2022-05-03JohnHancockCorporateBondETF_StatutoryProspectus_FYE430_09-01-22
Prospectus
John
Hancock
Preferred
Income ETF
Fixed
income
September
1, 2022
The
Securities and Exchange Commission has not approved or disapproved these
securities or passed upon
the adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
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Fund
summary |
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The
summary section is a concise look at the investment objective,
fees and expenses, principal investment strategies,
principal risks, past performance, and investment
management. |
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Fund
details |
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More
about topics covered in the summary section, including
descriptions of the investment strategies and various
risk factors that investors should understand before
investing. |
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Shareholder
information |
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Details
regarding buying and selling shares, as well as information
about distributions, taxation, and other matters
relating to an investment in the fund. |
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Other
information |
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Additional
information regarding the market price and net
asset value of the fund, as well as information relating
to the continuous offering of the fund’s shares.For
more information See
back cover |
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John
Hancock Preferred Income ETF
Investment
objective
To seek a
high level of current income, consistent with preservation of
capital.
Fees
and expenses
This table
describes the fees and expenses you may pay if you buy, hold, and sell shares of
the fund. You may
pay other fees, such as brokerage commissions
and other fees to financial intermediaries, which are not reflected in the
tables and examples below.
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Annual
fund operating expenses (%)
(expenses that you pay each year as a percentage of the value of your
investment) |
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Management
fee |
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Other
expenses1
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Total
annual fund operating expenses |
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Contractual
expense reimbursement2
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Total
annual fund operating expenses after expense
reimbursements |
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1 |
“Other
expenses” have been estimated for the fund’s first year of
operations.
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2 |
The
advisor contractually agrees to reduce its management fee or, if
necessary, make payment to the fund in an amount equal to the amount by
which expenses of the fund
exceed 0.54% of average daily net assets. Expenses means all the expenses
of the fund, excluding (a) taxes, (b) brokerage commissions, (c) interest
expense, (d)
litigation and indemnification expenses and other extraordinary expenses
not incurred in the ordinary course of the fund’s business, (e) borrowing
costs, (f) prime brokerage
fees, (g) acquired fund fees and expenses paid indirectly, and (h) short
dividend expense. This agreement expires on August 31, 2023, unless
renewed by mutual
agreement of the fund and the advisor based upon a determination that this
is appropriate under the circumstances at that time. The advisor also
contractually
agrees to waive a portion of its management fee and/or reimburse expenses
for the fund and certain other John Hancock funds according to an asset
level
breakpoint schedule that is based on the aggregate net assets of all the
funds participating in the waiver or reimbursement. This waiver is
allocated proportionally
among the participating funds. During
its most recent fiscal year, the fund’s reimbursement amounted to 0.01% of
the fund’s average daily net assets. This
agreement expires on July
31, 2024,
unless renewed by mutual agreement of the fund and the advisor based upon
a determination that this is appropriate under the
circumstances at that time. |
Expense
example
This
example is intended to help you compare the cost of investing in the fund with
the cost of investing in other funds. Please see below a hypothetical
example
showing the expenses of a $10,000 investment in the fund for the time periods
indicated assuming you redeem all of your shares at the end of those
periods. The example assumes a 5% average annual return and that fund expenses
will not change over the periods. The example does not take into
account brokerage commissions that you may pay on your purchases and sales of
shares of the fund. Although your actual costs may be higher or
lower, based on these assumptions, your costs would
be:
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Expenses
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1
year |
55 |
3
years |
234 |
Portfolio
turnover
The fund
pays transaction costs, such as commissions, when it buys and sells securities
(or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when fund
shares are held in a taxable account. These costs, which are not reflected
in annual fund operating expenses or in the example, affect the fund’s
performance. During the
fiscal period from December 14, 2021 (commencement
of operations) through April 30, 2022, the fund’s portfolio turnover rate was
15% of the average value of its
portfolio.
Principal
investment strategies
The fund is
an ETF, which is a fund that trades like other publicly-traded securities. The
fund is not an index fund. The fund is actively managed and does not
seek to replicate the performance of a specified
index.
Under
normal market conditions, the fund invests at least 80% of its net assets (plus
any borrowings for investment purposes) in preferred stocks and other
preferred securities. Preferred stocks and preferred securities include, but are
not limited to, convertible preferred securities, corporate hybrid securities,
Trust Preferred Securities (defined below), cumulative and non-cumulative
preferred stock, and depositary shares of preferred stock. Preferred
securities generally pay fixed or adjustable-rate distributions to investors and
have preference over common stock in the payment of distributions
and the liquidation of a company’s assets, but are generally junior to all forms
of the company’s debt, including both senior and subordinated
debt.
The manager
focuses on sector allocation, industry allocation and security selection in
making investment decisions and looks to invest in securities that may be
undervalued relative to similar securities in the
marketplace.
Preferred
securities held by the fund may have debt and equity characteristics. In
addition, certain preferred securities held by the fund may be issued
by trusts
or other special purpose entities created by companies, such as bank holding
companies, specifically for the purpose of issuing such securities
(Trust Preferred Securities).
The fund
may invest up to 20% of its net assets in common stocks or other equity
securities that are not considered preferred securities and in debt securities
with ratings equivalent to those of the preferred securities in which the fund
may invest. Debt securities in which the fund may invest include corporate
bonds and high yield securities. In addition, the fund may invest in contingent
convertible securities (CoCos).
The fund
will invest at least 50% of its net assets in preferred securities and other
fixed-income securities that are rated investment grade (i.e., at least
“Baa3” by
Moody’s Investors Service, Inc. (Moody’s) or “BBB–” by S&P Global Ratings
(S&P) and Fitch Ratings (Fitch) or by any nationally recognized statistical
ratings organization (NRSRO), or in unrated securities determined by the manager
to be of comparable credit quality.
The fund
can invest up to 50% of its net assets in preferred securities and other fixed
income securities that are rated below investment grade by either
S&P, Fitch, Moody’s or by any NRSRO or in comparable unrated securities.
Below investment grade securities must be rated “B” or higher by either
S&P, Fitch, Moody’s or by any NRSRO (or determined to be of comparable
quality). These investment policies are based on credit quality ratings
at the time
of acquisition.
The fund
may invest in common and preferred securities issued by real estate investment
trusts (REITs).
The fund
will concentrate its investments in the group of industries that comprise the
utilities and the communication sectors. In addition, the fund will concentrate
its investments in the group of industries that comprise the financials
sector.
Although
the fund invests typically in the securities of U.S. issuers, the fund may
invest up to 20% of its total assets in securities of corporate and governmental
issuers located outside the United States that are traded or denominated in U.S.
dollars.
The fund
may engage in derivative transactions. Derivatives may be used to reduce risk,
obtain efficient market exposure, and/or enhance investment returns,
and may include futures contracts on securities and indexes; options on futures
contracts, securities, and indexes; interest-rate, foreign currency,
and credit default swaps; and foreign currency forward
contracts.
Due to the
nature of certain of the fund’s investments, the fund may, under certain
circumstances, effect a portion of creations and redemptions for cash,
rather than in-kind securities.
Principal
risks
An
investment in the fund is not a bank deposit and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government
agency. Many
factors affect performance, and fund shares will fluctuate in price, meaning you
could lose money. The fund’s
investment strategy
may not produce the intended results.
During
periods of heightened market volatility or reduced liquidity, governments, their
agencies, or other regulatory bodies, both within the United States and
abroad, may take steps to intervene. These actions, which could include
legislative, regulatory, or economic initiatives, might have unforeseeable
consequences and could adversely affect the fund’s performance or otherwise
constrain the fund’s ability to achieve its investment objective.
The fund’s
main risks are listed below in alphabetical order, not in order of importance.
Before
investing, be sure to read the additional descriptions of these
risks beginning on page 18
of the prospectus.
Active
trading market risk. Active
trading markets for fund shares may not be developed or maintained by market
makers or authorized participants.
Market makers are not obligated to make a market in the fund’s shares or to
submit purchase or redemption orders for creation
units.
Authorized
participant concentration risk. To the
extent that authorized participants are unable or otherwise unavailable to
proceed with creation and/or
redemption orders and no other authorized participant is able to create or
redeem in their place, shares may trade at a discount to net asset value (NAV)
and may face delisting.
Cash
transactions risk. Under
certain circumstances, the fund intends to effect some or all of its creation
and redemption transactions using cash, rather than
in-kind securities. As a result, an investment in the fund may be less
tax-efficient than an investment in an ETF that effects all of its creation
and
redemption transactions in-kind. In order to obtain the cash needed to
distribute redemption proceeds, the fund may be required to sell portfolio
securities
which may cause the fund to recognize capital gains or losses and incur higher
brokerage costs. To the extent that the maximum additional charge for
creation or redemption transactions is insufficient to cover these costs and
expenses, the fund’s NAV could be
negatively impacted.
Changing
distribution levels risk. The fund
may cease or reduce the level of its distribution if income or dividends paid
from its investments declines.
Communication
sector risk. Because
the fund may be concentrated in securities of companies in the communication
sector, any market price movements,
regulatory or technological changes, or economic conditions affecting companies
in the communication sector may have a significant impact on
the fund’s performance.
Contingent
convertible securities risk. Contingent
convertible securities have unique equity conversion or principal write-down
features that involve
additional risks, which may include cancellation of interest payments by the
issuer or a regulatory authority; subordination to other creditors due to
either a liquidation or other bankruptcy-related event or a conversion of the
security from debt to equity; and a write-down of the security’s principal
amount.
Convertible
securities risk.
Convertible securities are subject to certain risks of both equity and debt
securities. The market values of convertible securities
tend to fall as interest rates rise and rise as interest rates fall. As the
market price of underlying common stock declines below the conversion
price, the market value of the convertible security tends to be increasingly
influenced by its yield.
Corporate
hybrid securities risk. Although a
corporate hybrid security may be considered an equity security within an
issuer’s capital structure, a hybrid
security may exhibit characteristics to a debt security, convertible security or
other evidence of indebtedness on which the value of the interest, or
principal of which, is determined by reference to changes in the value of a
reference instrument or financial strength of a reference entity (e.g., a
security or
other financial instrument, asset, currency or interest rate). Hybrid securities
may be functionally equivalent to preferred stock and are issued and
trade in a manner similar to traditional perpetual preferred stock. Such hybrid
securities may have a lower par amount, may allow the issuer to
defer interest or dividend payments and may be equal to preferred shares or the
lowest level of subordinated debt in terms of claims to an issuer’s
assets in the event of liquidation. Also, the price of a hybrid security and any
applicable reference instrument may not move in the same direction
or at the same time.
Credit
and counterparty risk. The issuer
or guarantor of a fixed-income security, the counterparty to an over-the-counter
derivatives contract, or a borrower of
fund securities may not make timely payments or otherwise honor its obligations.
U.S. government securities are subject to varying degrees of
credit risk depending upon the nature of their support. A downgrade or default
affecting any of the fund’s securities could affect the fund’s performance.
Currency
risk.
Fluctuations in exchange rates may adversely affect the U.S. dollar value of a
fund’s investments. Foreign currencies may decline in value,
which could negatively impact performance.
Economic
and market events risk. Events in
the U.S. and global financial markets, including actions taken by the U.S.
Federal Reserve or foreign central
banks to stimulate or stabilize economic growth, may at times result in
unusually high market volatility, which could negatively impact performance.
Reduced liquidity in credit and fixed-income markets could adversely affect
issuers worldwide. Banks and financial services companies could
suffer losses if interest rates rise or economic conditions
deteriorate.
Equity
securities risk. The price
of equity securities may decline due to changes in a company’s financial
condition or overall market conditions. Securities
the manager believes are undervalued may never realize their full potential
value, and in certain markets value stocks may underperform the market as a
whole.
ETF
trading risk. The market
price of shares may include a bid-ask spread (the difference between the prices
at which investors are willing to buy and sell
shares), which may vary over time and may increase for various reasons,
including decreased trading volume or reduced market
liquidity.
Financial
services sector risk. Financial
services companies can be significantly affected by economic, market, and
business developments, borrowing
costs, interest-rate fluctuations, competition, and government regulation, among
other factors.
