind (although under some circumstances its shares are
created and redeemed entirely or partially for cash) in Creation Units at each
day’s market close. These in‑kind arrangements are designed to mitigate adverse
effects on the fund’s portfolio that could arise from frequent cash purchase and
redemption transactions that affect the net asset value of the fund. Moreover,
in contrast to conventional mutual funds, where frequent redemptions can have an
adverse tax impact on taxable shareholders because of the need to sell portfolio
securities—which, in turn, may generate taxable gain—the in‑kind redemption
mechanism of the fund, to the extent used, generally is not expected to result
in a taxable distribution for shareholders whose shares are not being redeemed
or sold. If the fund redeems Creation Units in whole or part for cash, it may be
required to sell portfolio securities to generate cash. As a result, the fund
may bear additional costs and recognize more gain or income than it would have
recognized if it had redeemed the Creation Units solely in kind. Distributions
attributable to such gain or income will generally be taxable.
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More on fund management
Legg
Mason Partners Fund Advisor, LLC (“LMPFA” or the “manager”) is the fund’s
investment manager. LMPFA, with offices at 280 Park Avenue, New York,
New York 10017, also serves as the investment manager of other Legg
Mason-sponsored funds. LMPFA provides administrative and certain oversight
services to the fund. As of March 31, 2023, LMPFA’s total assets under
management were approximately $190.69 billion.
ClearBridge
Investments, LLC (“ClearBridge”) provides the day‑to‑day portfolio management of
the fund, except for any portion of the fund’s cash and short-term instruments
that is allocated to Western Asset Management Company, LLC (“Western Asset”).
ClearBridge has offices at 620 Eighth Avenue, New York, New York 10018 and is an
investment adviser that manages U.S. and international equity investment
strategies for institutional and individual investors. ClearBridge has been
committed to delivering long-term results through active management for more
than 60 years, and bases its investment decisions on fundamental research and
the insights of seasoned portfolio management teams. ClearBridge has over 30
years of experience managing ESG investment strategies. As of March 31,
2023, ClearBridge’s total assets under management (including assets under
management for ClearBridge, LLC, an affiliate of ClearBridge) were approximately
$127.24 billion, including $30.53 billion for which ClearBridge
provides non‑discretionary investment models to managed account sponsors.
Western
Asset manages the portion of the fund’s cash and short-term instruments
allocated to it. Western Asset, established in 1971, has offices at 385 East
Colorado Boulevard, Pasadena, California 91101 and 620 Eighth Avenue, New York,
New York 10018. Western Asset acts as investment adviser to institutional
accounts, such as corporate pension plans, mutual funds and endowment funds. As
of March 31, 2023, the total assets under management of Western Asset and
its supervised affiliates were approximately $397.45 billion.
LMPFA,
ClearBridge and Western Asset are indirect, wholly-owned subsidiaries of
Franklin Resources, Inc. (“Franklin Resources”). Franklin Resources, whose
principal executive offices are at One Franklin Parkway, San Mateo, California
94403, is a global investment management organization operating, together with
its subsidiaries, as Franklin Templeton. As of March 31, 2023, Franklin
Templeton’s asset management operations had aggregate assets under management of
approximately $1.42 trillion.
Portfolio managers
Primary
responsibility for the day‑to‑day management of the fund lies with the following
portfolio managers. The portfolio managers have the ultimate authority to make
portfolio decisions.
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Portfolio
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Title and recent
biography |
|
Portfolio manager
of the fund since |
Robert
Feitler, Jr.* |
|
Mr. Feitler
is a Managing Director and Portfolio Manager of ClearBridge and has 28
years of industry experience. Mr. Feitler joined the subadviser or
its predecessor in 1995.
|
|
2020 |
Dmitry
Khaykin |
|
Mr. Khaykin
is a Managing Director and Portfolio Manager of ClearBridge and has 26
years of industry experience. Mr. Khaykin joined the subadviser or
its predecessor in 2003 and was previously a research analyst for the
telecommunications sector at Gabelli & Company, Inc. and an
associate in the risk management division of Morgan Stanley &
Co., Inc.