Fixed-income
securities risk. A rise in
interest rates typically causes bond prices to fall. The longer the average
maturity or duration of the bonds held by a
fund, the more sensitive it will likely be to interest-rate fluctuations. An
issuer may not make all interest payments or repay all or any of the
principal
borrowed. Changes in a security’s credit quality may adversely affect fund
performance.
Foreign
securities risk. Less
information may be publicly available regarding foreign issuers, including
foreign government issuers. Foreign securities
may be subject to foreign taxes and may be more volatile than U.S. securities.
Currency fluctuations and political and economic developments
may adversely impact the value of foreign securities. If applicable, depositary
receipts are subject to most of the risks associated with investing
in foreign securities directly because the value of a depositary receipt is
dependent upon the market price of the underlying foreign equity security.
Depositary receipts are also subject to liquidity
risk.
Hedging,
derivatives, and other strategic transactions risk. Hedging,
derivatives, and other strategic transactions may increase a fund’s volatility
and could produce disproportionate losses, potentially more than the fund’s
principal investment. Risks of these transactions are different from and
possibly greater than risks of investing directly in securities and other
traditional instruments. Under certain market conditions, derivatives
could
become harder to value or sell and may become subject to liquidity risk (i.e.,
the inability to enter into closing transactions). Derivatives and other
strategic transactions that the fund intends to utilize include: credit default
swaps; foreign currency forward contracts; foreign currency swaps; futures
contracts; interest-rate swaps; and options. Foreign currency forward contracts,
futures contracts, options, and swaps generally are subject to counterparty
risk. In addition, swaps may be subject to interest-rate and settlement risk,
and the risk of default of the underlying reference obligation. Derivatives
associated with foreign currency transactions are subject to currency
risk.
Industry
or sector investing risk. The
performance of a fund that focuses on a single industry or sector of the economy
depends in large part on the performance
of that industry or sector. As a result, the value of an investment may
fluctuate more widely since it is more susceptible to market, economic,
political, regulatory, and other conditions and risks affecting that industry or
sector than a fund that invests more broadly across industries and
sectors.
LIBOR
discontinuation risk. The
publication of the London Interbank Offered Rate (LIBOR), which many debt
securities, derivatives and other financial
instruments use as the reference or benchmark rate for interest rate
calculations, was
discontinued for certain
maturities as of December 31, 2021, and
is expected
to be discontinued on June 30,
2023 for the remaining maturities. The transition process away from LIBOR may
lead to increased
volatility and illiquidity in markets that currently rely on LIBOR to determine
interest rates, and the eventual use of an alternative reference rate may
adversely affect the fund’s performance. In addition, the usefulness of LIBOR
may deteriorate in the period leading up to its discontinuation, which could
adversely affect the liquidity or market value of securities that use
LIBOR.
Liquidity
risk. The extent
(if at all) to which a security may be sold or a derivative position closed
without negatively impacting its market value may be impaired
by reduced market activity or participation, legal restrictions, or other
economic and market impediments. Liquidity risk may be magnified in rising
interest rate environments due to higher than normal redemption rates.
Widespread selling of fixed-income securities to satisfy redemptions
during
periods of reduced demand may adversely impact the price or salability of such
securities. Periods of heavy redemption could cause the fund to sell assets
at a loss or depressed value, which could negatively affect performance.
Redemption risk is heightened during periods of declining or illiquid
markets.
Lower-rated
and high-yield fixed-income securities risk.
Lower-rated and high-yield fixed-income securities (junk bonds) are subject to
greater credit
quality risk, risk of default, and price volatility than higher-rated
fixed-income securities, may be considered speculative, and can be difficult to
resell.
Operational
and cybersecurity risk.
Cybersecurity breaches may allow an unauthorized party to gain access to fund
assets, customer data, or proprietary
information, or cause a fund or its service providers to suffer data corruption
or lose operational functionality. Similar incidents affecting issuers of
a fund’s securities may negatively impact performance. Operational risk may
arise from human error, error by third parties, communication errors, or
technology failures, among other causes.
Preferred
stock risk. Preferred
stock generally ranks senior to common stock with respect to dividends and
liquidation but ranks junior to debt securities.
Unlike interest payments on debt securities, preferred stock dividends are
payable only if declared by the issuer’s board of directors. Preferred
stock may be subject to optional or mandatory redemption provisions. To the
extent the fund invests in non-cumulative preferred securities, whereby the
issuer does not have an obligation to make up any arrearages to holders of such
securities upon default, the amount of income earned by the fund
may be adversely affected. With respect to depositary shares of preferred stock,
the fund may only be entitled to a portion of the interest of a holder of
preferred stock directly.
Premium/discount
risk. The NAV of
the fund and the value of your investment may fluctuate. Disruptions to
creations and redemptions or the market
price of the fund’s holdings, the existence of extreme market volatility or
potential lack of an active trading market for shares may result in shares
trading at a significant premium or discount to NAV. If a shareholder purchases
shares at a time when the market price is at a premium to the NAV or
sells shares at a time when the market price is at a discount to the NAV, the
shareholder may sustain losses. Given the
nature of the relevant markets for
certain of the fund’s securities, shares may trade at a larger premium or
discount to the NAV than shares of other ETFs. In addition, in stressed
market conditions, the market for shares may become less liquid in response to
deteriorating liquidity in the markets for the fund’s underlying portfolio
holdings.
Real
estate investment trust (REIT) risk. REITs,
pooled investment vehicles that typically invest in real estate directly or in
loans collateralized by real
estate, carry risks associated with owning real estate, including the potential
for a decline in value due to economic or market
conditions.
Trading
issues risk. Trading in
shares on NYSE Arca, Inc. (NYSE Arca) may be halted in certain circumstances.
There can be no assurance that the requirements
of NYSE Arca necessary to maintain the listing of the fund will continue to be
met.
Trust
preferred securities risk. Holders of
trust preferred securities have limited voting rights to control the activities
of the trust and no voting rights with
respect to the financial institution. The market value of trust preferred
securities may be more volatile than those of conventional debt securities.
There can be no assurance as to the liquidity of trust preferred securities and
the ability of holders, such as a fund, to sell their holdings. The
condition of the financial institution is looked at to identify the risks of the
trust preferred securities as the trust typically has no business operations
other than to issue the trust preferred securities. If the financial institution
defaults on interest payments to the trust, the trust will not be able to
make dividend payments to holders of its securities, such as a
fund.
Utilities
sector risk. Companies
in the utilities sector may be affected by general economic conditions, supply
and demand, financing and operating costs, rate
caps, interest rates, liabilities arising from governmental or civil actions,
consumer confidence and spending, competition, resource conservation
and depletion, man-made or natural disasters, geopolitical events, and
environmental and other government
regulations.
Past
performance
This
section normally shows how the fund’s total return
has varied
from year to year, along with a broad-based market index for reference.
Performance
information is not shown because the fund
had been in
operation for less than a full calendar year as of the
date of this prospectus.
Investment
management
Investment
advisor John
Hancock Investment Management LLC
Subadvisor Manulife
Investment Management (US) LLC
Portfolio
management
The
following individuals are jointly and primarily responsible for the day-to-day
management of the fund’s portfolio.
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Joseph
H. Bozoyan, CFA Managing
Director and Portfolio
Manager Managed
the fund since 2021 |
James
Gearhart, CFA Associate
Portfolio Manager,
Global Credit team Managed
the fund since 2022 |
Jonas
Grazulis, CFA Associate
Portfolio Manager,
Global Credit team Managed
the fund since 2022 |
Bradley
L. Lutz, CFA* Managing
Director, Portfolio
Manager, and Senior
Investment Analyst Managed
the fund since 2021 *Effective
as of December 31,
2022, Bradley L. Lutz, CFA
will no longer serve as a
portfolio manager for the fund. |
Caryn
E. Rothman, CFA Managing
Director and Portfolio
Manager Managed
the fund since 2022 |
Purchase
and sale of fund shares
The fund
will issue and redeem shares at NAV only with authorized participants and only
in a large specified number of shares, each called a “creation unit,” or
multiples thereof, in exchange for the deposit or delivery of a basket of
securities and/or cash. Except when aggregated in creation units, the
shares are
not redeemable securities of the fund.
Individual
shares of the fund may be purchased and sold only in secondary market
transactions through brokers or financial intermediaries. Shares of the fund
are listed and traded on the NYSE Arca. Because shares trade at market prices
rather than NAV, shares of the fund may trade at a price greater
than NAV (premium) or less than NAV (discount).
An investor
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase shares of the fund (bid) and the lowest
price a seller is willing to accept for shares of the fund (ask) when buying or
selling shares in the secondary market (bid-ask spread).
Recent
information, including information about the fund’s NAV,
market price, premiums and discounts, and bid-ask spreads, is included on the
fund’s
website at
jhinvestments.com/etf.
Taxes
The fund’s
distributions are taxable, and will be taxed as ordinary income and/or capital
gains, unless you are investing through a tax-deferred arrangement,
such as a 401(k) plan or individual retirement account. Withdrawals from such
tax-deferred arrangements may be subject to tax at a later
date.
Payments
to broker-dealers and other financial intermediaries
The advisor
and its related companies may pay broker-dealers or other financial
intermediaries (such as a bank) for the sale of the fund shares and related
services. These payments may create a conflict of interest by influencing your
broker-dealer or other intermediary or its employees or associated
persons to recommend the fund over another investment. Ask your financial
advisor or visit your financial intermediary’s website for more information.
Principal
investment strategies
Investment
Objective: The fund
seeks a high level of current income, consistent
with preservation of capital.
The fund is
an ETF, which is a fund that trades like other publicly-traded securities.
The fund is not an index fund. The fund is actively managed and does
not seek to replicate the performance of a specified index.
The Board
of Trustees can change the fund’s investment objective and strategy
without shareholder approval. The fund will provide written notice to
shareholders at least 60 days prior to a change in its 80% investment
policy.
Under
normal market conditions, the fund invests at least 80% of its net assets
(plus any borrowings for investment purposes) in preferred stocks and other
preferred securities. Preferred stocks and preferred securities include,
but are not limited to, convertible preferred securities, corporate
hybrid securities, Trust Preferred Securities (defined below), cumulative
and non-cumulative preferred stock, and depositary shares of
preferred stock. Preferred securities generally pay fixed or adjustable-rate
distributions to investors and have preference over common
stock in the payment of distributions and the liquidation of a company’s
assets, but are generally junior to all forms of the company’s debt,
including both senior and subordinated debt.
The manager
focuses on sector allocation, industry allocation and security
selection in making investment decisions and looks to invest in securities
that may be undervalued relative to similar securities in the marketplace.
Preferred
securities held by the fund may have debt and equity characteristics.
In addition, certain preferred securities held by the fund may be
issued by trusts or other special purpose entities created by companies,
such as bank holding companies, specifically for the purpose of
issuing such securities (Trust Preferred Securities).
The fund
may invest up to 20% of its net assets in common stocks or other
equity securities that are not considered preferred securities and in debt
securities with ratings equivalent to those of the preferred securities
in which the fund may invest. Debt securities in which the fund may invest
include corporate bonds and high yield securities. In addition,
the fund may invest in contingent convertible securities (CoCos).
The fund
will invest at least 50% of its net assets in preferred securities and other
fixed-income securities that are rated investment grade (i.e., at least
“Baa3” by Moody’s Investors Service, Inc. (Moody’s) or “BBB–” by S&P
Global Ratings (S&P) and Fitch Ratings (Fitch) or by any nationally
recognized
statistical ratings organization (NRSRO), or in unrated securities
determined by the manager to be of comparable credit quality.
The fund
can invest up to 50% of its net assets in preferred securities and other
fixed income securities that are rated below investment grade by either
S&P, Fitch, Moody’s or by any NRSRO or in comparable unrated securities.
Below investment grade securities must be rated “B” or higher by
either S&P, Fitch, Moody’s or by any NRSRO (or determined to be of
comparable quality). These investment policies are based on credit quality
ratings at the time of acquisition.
The fund
may invest in common and preferred securities issued by real estate
investment trusts (REITs).
The fund
will concentrate its investments in the group of industries that comprise
the utilities and the communication sectors. In addition, the fund will
concentrate its investments in the group of industries that comprise
the financials sector.
Although
the fund invests typically in the securities of U.S. issuers, the fund may
invest up to 20% of its total assets in securities of corporate and
governmental issuers located outside the United States that are traded or
denominated in U.S. dollars.