|
|
2020 |
Deepon
Nag** |
|
Mr. Nag
is a Director and Portfolio Manager of ClearBridge with 15 years of
industry experience. Mr. Nag joined ClearBridge in 2016 as a Senior
Sector Analyst. Prior to joining ClearBridge, he was a Senior Research
Analyst at Millennium Partners and a Lead Software Engineer in Design
Automation at Intel Corp.
|
|
December
2023 |
* |
It
is anticipated that Mr. Feitler will retire and step down as a member
of the fund’s portfolio management team effective on or about
December 31, 2023. |
** |
Effective
December 31, 2023, Mr. Nag will join the fund’s portfolio
management team. |
The
SAI provides information about the compensation of the portfolio managers, other
accounts managed by the portfolio managers and any fund shares held by the
portfolio managers.
Management fee
Pursuant
to the management agreement and subject to the general supervision of the Board,
the manager provides or causes to be furnished all investment management,
supervisory, administrative and other services reasonably necessary for the
operation of the fund, including certain
|
|
|
| |
20 |
|
| |
ClearBridge Focus Value ESG
ETF |
distribution
services (provided pursuant to a separate distribution agreement) and investment
advisory services (provided pursuant to separate subadvisory agreements) under a
unitary fee structure. The fund is responsible for paying interest expenses,
taxes, brokerage expenses, future 12b‑1 fees (if any), acquired fund fees and
expenses, extraordinary expenses and the management fee payable to the manager
under the management agreement, as described more fully in the SAI.
The
fund pays management fees at an annual rate as follows:
|
| |
Name of fund |
|
Management fee |
ClearBridge
Focus Value ESG ETF |
|
0.49%
of average daily net assets |
For
the fiscal year ended March 31, 2023, the fund paid the manager an
effective management fee of 0.49% of the fund’s average daily net assets for
management services.
A
discussion regarding the basis for the Board’s approval of the fund’s management
agreement and subadvisory agreements is available in the fund’s Semi-Annual
Report for the period ended September 30, 2022.
Additional information
The
fund enters into contractual arrangements with various parties, including, among
others, the fund’s manager and the subadvisers, who provide services to the
fund. Shareholders are not parties to, or intended (or “third-party”)
beneficiaries of, those contractual arrangements.
This
Prospectus and the SAI provide information concerning the fund that you should
consider in determining whether to purchase shares of the fund. The fund may
make changes to this information from time to time. Neither this Prospectus nor
the SAI is intended to give rise to any contract rights or other rights in any
shareholder, other than rights conferred by federal or state securities laws.
Distribution
Franklin
Distributors, LLC (“Franklin Distributors”), an indirect, wholly-owned
broker/dealer subsidiary of Franklin Resources, located at One Franklin Parkway,
San Mateo, CA 94403-1906, serves as the distributor of Creation Units for the
fund on an agency basis. Franklin Distributors does not maintain a secondary
market in the fund’s shares. Franklin Distributors has no role in determining
the fund’s policies or the securities that are purchased or sold by the fund.
The
Board has adopted a distribution and service plan (“Plan”) pursuant to Rule
12b‑1 under the Investment Company Act of 1940, as amended (the “1940 Act”).
Under the Plan, the fund is authorized to pay distribution fees in connection
with the sale and distribution of its shares and pay service fees in connection
with the provision of ongoing services to shareholders of the fund and the
maintenance of shareholder accounts in an amount up to 0.25% of its average
daily net assets each year. No Rule 12b‑1 fees are currently paid by the fund,
and there are no current plans to impose these fees.
Additional payments
Franklin
Templeton or its affiliates make payments to broker-dealers, registered
investment advisers, banks or other intermediaries (together, “intermediaries”)
related to marketing activities and presentations, educational training
programs, conferences, the development of technology platforms and reporting
systems, or their making shares of the fund available to their customers
generally and in certain investment programs. Such payments, which may be
significant to the intermediary, are not made by the fund. Rather, such payments
are made by Franklin Templeton or its affiliates from their own resources, which
come directly or indirectly in part from fees paid by the fund. A financial
intermediary may make decisions about which investment options it recommends or
makes available, or the level of services provided, to its customers based on
the payments it is eligible to receive. Therefore, such payments to an
intermediary create conflicts of interest between the intermediary and its
customers and may cause the intermediary to recommend the fund over another
investment. More information regarding these payments is contained in the fund’s
SAI. Please contact your salesperson or other
investment professional for more information regarding any such payments his or
her firm may receive from Franklin Templeton or its affiliates.
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| |
ClearBridge Focus Value ESG
ETF |
|
| |
21 |
Shareholder information
Additional shareholder information, including how to
buy and sell shares of the fund, is available free of charge by calling
toll-free: 1‑877‑721‑1926 or visiting our website at
www.franklintempleton.com/etfliterature.
Purchasing and selling
shares
Shares
of the fund may be acquired or redeemed directly from the fund only in Creation
Units or multiples thereof, as discussed in the “Creations and redemptions”
section of this Prospectus. Only an Authorized Participant may engage in
creation or redemption transactions directly with the fund. Once created, shares
of the fund generally trade in the secondary market in amounts less than a
Creation Unit.
Shares
of the fund are listed for trading on the secondary market on CBOE BZX. Shares
can be bought and sold throughout the trading day like other publicly traded
shares. There is no minimum investment. Although shares are generally purchased
and sold in “round lots” of 100 shares, brokerage firms typically permit
investors to purchase or sell shares in smaller “odd lots” at no per‑share price
differential. The fund’s shares trade on CBOE BZX as follows:
|
| |
Name of fund |
|
Ticker symbol |
ClearBridge
Focus Value ESG ETF |
|
CFCV |
Share prices are reported
in dollars and cents per share
Buying
or selling fund shares on an exchange or other secondary market involves two
types of costs that may apply to all securities transactions. When buying or
selling shares of the fund through a broker, you may incur a brokerage
commission and other charges. The commission is frequently a fixed amount and
may be a significant proportional cost for investors seeking to buy or sell
small amounts of shares. In addition, you may incur the cost of the “spread,”
that is, any difference between the bid price and the ask price. The spread
varies over time for shares of the fund based on the fund’s trading volume and
market liquidity, and is generally lower if the fund has high trading volume and
market liquidity, and higher if the fund has little trading volume and market
liquidity (which is often the case for funds that are newly launched or small in
size). The fund’s spread may also be impacted by the liquidity of the underlying
securities held by the fund, particularly for newly launched or smaller funds or
in instances of significant volatility of the underlying securities.
Authorized
Participants may acquire shares directly from the fund and may tender their
shares for redemption directly to the fund, at net asset value per share only in
Creation Units.
The
fund’s primary listing exchange is CBOE BZX. CBOE BZX is open for trading Monday
through Friday and is closed on weekends and the following holidays: New Year’s
Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day,
Juneteenth National Independence Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day.
Section 12(d)(1)
of the 1940 Act restricts investments by investment companies in the securities
of other investment companies. Registered investment companies are permitted to
invest in the fund beyond the limits set forth in Section 12(d)(1), subject
to certain terms and conditions set forth in SEC rules or in exemptive relief as
applicable. In order for a registered investment company to invest in shares of
the fund beyond the limitations of Section 12(d)(1), the registered
investment company must generally enter into an agreement with the fund.
Frequent purchases and
redemptions of fund shares
The
Board has evaluated the risks of frequent purchases and redemptions of fund
shares (“market timing”) activities by the fund’s shareholders. The Board noted
that the fund’s shares can only be purchased and redeemed directly from the fund
in Creation Units by Authorized Participants and that the vast majority of
trading in the fund’s shares occurs on the secondary market. Because the
secondary market trades do not involve the fund directly, it is unlikely those
trades would cause many of the harmful effects of market timing, including
dilution, disruption of portfolio management, increases in the fund’s trading
costs and the realization of capital gains.
With
respect to trades directly with the fund, because they are effected in‑kind,
those trades do not cause any of the harmful effects (as previously noted) that
may result from frequent cash trades. To the extent that the fund permits or
requires trades to be effected in whole or in part in cash, the Board noted that
those trades could result in dilution to the fund and increased transaction
costs, which could negatively impact the fund’s ability to achieve its
investment objective. However, The Board noted that direct trading by Authorized
Participants is critical to ensuring that the fund’s shares trade at or close to
net asset value. The fund also employs fair valuation pricing to minimize
potential dilution from market timing. The fund imposes transaction fees on
in‑kind purchases and redemptions of fund shares to cover the custodial and
other costs incurred by the fund in effecting in‑kind trades. These fees may
increase if an investor substitutes cash in part or in whole for securities,
reflecting the fact that the fund’s trading costs increase in those
circumstances. Given this structure, the Board determined that it is not
necessary to apply policies and procedures to the fund to detect and deter
market timing.