The manager
considers
environmental, social, and/or governance (ESG) factors,
alongside other relevant factors, as part of its investment process.
ESG factors
may include, but are not limited to, matters regarding
board diversity, climate change policies, and supply chain and human
rights policies. The ESG
characteristics utilized in the fund’s investment
process may change over time and one or more characteristics
may not be relevant with respect to all issuers that are eligible
fund investments.
The fund
may engage in derivative transactions. Derivatives may be used to reduce
risk, obtain efficient market exposure, and/or enhance investment
returns, and may include futures contracts on securities and indexes;
options on futures contracts, securities, and indexes; interest-rate,
foreign currency, and credit default swaps; and foreign currency
forward contracts.
Due to the
nature of certain of the fund’s investments, the fund may, under
certain circumstances, effect a portion of creations and redemptions
for cash, rather than in-kind securities.
The fund
may deviate from its principal investment strategies during transition
periods, which may include the reassignment of portfolio management,
a change in investment objective or strategy, a reorganization
or liquidation, or the occurrence of large inflows or outflows.
Additional
investment strategies
Other
investments
The fund
may also invest, to the extent permitted by the Investment Company Act
of 1940, as amended, in other affiliated and unaffiliated funds, such
as open-end or closed-end management investment companies,
including other exchange-traded funds (ETFs).
Temporary
defensive investing
In abnormal
circumstances, the fund may temporarily invest extensively in
investment-grade short-term securities, cash, or cash equivalents for
the purpose
of protecting the fund in the event the manager determines that
market, economic, political, or other conditions warrant a defensive
posture. To
the extent that the fund is in a defensive position, its ability to achieve
its investment objective will be limited.
Principal
risks of investing
An
investment in the fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government
agency. The fund’s shares will go up and down in price,
meaning
that you could lose money by investing in the fund. Many factors
influence a fund’s performance. The fund’s
investment strategy may not
produce the intended results.
Instability
in the financial markets has led many governments, including the U.S.
government, to take a number of unprecedented actions designed to
support certain financial institutions and segments of the financial
markets that have experienced extreme volatility and, in some cases, a
lack of liquidity. Federal, state, and other governments, and their
regulatory agencies or self-regulatory organizations, may take actions
that affect the regulation of the instruments in which the fund invests, or
the issuers of such instruments, in ways that are unforeseeable.
Legislation or regulation may also change the way in which the
fund itself is regulated. Such legislation or regulation could limit or
preclude the fund’s ability to achieve its investment objective. In addition,
political events within the United States and abroad could negatively
impact financial markets and the fund’s performance. Further,
certain
municipalities of the United States and its territories are financially
strained and may face the possibility of default on their debt obligations,
which could directly or indirectly detract from the fund’s performance.
Governments
or their agencies may also acquire distressed assets from financial
institutions and acquire ownership interests in those institutions.
The implications of government ownership and disposition of these
assets are unclear, and such a program may have positive or negative
effects on the liquidity, valuation, and performance of the fund’s portfolio
holdings. Furthermore, volatile financial markets can expose the fund to
greater market and liquidity risk, increased transaction costs, and
potential difficulty in valuing portfolio instruments held by the fund.
The
principal risks of investing in the fund are summarized in its fund summary
above. Below are descriptions of the main factors that may play a role
in shaping the fund’s overall risk profile. The descriptions appear in
alphabetical order, not in order of importance. For further details
about fund risks, including additional risk factors that are not discussed
in this prospectus because they are not considered primary factors,
see the fund’s Statement of Additional Information (SAI).
Active
trading market risk
While the
fund’s shares are listed on NYSE Arca, there can be no assurance
that active trading markets for the shares will develop or be maintained
by market makers or authorized participants, and there are no
obligations of market makers to make a market in the fund’s shares or
to submit
purchase or redemption orders for creation units. Although market
makers will generally take advantage of differences between the NAV and the
trading price of fund shares through arbitrage opportunities,
there is no guarantee that they will do so. Decisions by market
makers or authorized participants to reduce their role with respect to
market making or creation/redemption activities in times of market
stress could inhibit the effectiveness of the arbitrage process in maintaining
the relationship between the underlying value of the fund’s portfolio
securities and the fund’s market price. This reduced effectiveness
could result in shares trading at a discount to NAV and also in greater
than normal intraday bid-ask spreads for shares.
Authorized
participant concentration risk
Only an
authorized participant may engage in creation or redemption transactions
directly with the fund. The fund has a limited number of intermediaries
that act as authorized participants. To the extent that these
intermediaries exit the business or are unable to proceed with creation
and/or redemption orders with respect to the fund and no other authorized
participant is able to create or redeem in their place, shares may trade
at a discount to NAV and may face delisting. This may in turn result in a
significantly diminished trading market for fund shares.
Cash
transactions risk
Under
certain circumstances, the fund intends to effect some or all of its
creation
and redemption transactions using cash, rather than in-kind securities.
As a result, an investment in the fund may be less tax-efficient than an
investment in an ETF that effects all of its creation and redemption
transactions in-kind. In order to obtain the cash needed to distribute
redemption proceeds, the fund may be required to sell portfolio
securities which may cause the fund to recognize capital gains or losses
and incur higher brokerage costs. To the extent that the maximum
additional charge for creation or redemption transactions is insufficient
to cover these costs and expenses, the fund’s NAV could be
negatively
impacted.
Changing
distribution levels risk
The
distribution amounts paid by the fund generally depend on the amount of
income and/or dividends paid by the fund’s investments. As a result of
market, interest rate and other circumstances, the amount of cash
available for distribution by the fund and the fund’s distribution rate
may vary or
decline. The risk of such variability is accentuated in currently
prevailing market and interest rate circumstances.
Communication
sector risk
The fund’s
assets may be concentrated in the communication sector, which means
the fund will be more affected by the performance of the communication
sector than a fund that is more broadly invested across industries
or sectors. Companies in the communication sector can be affected
by, among other things, overall economic conditions, intense competition,
technological innovation and obsolescence of existing technology,
research and development costs, government regulation and changes
in consumer preferences.
Contingent
convertible securities risk
Contingent
convertible securities have unique equity conversion or principal
write-down features that are tailored to the issuing banking institution
and its regulatory requirements. Contingent convertibles may have fully
discretionary coupons. This means coupons can potentially be cancelled
at the banking institution’s discretion or at the request of the relevant
regulatory authority in order to help the bank absorb losses. Contingent
convertibles will, in the majority of circumstances, be issued in the form
of subordinated debt instruments in order to provide the appropriate
regulatory capital treatment prior to a conversion. In the event of
liquidation, dissolution or winding-up of an issuer prior to a conversion,
the rights and claims of the holders of the contingent convertibles
against the issuer will generally rank junior to the claims of all holders
of unsubordinated obligations of the issuer. In addition, if the contingent
convertibles are converted into the issuer’s underlying equity securities
following a conversion event, each holder will be subordinated due to
their conversion from being the holder of a debt instrument to
being the
holder of an equity instrument. Equity conversion or principal write-down
features are tailored to the issuer and its regulatory requirements
and, unlike traditional convertible securities, conversions are not
voluntary and are not intended to benefit the investor.
Convertible
securities risk
Convertible
securities are subject to certain risks of both equity and debt securities.
Convertible securities may be converted or exchanged (by the holder or
by the issuer) into shares of the underlying common stock (or cash or
securities of equivalent value) at a stated exchange ratio. A convertible
security may also be called for redemption or conversion by the issuer
after a particular date and under certain circumstances (including
a specified price) established upon issue. Convertible securities
generally offer lower interest or dividend yields than nonconvertible
fixed-income securities of similar credit quality because of the
potential for capital appreciation. The market values of convertible
securities
tend to decline as interest rates increase and, conversely, to increase as
interest rates decline. However, a convertible security’s market
value also tends to reflect the market price of common stock of the issuing
company, particularly when that stock price is greater than the
convertible security’s conversion price. The conversion price is defined as
the predetermined price or exchange ratio at which the convertible
security can be converted or exchanged for the underlying common
stock. As the market price of the underlying common stock declines
below the conversion price, the price of the convertible security tends to be
increasingly influenced by the yield of the convertible security.
Thus, it may not decline in price to the same extent as the underlying
common stock. In the event of a liquidation of the issuing company,
convertible securities generally entail less risk than the company’s
common stock.
Corporate
hybrid securities risk
Although a
corporate hybrid security may be considered an equity security
within an issuer’s capital structure, a hybrid security may exhibit characteristics
to a debt security, convertible security or other evidence of
indebtedness on which the value of the interest, or principal of which,
is
determined by reference to changes in the value of a reference instrument
or financial strength of a reference entity (e.g., a security or other
financial instrument, asset, currency or interest rate). Hybrid securities
may be functionally equivalent to preferred stock and are issued and
trade in a manner similar to traditional perpetual preferred stock. Such
hybrid securities may have a lower par amount, may allow the issuer
to defer interest or dividend payments and may be equal to preferred
shares or the lowest level of subordinated debt in terms of claims to
an issuer’s assets in the event of liquidation. Also, the price of a
hybrid
security and any applicable reference instrument may not move in the same
direction or at the same time.
Credit
and counterparty risk
This is the
risk that an issuer of a U.S. government security, the issuer or guarantor
of a fixed-income security, the counterparty to an over-the-counter
(OTC) derivatives contract (see “Hedging, derivatives, and other
strategic transactions risk”), or a borrower of a fund’s securities
will be unable or unwilling to make timely principal, interest, or settlement
payments, or otherwise honor its obligations. Credit risk associated
with investments in fixed-income securities relates to the ability of
the issuer to make scheduled payments of principal and
interest on
an obligation. A fund that invests in fixed-income securities is subject to
varying degrees of risk that the issuers of the securities will have their
credit ratings downgraded or will default, potentially reducing the fund’s
share price and income level. Nearly all fixed-income securities
are subject to some credit risk, which may vary depending upon
whether the issuers of the securities are corporations, domestic or foreign
governments, or their subdivisions or instrumentalities. U.S. government
securities are subject to varying degrees of credit risk depending
upon whether the securities are supported by the full faith and credit
of the United States; supported by the ability to borrow from the U.S.
Treasury; supported only by the credit of the issuing U.S. government
agency, instrumentality, or corporation; or otherwise supported
by the United States. For example, issuers of many types of U.S.
government securities (e.g., the Federal Home Loan Mortgage Corporation
(Freddie Mac), Federal National Mortgage Association (Fannie
Mae), and Federal Home Loan Banks), although chartered or sponsored
by Congress, are not funded by congressional appropriations, and their
fixed-income securities, including asset-backed and mortgage-backed
securities, are neither guaranteed nor insured by the U.S.
government. An agency of the U.S. government has placed Fannie Mae and
Freddie Mac into conservatorship, a statutory process with the objective
of returning the entities to normal business operations. It is unclear
what effect this conservatorship will have on the securities issued or
guaranteed by Fannie Mae or Freddie Mac. As a result, these securities
are subject to more credit risk than U.S. government securities
that are supported by the full faith and credit of the United States
(e.g., U.S. Treasury bonds). When a fixed-income security is not rated, a
manager may have to assess the risk of the security itself. Asset-backed
securities, whose principal and interest payments are supported
by pools of other assets, such as credit card receivables and automobile
loans, are subject to further risks, including the risk that the obligors of
the underlying assets default on payment of those assets.
Funds that
invest in below-investment-grade securities, also called junk bonds
(e.g., fixed-income securities rated Ba or lower by Moody’s Investors
Service, Inc. or BB or lower by S&P Global Ratings or Fitch Ratings, as
applicable, at the time of investment, or determined by a manager to
be of comparable quality to securities so rated) are subject to
increased credit risk. The sovereign debt of many foreign governments,
including their subdivisions and instrumentalities, falls into this
category. Below-investment-grade securities offer the potential for higher
investment returns than higher-rated securities, but they carry greater
credit risk: their issuers’ continuing ability to meet principal and
interest
payments is considered speculative, they are more susceptible to real or
perceived adverse economic and competitive industry conditions,
and they may be less liquid than higher-rated securities.