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 fund and is recognized as the owner of all shares for
all purposes.
|
|
|
|
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| |
|
22 |
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|
| |
ClearBridge Focus Value ESG
ETF |
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.
Fund share trading prices
The
trading prices of the fund’s shares in the secondary market generally differ
from the fund’s daily net asset value and are affected by market forces such as
the supply of and demand for ETF shares and underlying securities held by the
fund, economic conditions and other factors.
Calculation of net asset
value
The
fund’s net asset value per share is the value of its assets minus its
liabilities divided by the number of shares outstanding.
The
fund calculates its net asset value every day the New York Stock Exchange (the
“NYSE”) is open. The fund generally values its securities and other assets and
calculates its net asset value as of the scheduled close of regular trading on
the NYSE, normally at 4:00 p.m. (Eastern time). If the NYSE closes at a time
other than the scheduled closing time, the fund will calculate its net asset
value as of the scheduled closing time. The NYSE is closed on certain holidays
listed in the SAI.
Valuation
of the fund’s securities and other assets is performed in accordance with the
valuation policy approved by the Board. The fund’s manager serves as the fund’s
valuation designee for purposes of compliance with Rule 2a‑5 under the
Investment Company Act of 1940, as amended. Under the valuation policy, assets
are valued as follows:
• |
|
Equity
securities and certain derivative instruments that are traded on an
exchange are valued at the closing price (which may be reported at a
different time than the time at which the fund’s NAV is calculated) or, if
that price is unavailable or deemed by the manager not representative of
market value, the last sale price. Where a security is traded on more than
one exchange (as is often the case overseas), the security is generally
valued at the price on the exchange considered by the manager to be the
primary exchange. In the case of securities not traded on an exchange, or
if exchange prices are not otherwise available, the prices are typically
determined by independent third party pricing services that use a variety
of techniques and methodologies. |
• |
|
The
valuations for fixed income securities and certain derivative instruments
are typically the prices supplied by independent third party pricing
services, which may use market prices or broker/dealer quotations or a
variety of fair valuation techniques and methodologies.
|
• |
|
The
valuations of securities traded on foreign markets and certain fixed
income securities will generally be based on prices determined as of the
earlier closing time of the markets on which they primarily trade, unless
a significant event has occurred. When the fund holds securities or other
assets that are denominated in a foreign currency, the fund will use the
currency exchange rates, generally determined as of 4:00 p.m. (London
time). Foreign markets are open for trading on weekends and other days
when the fund does not price its shares. Therefore, the value of the
fund’s shares may change on days when you will not be able to purchase or
sell the fund’s shares. |
• |
|
Investments
in ETFs and closed‑end funds listed on an exchange are valued at the
closing sale or official closing price on that exchange. Investments in
open‑end funds other than ETFs are valued at the net asset value per share
of the class of the underlying fund held by the fund as determined on each
business day. |
• |
|
If
independent third party pricing services are unable to supply prices for a
portfolio investment, or if the prices supplied are deemed by the manager
to be unreliable, the market price may be determined by the manager using
quotations from one or more broker/dealers. When such prices or quotations
are not available, or when the manager believes that they are unreliable,
the manager will price securities in accordance with the valuation policy.
The valuation policy permits, among other things, the use of a formula or
other method that takes into consideration market indices, yield curves
and other specific adjustments to determine fair value. These
determinations are subject to the Board’s oversight. Fair value of a
security is the amount, as determined by the manager in good faith, that
the fund might reasonably expect to receive upon a current sale of the
security. The fund may also use fair value procedures if the manager
determines that a significant event has occurred between the time at which
a market price is determined and the time at which the fund’s net asset
value is calculated. |
Many
factors may influence the price at which the fund could sell any particular
portfolio investment. The sales price may well differ—higher or lower—from the
fund’s last valuation, and such differences could be significant, particularly
for securities that trade in relatively thin markets and/or markets that
experience extreme volatility. Moreover, valuing securities using fair value
methodologies involves greater reliance on judgment than valuing securities
based on market quotations. A fund that uses fair value methodologies may value
those securities higher or lower than another fund using market quotations or
its own fair value methodologies to price the same securities. There can be no
assurance that a fund could obtain the value assigned to a security if it were
to sell the security at approximately the time at which the fund determines its
net asset value.
Premium/Discount
Information
Information
regarding how often the shares of the fund traded on the applicable exchange at
a price above (at a premium) or below (at a discount) the NAV of the fund for
the most recently completed calendar year, and the most recently completed
calendar quarters since that year, can be found at
www.franklintempleton.com/etfproducts (select fund).
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| |
ClearBridge Focus Value ESG
ETF |
|
| |
23 |
Dividends, other
distributions and taxes
Dividends and other
distributions
The
fund generally pays dividends quarterly from its net investment income, if any,
and from short-term capital gain (if any). Shares will generally begin to earn
dividends on the settlement date of purchase. The fund generally distributes
long-term capital gain, if any, once in December and at such other times as are
necessary. The fund may pay additional distributions and dividends in order to
avoid a federal tax.
Dividends
and other distributions on shares of the fund are distributed on a pro rata
basis to beneficial owners of such shares. Dividend payments are made through
DTC participants and indirect participants to beneficial owners then of record
with proceeds received from the fund.
The
Board reserves the right to revise the dividend policy or postpone the payment
of dividends if warranted in the Board’s judgment due to unusual circumstances.
Reinvestment of
distributions
Distributions
are paid in cash. No dividend reinvestment service is provided by the fund.
Broker-dealers may make available the 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 therein. 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.
Taxes
The
following discussion is very general, applies only to shareholders who are U.S.
persons, and does not address shareholders subject to special rules, such as
those who hold fund shares through an IRA, 401(k) plan or other tax‑advantaged
account. Except as specifically noted, the discussion is limited to federal
income tax matters, and does not address state, local, foreign or non‑income
taxes. Further information regarding taxes, including certain federal income tax
considerations relevant to non‑U.S. persons, is included in the SAI. Because
each shareholder’s circumstances are different and special tax rules may apply,
you should consult your tax professional about federal, state, local and/or
foreign tax considerations that may be relevant to your particular situation.
In
general, selling shares and receiving dividends and distributions are taxable
events. Distributions attributable to short-term capital gains are taxable to
you as ordinary income. Distributions attributable to qualified dividend income
received by the fund, if any, may be eligible to be taxed to noncorporate
shareholders at the reduced rates applicable to long-term capital gain if
certain requirements are satisfied. Distributions of net capital gain reported
by the fund as capital gain dividends are taxable to you as long-term capital
gain regardless of how long you have owned your shares. Noncorporate
shareholders ordinarily pay tax at reduced rates on long-term capital gain.
If
the fund redeems Creation Units in cash, it may recognize more capital gains
than it will if it redeems Creation Units in‑kind. If the fund realizes capital
gains in excess of realized capital losses in any fiscal year, it generally
expects to make capital gain distributions. You may receive distributions that
are attributable to appreciation of portfolio securities that happened before
you made your investment but had not been realized at the time you made your
investment, or that are attributable to capital gains or other income that,
although realized by the fund, had not yet been distributed at the time you made
your investment. Unless you purchase shares through a tax‑advantaged account,
these distributions will be taxable to you even though they economically
represent a return of a portion of your investment. You may want to avoid buying
shares when the fund is about to declare a dividend or capital gain
distribution. You should consult your tax professional before buying shares no
matter when you are investing.
A
Medicare contribution tax is imposed at the rate of 3.8% on all or a portion of
net investment income of U.S. individuals if their income exceeds specified
thresholds, and on all or a portion of undistributed net investment income of
certain estates and trusts. Net investment income generally includes for this
purpose dividends and capital gain distributions paid by the fund and gain on
the redemption, sale or exchange of fund shares.
A
dividend declared by the fund in October, November or December and paid during
January of the following year will, in certain circumstances, be treated as paid
on December 31 for tax purposes.