In
addition, a fund is exposed to credit risk to the extent that it makes
use of OTC
derivatives (such as forward foreign currency contracts and/or swap
contracts) and engages to a significant extent in the lending of fund
securities or the use of repurchase agreements. OTC derivatives transactions
can be closed out with the other party to the transaction. If the
counterparty defaults, a fund will have contractual remedies, but there is no
assurance that the counterparty will be able to meet its contractual
obligations or that, in the event of default, a fund will succeed in
enforcing them. A fund, therefore, assumes the risk that it may be
unable to obtain payments owed to it under OTC derivatives contracts
or that those payments may be delayed or made only after the
fund has
incurred the costs of litigation. While the manager intends to monitor the
creditworthiness of contract counterparties, there can be no assurance
that the counterparty will be in a position to meet its obligations,
especially during unusually adverse market conditions.
Currency
risk
If
currencies do not perform as the subadviser expects, the fund could have
significant losses which exceed the amount invested in the currency
instruments since currency transactions involve a small investment
of cash relative to the magnitude of the risks assumed, thereby
magnifying the impact of any resulting gain or loss. Currency risk
includes the risk that fluctuations in exchange rates may adversely affect the
U.S. dollar value of a fund’s investments. Currency risk includes
both the risk that currencies in which a fund’s investments are traded, or
currencies in which a fund has taken an active investment position,
will decline in value relative to the U.S. dollar and, in the case of
hedging
positions, that the U.S. dollar will decline in value relative to the
currency
being hedged. Currency rates in foreign countries may fluctuate
significantly for a number of reasons, including the forces of supply and
demand in the foreign exchange markets, actual or perceived changes in
interest rates, and intervention (or the failure to intervene) by U.S. or
foreign governments or central banks, or by currency controls or political
developments in the U.S. or abroad. Certain funds may engage in proxy
hedging of currencies by entering into derivative transactions with
respect to a currency whose value is expected to correlate to the value of a
currency the fund owns or wants to own. This presents the risk that the
two currencies may not move in relation to one another as expected.
In that case, the fund could lose money on its investment and also lose
money on the position designed to act as a proxy hedge. A fund may also
take active currency positions and may cross-hedge currency exposure
represented by its securities into another foreign currency. This may
result in a fund’s currency exposure being substantially different
than that suggested by its securities investments. All funds with foreign
currency holdings and/or that invest or trade in securities denominated
in foreign currencies or related derivative instruments may be
adversely affected by changes in foreign currency exchange rates. Derivative
foreign currency transactions (such as futures, forwards and swaps) may
also involve leveraging risk, in addition to currency risk. Leverage
may disproportionately increase a fund’s portfolio losses and reduce
opportunities for gain when interest rates, stock prices or currency
rates are changing.
Economic
and market events risk
Events in
certain sectors historically have resulted, and may in the future result, in
an unusually high degree of volatility in the financial markets, both
domestic and foreign. These events have included, but are not limited to:
bankruptcies, corporate restructurings, and other similar events;
governmental efforts to limit short selling and high frequency trading;
measures to address U.S. federal and state budget deficits; social,
political, and economic instability in Europe; economic stimulus by the
Japanese central bank; dramatic changes in energy prices and currency
exchange rates; and China’s economic slowdown. Interconnected
global economies and financial markets increase the possibility
that conditions in one country or region might adversely impact
issuers in a different country or region. Both domestic and foreign
equity markets have experienced increased volatility and turmoil, with
issuers that have exposure to the real estate, mortgage, and credit
markets
particularly affected. Financial
institutions could
suffer losses as interest
rates rise or economic conditions deteriorate.
In
addition, relatively high market volatility and reduced liquidity in credit
and
fixed-income markets may adversely affect many issuers worldwide. Actions
taken by the U.S. Federal Reserve (Fed) or foreign central banks to
stimulate or stabilize economic growth, such as interventions in currency
markets, could cause high volatility in the equity and fixed-income
markets. Reduced liquidity may result in less money being available
to purchase raw materials, goods, and services from emerging markets,
which may, in turn, bring down the prices of these economic staples. It
may also result in emerging-market issuers having more difficulty
obtaining financing, which may, in turn, cause a decline in their securities
prices.
Beginning
in March 2022, the Fed began increasing interest rates and has
signaled the potential for further increases. As a result, risks associated
with rising interest rates are currently heightened. It is difficult
to accurately predict the pace at which the Fed will increase interest
rates any further, or the timing, frequency or magnitude of any such
increases, and the evaluation of macro-economic and other conditions
could cause a change in approach in the future.
In
addition, any
decision by the Fed to adjust the target Fed funds
rate, among other
factors, could cause markets to experience continuing high volatility.
A significant increase in interest rates may cause a decline in the market
for equity securities. These
events and the possible resulting market
volatility may have an adverse effect on the fund.
Political
turmoil within the United States and abroad may also impact the fund.
Although the U.S. government has honored its credit obligations,
it remains possible that the United States could default on its
obligations. While it is impossible to predict the consequences of such an
unprecedented event, it is likely that a default by the United States
would be highly disruptive to the U.S. and global securities markets and
could significantly impair the value of the fund’s investments.
Similarly, political events within the United States at times have
resulted, and may in the future result, in a shutdown of government services,
which could negatively affect the U.S. economy, decrease the value of
many fund investments, and increase uncertainty in or impair the
operation of the U.S. or other securities markets. In recent
years, the U.S.
renegotiated many of
its global trade relationships and imposed or
threatened
to impose significant import tariffs. These actions could lead to price
volatility and overall declines in U.S. and global investment markets.
Uncertainties
surrounding the sovereign debt of a number of European Union (EU)
countries and the viability of the EU have disrupted and may in the
future disrupt markets in the United States and around the world. If one or
more countries leave the EU or the EU dissolves, the world’s securities
markets likely will be significantly disrupted. On January 31, 2020, the
United Kingdom (UK) left the EU, commonly referred to as “Brexit,”
and the UK ceased to be a member of the EU. Following a transition
period during which the EU and the UK Government engaged in a series
of negotiations regarding the terms of the UK’s future relationship
with the EU, the EU and the
UK
Government signed an agreement
on December 30, 2020 regarding the economic relationship between the
UK and the EU. This agreement became effective on a provisional
basis on January 1, 2021 and
formally entered into force on
May 1,
2021. While the full impact of Brexit is unknown, Brexit has already
resulted in volatility in European and global markets. There
remains
significant market uncertainty regarding Brexit’s ramifications, and the
range and potential implications of possible political, regulatory, economic,
and market outcomes are difficult to predict. This uncertainty may affect
other countries in the EU and elsewhere, and may cause volatility
within the EU, triggering prolonged economic downturns in certain
countries within the EU. Despite the
influence of the lockdowns, and the
economic bounce back, Brexit has had a material impact on the UK’s
economy. Additionally, trade between the UK and the EU did not benefit
from the global rebound in trade in 2021, and remained at the very low
levels experienced at the start of the
coronavirus (COVID-19) pandemic
in 2020,
highlighting Brexit’s potential long-term effects on the UK
economy.
In
addition, Brexit may create additional and substantial economic stresses
for the UK, including a contraction of the UK economy and price volatility
in UK stocks, decreased trade, capital outflows, devaluation of the British
pound, wider corporate bond spreads due to uncertainty and declines in
business and consumer spending as well as foreign direct investment.
Brexit may also adversely affect UK-based financial firms that have
counterparties in the EU or participate in market infrastructure (trading
venues, clearing houses, settlement facilities) based in the EU. Additionally,
the spread of the coronavirus (COVID-19) pandemic is likely to continue
to stretch the resources and deficits of many countries in the EU and
throughout the world, increasing the possibility that countries may be
unable to make timely payments on their sovereign debt. These events and
the resulting market volatility may have an adverse effect on the
performance of the fund.
A
widespread health crisis such as a global pandemic could cause substantial
market volatility, exchange trading suspensions and closures,
which may lead to less liquidity in certain instruments, industries,
sectors or the markets generally, and may ultimately affect fund
performance. For example, the coronavirus
(COVID-19) pandemic has
resulted and may
continue to result in
significant disruptions to global
business activity and market
volatility due to disruptions in market access,
resource availability, facilities operations, imposition of tariffs,
export
controls and supply chain disruption, among others. The
impact of a health
crisis and other epidemics and pandemics that may arise in the future,
could affect the global economy in ways that cannot necessarily
be foreseen at the present time. A health crisis may exacerbate
other pre-existing political, social and economic risks. Any such impact
could adversely affect the fund’s performance, resulting in losses to
your investment.
The United
States responded
to the coronavirus
(COVID-19) pandemic and
resulting economic distress with fiscal and monetary stimulus packages.
In late March 2020, the government passed the Coronavirus Aid,
Relief, and Economic Security Act, a stimulus package providing for over $2.2
trillion in resources to small businesses, state and local governments,
and individuals adversely
impacted by the coronavirus
(COVID-19) pandemic.
In late December 2020, the government also passed a
spending bill that included $900 billion in stimulus relief for the
coronavirus
(COVID-19) pandemic.
Further, in March 2021, the government
passed the American Rescue Plan Act of 2021, a $1.9 trillion
stimulus bill to accelerate the United States’ recovery from the economic
and health effects of the coronavirus
(COVID-19) pandemic.
In
addition,
in mid-March 2020 the Fed cut interest rates to historically low levels and
promised unlimited and open-ended quantitative easing, including
purchases of corporate and municipal government bonds. The Fed also
enacted various programs to support liquidity operations and funding in
the financial markets, including expanding its reverse repurchase
agreement operations, adding $1.5 trillion of liquidity to the banking
system, establishing swap lines with other major central banks to provide
dollar funding, establishing a program to support money market
funds, easing various bank capital buffers, providing funding backstops
for businesses to provide bridging loans for up to four years, and
providing funding to help credit flow in asset-backed securities markets.
The Fed also extended credit to
small- and medium-sized businesses.
When the
Fed “tapers” or reduces the amount of securities it purchases pursuant to
quantitative easing, and/or raises the federal funds rate, there is a
risk that interest rates will rise, which could expose fixed-income
and related markets to heightened volatility and could cause the
value of a fund’s investments, and the fund’s net asset value (NAV), to
decline, potentially suddenly and significantly. As a result, the fund may
experience high redemptions and, as a result, increased portfolio
turnover, which could increase the costs that the fund incurs and may
negatively impact the fund’s performance.
Political
and military events, including in Ukraine,
North
Korea, Russia,
Venezuela,
Iran, Syria, and other areas of the Middle East, and nationalist
unrest in Europe and South America, also may cause market disruptions.
As a result
of continued political tensions and armed conflicts, including the Russian
invasion of Ukraine commencing in February of 2022, the extent and
ultimate result of which are unknown at this time, the United States and
the EU, along with the regulatory bodies of a number of countries,
have imposed economic sanctions on certain Russian corporate
entities and individuals, and certain sectors of Russia’s economy,
which may result in, among other things, the continued devaluation
of Russian currency, a downgrade in the country’s credit rating,
and/or a decline in the value and liquidity of Russian securities, property or
interests. These sanctions could also result in the immediate freeze of
Russian securities and/or funds invested in prohibited assets, impairing
the ability of a fund to buy, sell, receive or deliver those securities
and/or assets. These sanctions or the threat of additional sanctions
could also result in Russia taking counter measures or retaliatory
actions, which may further impair the value and liquidity of Russian
securities. The United States and other nations or international organizations
may also impose additional economic sanctions or take other
actions that may adversely affect Russia-exposed issuers and companies
in various sectors of the Russian economy. Any or all of these potential
results could lead Russia’s economy into a recession. Economic
sanctions and other actions against Russian institutions, companies,
and individuals resulting from the ongoing conflict may also have a
substantial negative impact on other economies and securities markets
both regionally and globally, as well as on companies with operations
in the conflict region, the extent to which is unknown at this time. The
United States and the EU have also imposed similar sanctions on Belarus
for its support of Russia’s invasion of Ukraine. Additional sanctions
may be imposed on Belarus and other countries that support Russia. Any
such sanctions could present substantially similar risks as
those
resulting from the sanctions imposed on Russia, including substantial
negative impacts on the regional and global economies and securities
markets.