If
the fund meets certain requirements with respect to its holdings, it may elect
to “pass through” to shareholders foreign taxes that it pays, in which case each
shareholder will include the amount of such taxes in computing gross income, but
will be eligible to claim a credit or deduction for such taxes, subject to
generally applicable limitations on such deductions and credits. If the fund
does not so elect, the foreign taxes paid or withheld will nonetheless reduce
the fund’s taxable income. In addition, the fund’s investment in certain foreign
securities, foreign currencies or foreign currency derivatives may affect the
amount, timing, and character of fund distributions to shareholders.
Capital
gain or loss realized upon a sale of fund shares is generally treated as a
long-term gain or loss if the shares have been held for more than one year. Any
capital gain or loss realized upon a sale of fund shares held for one year or
less is generally treated as short-term gain or loss, except that any capital
loss on the sale of shares held for six months or less is treated as long-term
capital loss to the extent that capital gain dividends were paid with respect to
such shares.
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24 |
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| |
ClearBridge Focus Value ESG
ETF |
By
law, if you do not provide your proper taxpayer identification number and
certain required certifications, you may be subject to backup withholding on any
distributions of income, captial gains or proceeds from the sale of your shares.
Withholding is also imposed if the IRS requires it. When whithholding is
required, the amount will be 24% of any distributions or proceeds paid.
Fund
distributions and gains from the sale of your fund shares generally are subject
to state and local taxes.
|
|
|
| |
ClearBridge Focus Value ESG
ETF |
|
| |
25 |
Creations and redemptions
Prior
to trading in the secondary market, shares of the fund are “created” at NAV by
market makers, large investors and institutions only in block‑size Creation
Units or multiples thereof. Each “creator” or “Authorized Participant” enters
into an authorized participant agreement with Franklin Distributors, the fund’s
distributor. Only an Authorized Participant may create or redeem Creation Units
directly with the fund.
The
fund may issue or redeem Creation Units in return for a specified amount of cash
or a designated portfolio of securities and/or cash that the fund specifies each
day. To the extent cash is used, an Authorized Participant must transfer cash in
an amount equal to the value of the Creation Unit(s) purchased and the
applicable transaction fee. An Authorized Participant also may effect a creation
transaction by depositing into the fund a designated portfolio of securities
(including any portion of such securities for which cash may be substituted) and
a specified amount of cash approximating the holdings of the fund in exchange
for a specified number of Creation Units (a “Creation Basket”). The composition
of each Creation Basket will be determined in accordance with board-approved
policies and procedures applicable to the construction of creation and
redemption baskets, and subject to acceptance by Franklin Distributors. Creation
and redemption baskets may differ and the fund will accept “custom baskets.”
More information regarding custom baskets is contained in the fund’s SAI.
Redemption
proceeds will be paid in cash or in kind. If redemption proceeds are paid in
kind, shares will be redeemed in Creation Units for a designated portfolio of
securities (including any portion of such securities for which cash may be
substituted) held by the fund (“Fund Securities”) and a specified amount of
cash. The composition of redemption proceeds will be determined in accordance
with board-approved policies and procedures applicable to the construction of
creation and redemption baskets. Except when aggregated in Creation Units,
shares are not redeemable by the fund.
The
prices at which creations and redemptions occur are based on the next
calculation of net asset value after a creation or redemption order is received
in an acceptable form under the authorized participant agreement.
In
the event of a system failure or other interruption, including disruptions at
market makers or Authorized Participants, orders to purchase or redeem Creation
Units either may not be executed according to the fund’s instructions or may not
be executed at all, or the fund may not be able to place or change orders.
To
the extent the fund engages in in‑kind transactions, the fund intends to comply
with the U.S. federal securities laws in accepting securities for deposit and
satisfying redemptions with redemption securities by, among other means,
assuring that any securities accepted for deposit and any securities used to
satisfy redemption requests will be sold in transactions that would be exempt
from registration under the Securities Act of 1933 (the “1933 Act”). Further, an
Authorized Participant that is not a “qualified institutional buyer,” as such
term is defined in Rule 144A under the 1933 Act, will not be able to receive
restricted securities eligible for resale under Rule 144A.
Information
about the procedures regarding creation and redemption of Creation Units
(including the cut‑off times for receipt of creation and redemption orders) is
included in the fund’s SAI.
Because
new shares may be created and issued on an ongoing basis, at any point during
the life of the fund a “distribution,” as such term is used in the 1933 Act, may
be occurring. 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 that could render them
statutory underwriters subject to the prospectus delivery and liability
provisions of the 1933 Act. Any determination of whether one is an underwriter
must take into account all the relevant facts and circumstances of each
particular case.