In
addition, there is a risk that the prices of goods and services in the
United
States and many foreign economies may decline over time, known as
deflation. Deflation may have an adverse effect on stock prices and
creditworthiness and may make defaults on debt more likely. If a country’s
economy slips into a deflationary pattern, it could last for a prolonged
period and may be difficult to reverse. Further,
there is a risk that the
present value of assets or income from investments will be less in the
future, known as inflation. Inflation rates may change frequently and
drastically as a result of various factors, including unexpected shifts
in the
domestic or global economy, and a fund’s investments may be affected,
which may reduce a fund’s performance. Further, inflation may lead to the
rise in interest rates, which may negatively affect the value of debt
instruments held by the fund, resulting in a negative impact on a fund’s
performance. Generally, securities issued in emerging markets are subject
to a greater risk of inflationary or deflationary forces, and more
developed markets are better able to use monetary policy to normalize
markets.
Equity
securities risk
Common and
preferred stocks represent equity ownership in a company. Stock
markets are volatile. The price of equity securities will fluctuate,
and can
decline and reduce the value of a fund investing in equities. The price of
equity securities fluctuates based on changes in a company’s financial
condition and overall market and economic conditions. The value of
equity securities purchased by a fund could decline if the financial
condition of the companies in which the fund is invested declines,
or if overall market and economic conditions deteriorate. An issuer’s
financial condition could decline as a result of poor management decisions,
competitive pressures, technological obsolescence, undue reliance on
suppliers, labor issues, shortages, corporate restructurings, fraudulent
disclosures, irregular and/or unexpected trading activity among
retail investors, or other factors. Changes in the financial condition
of a single issuer can impact the market as a whole.
Even a fund
that invests in high-quality, or blue chip, equity securities, or securities
of established companies with large market capitalizations (which
generally have strong financial characteristics), can be negatively impacted by
poor overall market and economic conditions. Companies with large
market capitalizations may also have less growth potential than
smaller companies and may be less able to react quickly to changes in
the marketplace.
The fund
generally does not attempt to time the market. Because of its exposure to
equities, the possibility that stock market prices in general will
decline over short or extended periods subjects the fund to unpredictable
declines in the value of its investments, as well as periods of poor
performance.
|
Value
investment style risk.
Certain equity securities (generally referred
to as value securities) are purchased primarily because they are
selling at prices below what the manager believes to be their fundamental
value and not necessarily because the issuing companies
are expected to experience significant earnings growth. The
fund bears the risk that the companies that issued these securities
may not overcome the adverse business developments or
|
|
other
factors causing their securities to be perceived by the manager
to be
underpriced or that the market may never come to recognize their
fundamental value. A value security may not increase in price,
as
anticipated by
the manager investing in such securities, if other investors
fail to recognize the company’s value and bid up the price or
invest in markets favoring faster growing companies. The fund’s
strategy
of investing in value securities also carries the risk that in
certain
markets, value securities will underperform growth securities.
In addition, securities issued by U.S. entities with substantial
foreign operations may involve risks relating to economic,
political or regulatory conditions in foreign
countries. |
ESG
integration risk
The manager
considers ESG
factors that it deems relevant or additive, along with
other material factors and analysis, when managing the fund. The portion
of the fund’s investments for which the manager considers these ESG
factors may vary, and could increase or decrease over time. In
certain
situations, the extent
to which
these ESG factors may be applied according
to the manager’s integrated investment process may not include
U.S. Treasuries, government securities, or other asset
classes.
ESG factors
may include, but are not limited to, matters regarding board diversity,
climate change policies, and supply chain and human rights policies.
Incorporating ESG criteria and making investment decisions based on
certain ESG characteristics, as determined by the manager, carries the
risk that the fund may perform differently, including underperforming,
funds that do not utilize ESG criteria, or funds
that utilize
different ESG criteria.
Integration of ESG factors into the fund’s investment
process may result in a manager making different investments
for the fund than for a fund with a similar investment universe
and/or investment style that does not incorporate such considerations
in its investment strategy or processes, and the fund’s investment
performance may be affected. Because
ESG factors are one of many
considerations for the fund, the manager may nonetheless include
companies with low ESG scores or exclude companies with high ESG scores
in the fund’s investments.
The ESG
characteristics utilized in the fund’s investment process may change over
time, and different ESG characteristics may be relevant to different
investments. Although the manager has established its own structure
to oversee ESG integration in accordance with the fund’s investment
objective and strategies, successful integration of ESG factors
will depend on the manager’s skill in researching,
identifying, and applying
these factors, as well as
on
the
availability of relevant data. The method of
evaluating ESG factors and subsequent impact on portfolio composition,
performance, proxy voting decisions and other factors, is subject to
the interpretation of the manager in accordance with the fund’s
investment objective and strategies. ESG factors may be evaluated
differently by different managers, and may not carry the same meaning to
all investors and managers. The manager may employ
active shareowner
engagement to raise ESG issues with the management of select
portfolio companies. The
regulatory landscape with respect to ESG
investing in the United States is evolving and any future rules or regulations
may require the fund to change its investment process with respect to
ESG integration.
ETF
trading risk
The market
price of shares, like other exchange-traded securities, may include a
“bid-ask spread” (the difference between the price at which
investors
are willing to buy shares and the price at which investors are willing to
sell shares). The bid-ask spread may vary over time based on the fund’s
trading volume and market liquidity and may increase as a result of a
decrease in the fund’s trading volume, the spread of the fund’s underlying
securities, or reduced market liquidity. The bid-ask spread may
increase significantly in times of market disruption, meaning that shares may
trade at a discount to the fund’s NAV. Such discount is likely to be
greatest during significant market volatility. In stressed market conditions,
the market for a fund’s shares may become less liquid in response to
deteriorating liquidity in the markets for the fund’s underlying
portfolio holdings. This in turn could lead to differences between the
market price of the fund’s shares and the underlying value of those
shares.
Shares of
the fund, similar to shares of other publicly-traded securities, may be sold
short and are therefore subject to the risk of increased volatility
and price decreases associated with being sold short.
The fund’s
underlying securities may be traded in markets that close at a different
time than the NYSE Arca. Liquidity in those securities may be reduced
after the applicable closing times. Accordingly, during the time when the
NYSE Arca is open but after the applicable market closing, fixing or
settlement times, bid-ask spreads on the NYSE Arca and the corresponding
premium or discount to the shares’ NAV may widen.
Financial
services sector risk
A fund
investing principally in securities of companies in the financial services
sector is particularly vulnerable to events affecting that sector. Companies
in the financial services sector may include, but are not limited to,
commercial and industrial banks, savings and loan associations
and their holding companies, consumer and industrial finance
companies, diversified financial services companies, investment banking,
securities brokerage and investment advisory companies, leasing
companies, and insurance companies. The types of companies that
compose the financial services sector may change over time. These companies
are all subject to extensive regulation, rapid business changes,
volatile performance dependent upon the availability and cost of capital,
prevailing interest rates, and significant competition. General economic
conditions significantly affect these companies. Credit and other
losses resulting from the financial difficulty of borrowers or other
third
parties have a potentially adverse effect on companies in this sector.
Investment banking, securities brokerage, and investment advisory
companies are particularly subject to government regulation and the
risks inherent in securities trading and underwriting activities. In
addition,
certain financial services companies face shrinking profit margins due
to new competitors, the cost of new technology, and the pressure to
compete globally.
Fixed-income
securities risk
Fixed-income
securities are generally subject to two principal types of risk, as
well as other risks described below: (1) interest-rate risk and (2) credit
quality risk.
|
Credit
quality risk.
Fixed-income securities are subject to the risk that
the issuer of the security will not repay all or a portion of the
principal
borrowed and will not make all interest payments. If the credit
quality of a fixed-income security deteriorates after a fund has
purchased
the security, the market value of the security may decrease
and lead to a decrease in the value of the fund’s
|
|
investments.
An issuer’s credit quality could deteriorate as a result of poor
management decisions, competitive pressures, technological obsolescence,
undue reliance on suppliers, labor issues, shortages, corporate
restructurings, fraudulent disclosures, or other factors. Funds
that may invest in lower-rated fixed-income securities, commonly
referred to as junk securities, are riskier than funds that may
invest in higher-rated fixed-income securities.
|
|
Interest-rate
risk.
Fixed-income securities are affected by changes in
interest rates. When interest rates decline, the market value of
fixed-income
securities generally can be expected to rise. Conversely,
when interest rates rise, the market value of fixed-income
securities generally can be expected to decline. The longer
the duration or maturity of a fixed-income security, the more susceptible
it is to interest-rate risk. Duration
is a measure of the price
sensitivity of a debt security, or a fund that invests in a portfolio
of
debt securities, to changes in interest rates, whereas the maturity
of a
security measures the time until final payment is due. Duration
measures
sensitivity more accurately than maturity because it takes into
account the time value of cash flows generated over the life of a
debt
security. Recent
and potential future changes in government monetary
policy may affect interest
rates. |
|
The
fixed-income securities market has been and may continue to be
negatively
affected by the coronavirus
(COVID-19) pandemic. As with other
serious economic disruptions, governmental authorities and regulators
responded with
significant fiscal and monetary policy changes,
including considerably lowering interest rates, which, in some
cases could result in negative interest rates. These actions, including
their reversal
or potential ineffectiveness, could further increase
volatility in securities and other financial markets and reduce
market liquidity. To the extent the fund has a bank deposit or
holds
a debt instrument with a negative interest rate to maturity, the
fund
would generate a negative return on that investment. Similarly,
negative
rates on investments by money market funds and similar cash
management products could lead to losses on investments, including
on investments of the fund’s uninvested cash. When
the Fed “tapers”
or reduces the amount of securities it purchases pursuant to its
quantitative easing program, and/or raises the federal funds rate,
there
is a risk that interest rates will rise, which could expose fixed-income
and related markets to heightened volatility and could cause
the value of a fund’s investments, and the fund’s net asset value
(NAV), to decline, potentially suddenly and significantly, which
may
negatively impact the fund’s performance. |
|
Investment-grade
fixed-income securities in the lowest rating category
risk.
Investment-grade fixed-income securities in the lowest
rating category (such as Baa by Moody’s Investors Service, Inc.
or BBB by S&P Global Ratings or Fitch Ratings, as applicable,
and
comparable unrated securities) involve a higher degree of risk
than
fixed-income securities in the higher rating categories. While
such
securities are considered investment-grade quality and are deemed
to have adequate capacity for payment of principal and interest,
such securities lack outstanding investment characteristics and
have speculative characteristics as well. For example, changes in
economic
conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than
is
the case with higher-grade securities. |
|
Prepayment
of principal risk. Many
types of debt securities, including
floating-rate loans, are subject to prepayment risk. Prepayment
risk is the risk that, when interest rates fall, certain types
of obligations will be paid off by the borrower more quickly than
originally
anticipated and the fund may have to invest the proceeds in securities
with lower yields. Securities subject to prepayment risk can
offer less potential for gains when the credit quality of the issuer
improves. |
Foreign
securities risk
Funds that
invest in securities traded principally in securities markets outside the
United States are subject to additional and more varied risks, as
the value of foreign securities may change more rapidly and extremely
than the value of U.S. securities. Less information may be publicly
available regarding foreign issuers, including foreign government
issuers. Foreign securities may be subject to foreign taxes and may be
more volatile than U.S. securities. Currency fluctuations and political
and economic developments may adversely impact the value of foreign
securities. The securities markets of many foreign countries are relatively
small, with a limited number of companies representing a small
number of industries. Additionally, issuers of foreign securities may not be
subject to the same degree of regulation as U.S. issuers. Reporting,
accounting, and auditing standards of foreign countries differ, in
some cases significantly, from U.S. standards. There are generally
higher commission rates on foreign portfolio transactions, transfer
taxes, higher custodial costs, and the possibility that foreign taxes will
be charged on dividends and interest payable on foreign securities,
some or all of which may not be reclaimable. Also, adverse changes in
investment or exchange control regulations (which may include
suspension of the ability to transfer currency or assets from a country);
political changes; or diplomatic developments could adversely affect a
fund’s investments. In the event of nationalization, expropriation, confiscatory
taxation, or other confiscation, the fund could lose a substantial
portion of, or its entire investment in, a foreign security. Some of the
foreign securities risks are also applicable to funds that invest a
material portion of their assets in securities of foreign issuers traded in
the United States.
If
applicable, depositary receipts are subject to most of the risks associated
with investing in foreign securities directly because the value of a
depositary receipt is dependent upon the market price of the underlying
foreign equity security. Depositary receipts are also subject to
liquidity risk.