Broker-dealers
should also note that dealers who are not “underwriters” but are participating
in a distribution (as contrasted to ordinary secondary transactions), and thus
dealing with shares that are part of an “unsold allotment” within the meaning of
Section 4(a)(3)(C) of the 1933 Act, would be unable to take advantage of
the prospectus delivery exemption provided by Section 4(a)(3) of the 1933
Act. For delivery of prospectuses to exchange members, the prospectus delivery
mechanism of Rule 153 under the 1933 Act is available only with respect to
transactions on a national securities exchange.
Costs associated
with creations and redemptions.
Authorized Participants are charged standard creation and redemption transaction
fees to offset transfer and other transaction costs associated with the issuance
and redemption of Creation Units. The standard creation and redemption
transaction fees are set forth in the table below. The standard creation
transaction fee is charged to the Authorized Participant on the day such
Authorized Participant creates a Creation Unit, and is the same regardless of
the number of Creation Units purchased by the Authorized Participant on the
applicable business day. Similarly, the standard redemption transaction fee is
charged to the Authorized Participant on the day such Authorized Participant
redeems a Creation Unit, and is the same regardless of the number of Creation
Units redeemed by the Authorized Participant on the applicable business day.
Creations and redemptions for cash (when cash creations and redemptions (in
whole or in part) are available or specified) are also subject to an additional
charge (as shown in the table below). This charge is intended to compensate for
brokerage, tax, foreign exchange, execution, market impact and other costs and
expenses related to cash transactions. Investors who use the services of a
broker or other financial intermediary to acquire or dispose of fund shares may
pay fees for such services.
The
following table shows, as of March 31, 2023, the standard creation and
redemption transaction fees, the additional charge for creations and the maximum
additional charge for redemptions (as described above):
|
|
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| |
26 |
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| |
ClearBridge Focus Value ESG
ETF |
|
|
|
|
|
| |
|
|
Standard Creation/ Redemption Transaction Fee ($) |
|
Additional Charge
for Creations* (%) |
|
Maximum Additional Charge for Redemptions**
(%) |
ClearBridge
Focus Value ESG ETF |
|
350 |
|
2.0 |
|
2.0 |
* |
This
amount, reflected as a percentage of the NAV per Creation Unit, generally
will be equal to the costs and expenses incurred by a fund in connection
with such cash transactions and is not subject to a maximum limit.
|
** |
As
a percentage of the NAV per Creation Unit inclusive of the standard
redemption transaction fee. |
|
|
|
| |
ClearBridge Focus Value ESG
ETF |
|
| |
27 |
Financial highlights
The
financial highlights table is intended to help you understand the performance of
the fund for the past five years, unless otherwise noted. Total return
represents the rate that a shareholder would have earned (or lost) on a fund
share assuming reinvestment of all dividends and distributions. Unless otherwise
noted, this information has been audited by the fund’s independent registered
public accounting firm, PricewaterhouseCoopers LLP, whose report, along with the
fund’s financial statements, is incorporated by reference into the fund’s SAI
(see back cover) and is included in the fund’s annual report. The fund’s annual
report is available upon request by calling toll-free 1‑877‑721‑1926 or via the
following hyperlink:
(https://www.sec.gov/Archives/edgar/data/1792795/000119312523155397/d796412dncsr.htm).