Additionally, the Holding Foreign Companies Accountable
Act (HFCAA) could cause securities of foreign companies, including
American depositary receipts, to be delisted from U.S. stock exchanges
if the companies do not allow the U.S. government to oversee the
auditing of their financial information. Although the requirements of
the HFCAA
apply to securities of all foreign issuers, the SEC has thus far limited its
enforcement efforts to securities of Chinese companies. If securities
are delisted, a fund’s ability to transact in such securities will be
impaired, and the liquidity and market price of the securities may decline.
The fund may also need to seek other markets in which to transact in
such securities, which could increase the fund’s costs.
Hedging,
derivatives, and other strategic transactions risk
The ability
of a fund to utilize hedging, derivatives, and other strategic transactions
to benefit the fund will depend in part on its manager’s ability to
predict pertinent market movements and market risk,
counterparty
risk, credit risk, interest-rate risk, and other risk factors, none of
which can be assured. The skills required to utilize hedging and other
strategic transactions are different from those needed to select a fund’s
securities. Even if the manager only uses hedging and other strategic
transactions in a fund primarily for hedging purposes or to gain exposure to
a particular securities market, if the transaction does not have the
desired outcome, it could result in a significant loss to a fund. The amount
of loss could be more than the principal amount invested. These
transactions may also increase the volatility of a fund and may involve a
small investment of cash relative to the magnitude of the risks assumed,
thereby magnifying the impact of any resulting gain or loss. For
example, the potential loss from the use of futures can exceed a fund’s
initial investment in such contracts. In addition, these transactions
could result in a loss to a fund if the counterparty to the transaction
does not perform as promised.
A fund may
invest in derivatives, which are financial contracts with a value that
depends on, or is derived from, the value of underlying assets, reference
rates, or indexes. Derivatives may relate to stocks, bonds, interest
rates, currencies or currency exchange rates, and related indexes. A
fund may use derivatives for many purposes, including for hedging and
as a substitute for direct investment in securities or other assets.
Derivatives may be used in a way to efficiently adjust the exposure of
a fund to various securities, markets, and currencies without a fund
actually having to sell existing investments and make new investments.
This generally will be done when the adjustment is expected to
be relatively temporary or in anticipation of effecting the sale of
fund assets and making new investments over time. Further, since many
derivatives have a leverage component, adverse changes in the value
or level of the underlying asset, reference rate, or index can result in a
loss substantially greater than the amount invested in the derivative
itself. Certain derivatives have the potential for unlimited loss, regardless
of the size of the initial investment. When a fund uses derivatives
for leverage, investments in that fund will tend to be more volatile,
resulting in larger gains or losses in response to market changes. To
limit risks associated with leverage, a fund is required
to comply with
the Derivatives Rule as outlined below. For a
description of the various
derivative instruments the fund may utilize, refer to the SAI.
The
regulation of the U.S. and non-U.S. derivatives markets has undergone
substantial change in recent years and such change may continue.
In particular, the Dodd-Frank Wall Street Reform and Consumer
Protection Act, and regulations promulgated or proposed thereunder
require many derivatives to be cleared and traded on an exchange,
expand entity registration requirements, impose business conduct
requirements on dealers that enter into swaps with a pension plan,
endowment, retirement plan or government entity, and required banks to
move some derivatives trading units to a non-guaranteed affiliate
separate from the deposit-taking bank or divest them altogether. Although
the Commodity Futures Trading Commission (CFTC) has released
final rules relating to clearing, reporting, recordkeeping and registration
requirements under the legislation, many of the provisions are subject
to further final rule making, and thus its ultimate impact remains
unclear. New regulations could, among other things, restrict the fund’s
ability to engage in derivatives transactions (for example, by making
certain types of derivatives transactions no longer available to the fund)
and/or increase the costs of such derivatives transactions (for example, by
increasing margin or capital requirements), and the fund
may be
unable to fully execute its investment strategies as a result. Limits or
restrictions applicable to the counterparties with which the fund
engages in derivative transactions also could prevent the fund from using these
instruments or affect the pricing or other factors relating to these
instruments, or may change the availability of certain investments.
In
addition, the regulation of the U.S. and non-U.S. derivatives markets
has
undergone substantial change in recent years and such change may continue.
In particular, effective August 19, 2022 (the “Compliance Date”),
Rule 18f-4 under the 1940 Act (the “Derivatives Rule”) replaced the asset
segregation regime of Investment Company Act Release No. 10666
(“Release 10666”) with a new framework for the use of derivatives
by registered funds. As of the Compliance Date, the SEC rescinded
Release 10666 and withdrew no-action letters and similar guidance
addressing a fund’s use of derivatives and began requiring funds to
satisfy the requirements of the Derivatives Rule. As a result, on or after
the Compliance Date, the funds will no longer engage in “segregation”
or “coverage” techniques with respect to derivatives transactions
and will instead comply with the applicable requirements of the
Derivatives Rule.
The
Derivatives Rule mandates that a fund adopt
and/or implement: (i) value-at-risk
limitations (“VaR”); (ii) a
written derivatives risk management
program; (iii) new Board oversight responsibilities; and (iv) new
reporting and recordkeeping requirements. In the
event that a fund’s
derivative exposure is 10% or less of its net
assets, excluding certain
currency and interest rate hedging transactions, it can
elect to be
classified as a limited derivatives user (“Limited Derivatives User”)
under the
Derivatives Rule, in which
case the fund is not subject to the full
requirements of the Derivatives Rule. Limited Derivatives Users are excepted
from VaR testing, implementing a derivatives risk management program,
and certain Board oversight and reporting requirements mandated
by the
Derivatives Rule. However,
a Limited Derivatives User is still
required to implement written compliance policies and procedures reasonably
designed to manage its derivatives risks.
The
Derivatives Rule also provides special treatment for reverse repurchase
agreements, similar financing transactions and unfunded commitment
agreements. Specifically, a fund may elect whether to treat reverse
repurchase agreements and similar financing transactions as “derivatives
transactions” subject to the requirements of the Derivatives Rule or as
senior securities equivalent to bank borrowings for purposes of Section
18 of the 1940 Act. In addition, when-issued or forward settling
securities transactions that physically settle within 35-days are deemed not
to involve a senior security.
At any time
after the date of this prospectus, legislation may be enacted that could
negatively affect the assets of the fund. Legislation or regulation
may change the way in which the fund itself is regulated. The advisor
cannot predict the effects of any new governmental regulation that may be
implemented, and there can be no assurance that any new governmental
regulation will not adversely affect the fund’s ability to achieve its
investment objectives.
The use of
derivative instruments may involve risks different from, or potentially
greater than, the risks associated with investing directly in securities
and other, more traditional assets. In particular, the use of derivative
instruments exposes a fund to the risk that the counterparty to an OTC
derivatives contract will be unable or unwilling to make timely
settlement
payments or otherwise honor its obligations. OTC derivatives transactions
typically can only be closed out with the other party to the transaction,
although either party may engage in an offsetting transaction
that puts that party in the same economic position as if it had closed
out the transaction with the counterparty or may obtain the other
party’s consent to assign the transaction to a third party. If the counterparty
defaults, the fund will have contractual remedies, but there is no
assurance that the counterparty will meet its contractual obligations
or that, in the event of default, the fund will succeed in enforcing
them. For example, because the contract for each OTC derivatives
transaction is individually negotiated with a specific counterparty,
a fund is subject to the risk that a counterparty may interpret
contractual terms (e.g., the definition of default) differently than the
fund when the fund seeks to enforce its contractual rights. If that
occurs, the cost and unpredictability of the legal proceedings required
for the fund to enforce its contractual rights may lead it to decide not
to pursue its claims against the counterparty. The fund, therefore,
assumes the risk that it may be unable to obtain payments owed to it
under OTC derivatives contracts or that those payments may be delayed
or made only after the fund has incurred the costs of litigation.
While a manager intends to monitor the creditworthiness of counterparties,
there can be no assurance that a counterparty will meet its
obligations, especially during unusually adverse market conditions. To the
extent a fund contracts with a limited number of counterparties, the fund’s
risk will be concentrated and events that affect the creditworthiness
of any of those counterparties may have a pronounced effect on
the fund. Derivatives are also subject to a number of other risks,
including market risk, liquidity
risk and operational risk.
Since the value of
derivatives is calculated and derived from the value of other assets,
instruments, or references, there is a risk that they will be improperly
valued. Derivatives also involve the risk that changes in their value may
not correlate perfectly with the assets, rates, or indexes they are
designed to hedge or closely track. Suitable derivatives transactions
may not be
available in all circumstances. The fund is also subject to the risk that
the counterparty closes out the derivatives transactions upon the
occurrence of certain triggering events. In addition, a manager may determine
not to use derivatives to hedge or otherwise reduce risk exposure.
Government legislation or regulation could affect the use of derivatives
transactions and could limit a fund’s ability to pursue its investment
strategies.
A detailed
discussion of various hedging and other strategic transactions
appears in the SAI. To the extent that the fund utilizes the following
list of certain derivatives and other strategic transactions, it will be
subject to associated risks. The main risks of each appear below.
|
Credit
default swaps.
Risks associated with credit default swaps include
liquidity risk (i.e., the inability to enter into closing transactions),
risk of default of the underlying reference obligation, risk
of disproportionate loss, and counterparty and interest-rate
risk. |
|
Foreign
currency forward contracts.
Risks associated with foreign
currency forward contracts include liquidity risk (i.e., the inability
to enter into closing transactions), risk of disproportionate loss,
and counterparty and foreign currency
risk. |
|
Foreign
currency swaps.
Risks associated with foreign currency swaps
include liquidity risk (i.e., the inability to enter into closing
transactions),
risk of disproportionate loss, and counterparty and foreign
currency risk. |
|
Futures
contracts.
Risks associated with futures contracts include counterparty
risk, liquidity risk (i.e., the inability to enter into closing
transactions),
and risk of disproportionate loss. |
|
Interest-rate
swaps.
Risks associated with interest-rate swaps include
liquidity risk (i.e., the inability to enter into closing transactions),
risk of disproportionate loss, and counterparty and interest-rate
risk. |
|
Options.
Risks associated with options include counterparty risk, liquidity
risk (i.e., the inability to enter into closing transactions), and
risk
of disproportionate loss. Counterparty risk does not apply to exchange-traded
options. |
Industry
or sector investing risk
When a
fund’s investments are focused in a particular industry or sector of the
economy, they are less broadly invested across industries or sectors
than other funds. This means that concentrated funds tend to be more
volatile than other funds, and the values of their investments tend to go up
and down more rapidly. In addition, a fund that invests in a particular
industry or sector is particularly susceptible to the impact of market,
economic, political, regulatory, and other conditions and risks affecting
that industry or sector. From time to time, a small number of companies
may represent a large portion of a single industry or sector or a group of
related industries or sectors as a whole.
LIBOR
discontinuation risk
Certain
debt securities, derivatives and other financial instruments may utilize
LIBOR as the reference or benchmark rate for interest rate calculations.
However, following allegations of manipulation and concerns
regarding liquidity, in July 2017 the U.K. Financial Conduct Authority,
which regulates LIBOR, announced that it would cease its
active
encouragement of banks to provide the quotations needed to sustain
LIBOR. The ICE Benchmark Administration Limited, the administrator
of LIBOR, ceased
publishing certain LIBOR
maturities, including
some U.S. LIBOR
maturities, on December 31, 2021, and is
expected to
cease publishing the
remaining and most liquid U.S. LIBOR
maturities
on June 30, 2023. It is expected that market participants have or
will
transition to the use of alternative reference or benchmark rates prior
to the applicable LIBOR publication cessation date. Additionally, although
regulators have encouraged the development and adoption of
alternative rates such as the Secured Overnight Financing Rate
(SOFR), the future utilization of LIBOR or of any particular replacement
rate remains uncertain.
Although
the transition process away from LIBOR has become increasingly
well-defined in advance of the anticipated discontinuation dates, the
impact on certain debt securities, derivatives and other financial
instruments remains uncertain. It is expected that market participants
will adopt
alternative rates such as SOFR or otherwise amend
financial instruments referencing LIBOR to include fallback provisions
and other measures that contemplate the discontinuation of LIBOR or
other similar market disruption events, but neither the effect of the
transition process nor the viability of such measures is known. Further,
uncertainty and risk remain regarding the willingness and ability of issuers
and lenders to include alternative rates and revised provisions in new and
existing contracts or instruments. To
facilitate the transition of legacy
derivatives contracts referencing LIBOR, the International Swaps and
Derivatives Association, Inc. launched a protocol to
incorporate
fallback provisions. However, there are obstacles to converting
certain longer term securities and transactions to a new benchmark
or benchmarks and the effectiveness of one alternative reference
rate versus multiple alternative reference rates in new or existing
financial instruments and products has not been determined. Certain
proposed replacement rates to LIBOR, such as SOFR, which is a broad
measure of secured overnight U.S. Treasury
repo rates, are materially
different from LIBOR, and changes in the applicable spread for
financial instruments transitioning away from LIBOR will need to be made to
accommodate the differences. Furthermore, the risks associated
with the expected discontinuation of LIBOR and transition to replacement
rates may be exacerbated if an orderly transition to an alternative
reference rate is not completed in a timely manner.
As market
participants transition away from LIBOR, LIBOR’s usefulness may
deteriorate and these
effects could be experienced until the permanent
cessation of the majority of U.S. LIBOR rates in 2023. The
transition
process may lead to increased volatility and illiquidity in markets
that currently rely on LIBOR to determine interest rates. LIBOR’s deterioration
may adversely affect the liquidity and/or market value of securities
that use LIBOR as a benchmark interest rate, including securities
and other financial instruments held by the fund. Further, the utilization
of an alternative reference rate, or the transition process to an alternative
reference rate, may adversely affect the fund’s performance.
Alteration
of the terms of a debt instrument or a modification of the terms of
other types of contracts to replace LIBOR or another interbank offered
rate (IBOR) with a new reference rate could result in a taxable exchange
and the realization of income and gain/loss for U.S. federal income tax
purposes. The IRS has issued final regulations regarding the tax
consequences of the transition from IBOR to a new reference rate in debt
instruments and non-debt contracts. Under the final regulations, alteration
or modification of the terms of a debt instrument to replace an operative
rate that uses a discontinued IBOR with a qualified rate (as defined in
the final regulations) including true up payments equalizing the fair
market value of contracts before and after such IBOR transition, to add a
qualified rate as a fallback rate to a contract whose operative rate uses a
discontinued IBOR or to replace a fallback rate that uses a discontinued
IBOR with a qualified rate would not be taxable. The IRS may provide
additional guidance, with potential retroactive effect.
Liquidity
risk
The extent
(if at all) to which a security may be sold or a derivative position
closed without negatively impacting its market value may be impaired by
reduced market activity or participation, legal restrictions, or other
economic and market impediments. Funds with principal investment
strategies that involve investments in securities of companies
with smaller market capitalizations, foreign securities, derivatives,
or securities with substantial market and/or credit risk tend to have the
greatest exposure to liquidity risk. Exposure to liquidity risk may be
heightened for funds that invest in securities of emerging markets and
related derivatives that are not widely traded, and that may be subject
to purchase and sale restrictions.
The
capacity of traditional dealers to engage in fixed-income trading has
not kept
pace with the bond market’s growth. As a result, dealer inventories
of corporate bonds, which indicate the ability to “make markets,”
i.e., buy or sell a security at the quoted bid and ask price, respectively,
are at or near historic lows relative to market size. Because
market
makers provide stability to fixed-income markets, the significant reduction
in dealer inventories could lead to decreased liquidity and increased
volatility, which may become exacerbated during periods of economic or
political stress.
Lower-rated
and high-yield fixed-income securities risk
Lower-rated
fixed-income securities are defined as securities rated below
investment grade (such as Ba and below by Moody’s Investors Service,
Inc. and BB and below by S&P Global Ratings and Fitch Ratings, as
applicable) (also called junk bonds). The general risks of investing in
these
securities are as follows:
|
Risk
to principal and income.
Investing in lower-rated fixed-income
securities is considered speculative. While these securities
generally provide greater income potential than investments
in higher-rated securities, there is a greater risk that principal
and interest payments will not be made. Issuers of these securities
may even go into default or become
bankrupt. |
|
Price
volatility. The
price of lower-rated fixed-income securities may
be more volatile than securities in the higher-rated categories.
This
volatility may increase during periods of economic uncertainty
or
change. The price of these securities is affected more than higher-rated
fixed-income securities by the market’s perception of their
credit quality, especially during times of adverse publicity. In
the
past, economic downturns or increases in interest rates have, at
times,
caused more defaults by issuers of these securities and may do so
in the future. Economic downturns and increases in interest rates
have an even greater effect on highly leveraged issuers of these
securities. |
|
Liquidity. The
market for lower-rated fixed-income securities may have
more limited trading than the market for investment-grade fixed-income
securities. Therefore, it may be more difficult to sell these
securities, and these securities may have to be sold at prices
below
their market value in order to meet redemption requests or to respond
to changes in market conditions. |
|
Dependence
on manager’s own credit analysis.
While a manager may
rely on ratings by established credit rating agencies, it will also
supplement
such ratings with its own independent review of the credit
quality of the issuer. Therefore, the assessment of the credit
risk
of lower-rated fixed-income securities is more dependent on the
manager’s
evaluation than the assessment of the credit risk of higher-rated
securities. |
|
Additional
risks regarding lower-rated corporate fixed-income securities.
Lower-rated corporate fixed-income securities (and comparable
unrated securities) tend to be more sensitive to individual
corporate developments and changes in economic conditions
than higher-rated corporate fixed-income securities. Issuers
of lower-rated corporate fixed-income securities may also be highly
leveraged, increasing the risk that principal and income will not
be repaid. |
|
Additional
risks regarding lower-rated foreign government fixed-income
securities.
Lower-rated foreign government fixed-income
securities are subject to the risks of investing in foreign countries
described under “Foreign securities risk.” In addition, the ability
and willingness of a foreign government to make payments on debt
when due may be affected by the prevailing economic and political
conditions within the country. Emerging-market countries
|
|
may
experience high inflation, interest rates, and unemployment, as
well
as exchange-rate fluctuations which adversely affect trade and
political
uncertainty or instability. These factors increase the risk that
a foreign government will not make payments when
due. |
Operational
and cybersecurity risk
With the
increased use of technologies, such as mobile devices and “cloud”-based
service offerings and the dependence on the internet and computer
systems to perform necessary business functions, the fund’s service
providers are susceptible to operational and information or cybersecurity
risks that could result in losses to the fund and its shareholders.
Intentional cybersecurity breaches include unauthorized access to
systems, networks, or devices (such as through “hacking” activity or
“phishing”); infection from computer viruses or other malicious
software code; and attacks that shut down, disable, slow, or otherwise
disrupt operations, business processes, or website access or functionality.
Cyber-attacks can also be carried out in a manner that does not
require gaining unauthorized access, such as causing denial-of-service
attacks on the service providers’ systems or websites rendering
them unavailable to intended users or via “ransomware” that renders the
systems inoperable until appropriate actions are taken. In addition,
unintentional incidents can occur, such as the inadvertent release of
confidential information (possibly resulting in the violation of applicable
privacy laws).
A
cybersecurity breach could result in the loss or theft of customer data
or funds,
loss or theft of proprietary information or corporate data, physical
damage to a computer or network system, or costs associated with system
repairs. Such incidents could cause a fund, the advisor, a manager, or
other service providers to incur regulatory penalties, reputational
damage, additional compliance costs, litigation costs or financial
loss. In addition, such incidents could affect issuers in which a fund
invests, and thereby cause the fund’s investments to lose value.
Cyber-events
have the potential to materially affect the fund and the advisor’s
relationships with accounts, shareholders, clients, customers, employees,
products, and service providers. The fund has established risk
management systems reasonably designed to seek to reduce the risks
associated with cyber-events. There is no guarantee that the fund will be
able to prevent or mitigate the impact of any or all cyber-events.
The fund is
exposed to operational risk arising from a number of factors, including,
but not limited to, human error, processing and communication
errors, errors of the fund’s service providers, counterparties,
or other third parties, failed or inadequate processes and
technology or system failures.
In
addition, other disruptive events, including (but not limited to) natural
disasters
and public health crises (such as the coronavirus
(COVID-19) pandemic),
may adversely affect the fund’s ability to conduct business, in
particular if the fund’s employees or the employees of its service providers
are unable or unwilling to perform their responsibilities as a result of
any such event. Even if the fund’s employees and the employees of its
service providers are able to work remotely, those remote work arrangements
could result in the fund’s business operations being less efficient
than under normal circumstances, could lead to delays in its processing
of transactions, and could increase the risk of cyber-events.
Preferred
stock risk
The fund
may invest in preferred stock. Preferred stock generally has a preference
as to dividends and liquidation over an issuer’s common stock but
ranks junior to debt securities in an issuer’s capital structure. Unlike
interest payments on debt securities, preferred stock dividends are payable
only if declared by the issuer’s board of directors. Preferred stock also
may be subject to optional or mandatory redemption provisions.
While some preferred securities are issued with a final maturity
date, others are perpetual in nature. In certain instances, a final maturity
date may be extended and/or the final payment of principal may be
deferred at the issuer’s option for a specified time without any adverse
consequence to the issuer. No redemption can typically take place
unless all cumulative payment obligations to preferred security holders
have been met, although issuers may be able to engage in open-market
repurchases without regard to any cumulative dividends or interest
payable. A portion of the portfolio may include investments in non-cumulative
preferred securities, whereby the issuer does not have an
obligation to make up any arrearages to holders of such securities. Should an
issuer default on its obligations under such a security, the amount of
income earned by the fund may be adversely affected. With respect to
depositary shares of preferred stock, the fund may only be entitled to
a portion of the interest of a holder of preferred stock directly.
Premium/discount
risk
The NAV of
the fund and the value of your investment will fluctuate. Disruptions
to creations and redemptions or the market price of the fund’s
holdings, the existence of extreme market volatility or potential lack of an
active trading market for shares may result in shares trading at a
significant premium or discount to NAV and/or in a reduced liquidity
of your
investment. If a shareholder purchases shares at a time when the market
price is at a premium to the NAV or sells shares at a time when the market
price is at a discount to the NAV, the shareholder may sustain
losses. The advisor cannot predict whether shares will trade below, at
or above their NAV. Price differences may be due, in large part, to the fact
that supply and demand forces at work in the secondary trading
market for shares will be closely related to, but not identical to, the same
forces influencing the prices of the securities of the fund’s underlying
portfolio holdings trading individually or in the aggregate at any point
in time. Given the nature of the relevant markets for certain of the fund’s
securities, shares may trade at a larger premium or discount to the NAV
than shares of other ETFs. In addition, in stressed market conditions,
the market for shares may become less liquid in response to deteriorating
liquidity in the markets for the fund’s underlying portfolio holdings.
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 NAV, exchange prices are not
expected to correlate exactly with the fund’s NAV 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 a
fund that differ significantly from its NAV. Any of these factors may
lead to the shares trading at a premium or discount to the fund’s NAV.
Although market makers will generally take advantage of differences
between the NAV and the trading price of fund shares through
arbitrage opportunities, there is no guarantee that they will do so.
During
periods of volatility, a shareholder may be unable to sell his or her
shares or
may incur significant losses if he or she sells shares. There are various
methods by which investors can purchase and sell shares and various
orders that may be placed. Investors should consult their financial
intermediary before purchasing or selling shares of the fund.
Real
estate investment trust (REIT) risk
REITs are
subject to risks associated with the ownership of real estate. Some REITs
experience market risk and liquidity risk due to investment in a
limited number of properties, in a narrow geographic area, or in a single
property type, which increases the risk that such REIT could be unfavorably
affected by the poor performance of a single investment or investment
type. These companies are also sensitive to factors such as changes in
real estate values and property taxes, interest rates, cash flow of
underlying real estate assets, supply and demand, and the management
skill and creditworthiness of the issuer. Borrowers could default on
or sell investments that a REIT holds, which could reduce the cash flow
needed to make distributions to investors. In addition, REITs may also be
affected by tax and regulatory requirements impacting the REITs’
ability to qualify for preferential tax treatments or exemptions. REITs
require specialized management and pay management expenses. REITs also
are subject to physical risks to real property, including weather,
natural disasters, terrorist attacks, war, or other events that destroy
real property.