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For a share of beneficial interest
outstanding throughout each year ended March 31, unless otherwise
noted: |
|
|
|
20231 |
|
|
20221,2 |
|
|
20211,3 |
|
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20201,4 |
|
|
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| |
Net asset value,
beginning of period |
|
|
$34.09 |
|
|
|
$34.54 |
|
|
|
$27.09 |
|
|
|
$24.99 |
|
|
|
|
| |
Income (loss) from operations: |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
Net
investment income |
|
|
0.44 |
|
|
|
0.19 |
|
|
|
0.38 |
|
|
|
0.15 |
|
Net
realized and unrealized gain (loss) |
|
|
(2.72) |
|
|
|
0.91 |
|
|
|
7.74 |
|
|
|
2.06 |
|
Total income (loss) from
operations |
|
|
(2.28) |
|
|
|
1.10 |
|
|
|
8.12 |
|
|
|
2.21 |
|
|
|
|
| |
Less distributions from: |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
Net
investment income |
|
|
(0.46) |
|
|
|
(0.19) |
|
|
|
(0.38) |
|
|
|
(0.11) |
|
Net
realized gains |
|
|
(0.41) |
|
|
|
(1.36) |
|
|
|
(0.29) |
|
|
|
— |
|
Total
distributions |
|
|
(0.87) |
|
|
|
(1.55) |
|
|
|
(0.67) |
|
|
|
(0.11) |
|
|
|
|
| |
Net asset value,
end of period |
|
|
$30.94 |
|
|
|
$34.09 |
|
|
|
$34.54 |
|
|
|
$27.09 |
|
Total return, based on NAV5
|
|
|
(6.56) |
% |
|
|
3.01 |
% |
|
|
30.22 |
% |
|
|
8.87 |
% |
|
|
|
| |
Net assets, end of
period (000s) |
|
|
$2,908 |
|
|
|
$3,886 |
|
|
|
$3,938 |
|
|
|
$2,817 |
|
|
|
|
| |
Ratios to average net assets: |
|
|
|
| |
|
|
| |
|
|
| |
|
| |
Gross
expenses |
|
|
0.49 |
% |
|
|
0.49 |
%6 |
|
|
0.49 |
% |
|
|
0.49 |
%6 |
Net
expenses |
|
|
0.49 |
|
|
|
0.49 |
6 |
|
|
0.49 |
|
|
|
0.49 |
6 |
Net
investment income |
|
|
1.44 |
|
|
|
1.07 |
6 |
|
|
1.17 |
|
|
|
1.65 |
6 |
|
|
|
| |
Portfolio turnover
rate7
|
|
|
8 |
% |
|
|
7 |
% |
|
|
21 |
% |
|
|
5 |
% |
1 |
Per share amounts have
been calculated using the average shares method.
|
2 |
For the period
October 1, 2021 through March 31, 2022.
|
3 |
For the year ended
September 30. |
4 |
For the period
May 27, 2020 (inception date) to September 30, 2020.
|
5 |
Performance figures may
reflect fee waivers and/or expense reimbursements. In the absence of fee
waivers and/or expense reimbursements, the total return would have been
lower. The total return calculation assumes that distributions are
reinvested at NAV. Past performance is no guarantee of future results.
Total returns for periods of less than one year are not annualized.
|
7 |
Portfolio turnover
excludes the value of portfolio securities received or delivered as a
result of in‑kind fund share transactions.
|
|
|
|
| |
28 |
|
| |
ClearBridge Focus Value ESG
ETF |
ClearBridge Focus Value ESG ETF
You
may visit www.franklintempleton.com/etfliterature for a free copy of a
Prospectus, Statement of Additional Information (“SAI”) or an Annual or
Semi-Annual Report.
Shareholder
reports Additional information about the
fund’s investments is available in the fund’s Annual and Semi-Annual Reports to
shareholders. In the fund’s Annual Report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
fund’s performance during its last fiscal period. The independent registered
public accounting firm’s report and financial statements in the fund’s Annual
Report are incorporated by reference into (are legally a part of) this
Prospectus.
The
fund sends only one report to a household if more than one account has the same
last name and same address. Contact your Service Agent or the fund if you do not
want this policy to apply to you.
Statement of
additional information The SAI provides
more detailed information about the fund and is incorporated by reference into
(is legally a part of) this Prospectus.
You
can make inquiries about the fund or obtain shareholder reports or the SAI
(without charge) by contacting your Service Agent, by calling the fund at
1‑877‑721‑1926, or by writing to the fund at BNY Mellon, Attn: Legg Mason Funds,
4400 Computer Drive, Westborough, MA 01581.
Reports
and other information about the fund are available on the EDGAR Database on the
Securities and Exchange Commission’s Internet site at
http://www.sec.gov. Copies of this information may be obtained for a
duplicating fee by electronic request at the following E‑mail address:
[email protected].
If
someone makes a statement about the fund that is not in this Prospectus, you
should not rely upon that information. Neither the fund nor the Distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(Investment
Company Act
file
no. 811-23487)