REITs
include equity REITs and mortgage REITs. Equity REITs may be affected by
changes in the value of the underlying property owned by the trusts,
while mortgage REITs may be affected by the quality of any credit extended.
Further, equity and mortgage REITs are dependent upon management
skills and generally may not be diversified. Equity and mortgage
REITs are also subject to heavy cash flow dependency, defaults by
borrowers or lessees, and self-liquidations. In addition, equity and
mortgage REITs could possibly fail to qualify for tax-free pass-through
of income under the Internal Revenue Code of 1986, as amended
(the Code), or to maintain their exemptions from registration under the
Investment Company Act of 1940, as amended. The above factors may
also adversely affect a borrower’s or a lessee’s ability to meet its
obligations to the REIT. In the event of a default by a borrower or lessee, the
REIT may experience delays in enforcing its rights as a mortgagee
or lessor and may incur substantial costs associated with protecting
its investments. In addition, even many of the larger REITs in the
industry tend to be small to medium-sized companies in relation to the equity
markets as a whole. Moreover, shares of REITs may trade less frequently
and, therefore, are subject to more erratic price movements than
securities of larger issuers.
Trust
preferred securities risk
Holders of
trust preferred securities have limited voting rights to control the
activities of the trust and no voting rights with respect to the financial
institution. The market value of trust preferred securities may be more
volatile than those of conventional debt securities. There can be no
assurance as to the liquidity of trust preferred securities and the ability of
holders, such as a fund, to sell their holdings. The condition of the
financial institution is looked at to identify the risks of the trust
preferred
securities as the trust typically has no business operations other than
to issue the trust preferred securities. If the financial institution
defaults on interest payments to the trust, the trust will not be
able to
make dividend payments to holders of its securities, such as a fund.
Trading
issues risk
Trading in
shares of the fund on NYSE Arca may be halted due to market conditions
or for reasons that, in the view of NYSE Arca, make trading in shares
inadvisable. In addition, trading in shares on NYSE Arca is subject to
trading halts caused by extraordinary market volatility pursuant to
NYSE Arca’s “circuit breaker” rules. If a trading halt or unanticipated
early closing of NYSE Arca occurs, a shareholder may be unable to
purchase or sell shares of the fund. There can be no assurance that the
requirements of NYSE Arca necessary to maintain the listing of the fund
will continue to be met or will remain unchanged.
Utilities
sector risk
Companies
in the utilities sector may be affected by general economic conditions,
supply and demand, financing and operating costs, rate caps,
interest rates, liabilities arising from governmental or civil actions,
consumer
confidence and spending, competition, technological progress,
energy prices, resource conservation and depletion, man-made or
natural disasters, geopolitical events, and environmental and other
government regulations. The value of securities issued by companies
in the utilities sector may be negatively impacted by variations
in exchange rates, domestic and international competition, energy
conservation, and governmental limitations on rates charged to customers.
Although rate changes of a regulated utility usually vary in approximate
correlation with financing costs, due to political and regulatory
factors rate changes usually happen only after a delay after the changes
in financing costs. Deregulation may subject utility companies
to increased competition and can negatively affect their profitability
as it permits utility companies to diversify outside of their original
geographic regions and customary lines of business, causing them to
engage in more uncertain ventures. Deregulation can also eliminate
restrictions on the profits of certain utility companies, but can simultaneously
expose these companies to an increased risk of loss. Current and
future regulations or legislation can make it more difficult for utility
companies to operate profitably.
Additional
risks of investing
Large
shareholder risk
Certain
accounts or advisor affiliates, including other funds advised by the advisor
or third parties, may from time to time own (beneficially or of record) or
control a substantial amount of the fund’s shares, including through
seed capital arrangements. Such shareholders may at times be considered
to control the fund. Dispositions of a large number of shares by these
shareholders may adversely affect the fund’s liquidity and net assets to
the extent such transactions are executed directly with the fund in the
form of redemptions through an authorized participant (as defined in
“Shareholder information—Buying and selling shares” on page
22 of this
prospectus), rather than executed in the secondary market.
These redemptions may also force the fund to sell securities, which may
increase the fund’s brokerage costs. To the extent these large shareholders
transact in shares of the fund on the secondary market, such
transactions may account for a large percentage of the trading volume on
the exchange and may, therefore, have a material effect (upward or
downward), on the market price of the fund’s shares.
Who’s
who
The
following are the names of the various entities involved with the fund’s
investment and business operations, along with brief descriptions of the role
each entity performs.
Board
of Trustees
The
Trustees oversee the fund’s business activities and retain the services of
the various firms that carry out the fund’s operations.
Investment
advisor
The
investment advisor manages the fund’s business and investment activities.
John
Hancock Investment Management LLC
200
Berkeley Street
Boston,
MA 02116
Founded in
1968, the advisor is an indirect principally owned subsidiary of John
Hancock Life Insurance Company (U.S.A.), which in turn is a subsidiary
of Manulife Financial Corporation.
The
advisor’s parent company has been helping individuals and institutions
work toward their financial goals since 1862. The advisor offers
investment solutions managed by leading institutional money managers,
taking a disciplined team approach to portfolio management and
research, leveraging the expertise of seasoned investment professionals.
As of June 30,
2022, the
advisor had total assets under management
of approximately $146.7
billion.
Subject to
general oversight by the Board of Trustees, the advisor manages and
supervises the investment operations and business affairs of the
fund. The advisor selects, contracts with and compensates one or more
subadvisors to manage all or a portion of the fund’s portfolio assets,
subject to oversight by the advisor. In this role, the advisor has supervisory
responsibility for managing the investment and reinvestment of the
fund’s portfolio assets through proactive oversight and monitoring of the
subadvisor and the fund, as described in further detail below. The advisor is
responsible for developing overall investment strategies for the fund
and overseeing and implementing the fund’s continuous investment
programs and provides a variety of advisory oversight and investment
research services. The advisor also provides management and
transition services associated with certain fund events (e.g., strategy,
portfolio manager, or subadvisor changes) and coordinates and
oversees services provided under other agreements.
The advisor
has ultimate responsibility to oversee a subadvisor and recommend
to the Board of Trustees its hiring, termination, and replacement.
In this capacity, the advisor, among other things: (i) monitors on
a daily basis the compliance of the subadvisor with the investment
objectives and related policies of the fund; (ii) monitors significant
changes that may impact the subadvisor’s overall business and
regularly performs due diligence reviews of the subadvisor; (iii) reviews the
performance of the subadvisor; and (iv) reports periodically on such
performance to the Board of Trustees. The advisor employs a team of
investment professionals who provide these ongoing research and
monitoring services.
The fund
relies on an order from the Securities and Exchange Commission
(SEC) permitting the advisor, subject to approval by the Board of
Trustees, to appoint a subadvisor or change the terms of a subadvisory
agreement without obtaining shareholder approval. The
fund,
therefore, is able to change subadvisors or the fees paid to a subadvisor,
from time to time, without the expense and delays associated
with obtaining shareholder approval of the change. This order does not,
however, permit the advisor to appoint a subadvisor that is an affiliate
of the advisor or the fund (other than by reason of serving as a subadvisor
to the fund), or to increase the subadvisory fee of an affiliated subadvisor,
without the approval of the shareholders.
Management
fee
The fund
pays the advisor a management fee for its services to the fund. The advisor
in turn pays the fees of the subadvisor. The management fee is stated
as an annual percentage of the aggregate net assets of the fund
(together with the assets of any other applicable fund identified in
the
advisory agreement) determined in accordance with the following schedule,
and that rate is applied to the average daily net assets of the fund.
|
|
Average
daily net assets
($) |
Annual
rate
(%) |
All
asset levels |
0.49% |
During the
fiscal period from December 14, 2021 to April 30, 2022, the fund paid
the advisor a management fee equal to 0.21% of average daily net assets
(including any waivers and/or reimbursements).
The basis
for the Board of Trustees’ approval of the advisory fees, and of the
investment advisory agreement overall, including the subadvisory agreement,
is discussed
in the fund’s annual
shareholder report for the period
ended April 30, 2022.
Additional
information about fund expenses
The fund’s
annual operating expenses will likely vary throughout the period and
from year to year. The fund’s expenses for the current fiscal year may be
higher than the expenses listed in the fund’s Annual fund operating
expenses table, for some of the following reasons: (i) a significant
decrease in average net
assets may result in a higher advisory
fee rate if any advisory fee breakpoints are not achieved; (ii) a significant
decrease in average
net assets may result in an increase in the expense
ratio because certain fund expenses do not decrease as asset
levels decrease; or (iii) fees may
be incurred for extraordinary events such
as fund tax expenses.
As may be
described in “Fund summary - Fees and
expenses” on page 1 of this
prospectus, the advisor has contractually agreed to waive a portion of
its management fee and/or reimburse expenses for certain funds of
the John Hancock funds complex, including the fund (the participating
portfolios). The waiver equals, on an annualized basis, 0.0100% of
that portion of the aggregate net assets of all the participating
portfolios that exceeds $75 billion but is less than or equal to $125
billion; 0.0125% of that portion of the aggregate net assets of all the
participating portfolios that exceeds $125 billion but is less than or equal to
$150 billion; 0.0150% of that portion of the aggregate net assets of
all the participating portfolios that exceeds $150 billion but is less than
or equal to $175 billion; 0.0175% of that portion of the aggregate
net assets of all the participating portfolios that exceeds $175
billion but is less than or equal to $200 billion; 0.0200% of that portion of
the aggregate net assets of all the participating portfolios that exceeds
$200 billion but is less than or equal to $225 billion; and 0.0225% of
that portion of the aggregate net assets of all the participating
portfolios that exceeds $225 billion. The amount of the reimbursement
is calculated daily and allocated among all the
participating
portfolios in proportion to the daily net assets of each participating
portfolio. This agreement expires on July 31, 2024, unless
renewed by
mutual agreement of the fund and the advisor based upon a determination
that this is appropriate under the circumstances at that time.
Subadvisor
The
subadvisor handles the fund’s portfolio management activities, subject to
oversight by the advisor.
Manulife
Investment Management (US) LLC
197
Clarendon Street
Boston,
MA 02116
Manulife
Investment Management (US) LLC (Manulife IM (US)) provides investment
advisory services to individual and institutional investors. Manulife IM
(US) is a wholly owned subsidiary of John Hancock Life Insurance
Company (U.S.A.) (a subsidiary of Manulife Financial Corporation)
and, as of June 30,
2022, had total
assets under management
of approximately $186
billion.
The
following are brief biographical profiles of the leaders of the fund’s
investment
management team, in alphabetical order. These managers are jointly
and primarily responsible for the day-to-day management of the fund’s
portfolio. These managers are employed by Manulife IM (US). For more
details about these individuals, including information about their
compensation, other accounts they manage, and any investments they may
have in the fund, see the SAI.
Joseph
H. Bozoyan, CFA
• |
Managing
Director and Portfolio Manager |
• |
Managed
the fund since 2021 |
• |
Joined
the subadvisor in 2011 |
• |
Began
business career in 1993 |
James
Gearhart, CFA
• |
Associate
Portfolio Manager, Global Credit team |
• |
Managed
the fund since 2022 |
• |
Joined
the subadvisor in 2015 |
• |
Began
business career in 2011 |
Jonas
Grazulis, CFA
• |
Associate
Portfolio Manager, Global Credit team |
• |
Managed
the fund since 2022 |
• |
Joined
the subadvisor in 2011 |
• |
Began
business career in 2011 |
Bradley
L. Lutz, CFA*
• |
Managing
Director, Portfolio Manager, and Senior Investment
Analyst |
• |
Managed
the fund since 2021 |
• |
Joined
the subadvisor in 2002 |
• |
Began
business career in 1992 |
• |
*Effective
as of December 31, 2022, Bradley L. Lutz, CFA will no longer
serve as a portfolio manager for the
fund. |
Caryn
E. Rothman, CFA
• |
Managing
Director and Portfolio Manager |
• |
Managed
the fund since 2022 |
• |
Joined
the subadvisor in 1996 |
• |
Began
business career in 1996 |
Custodian
The
custodian holds the fund’s assets, settles all portfolio trades, and
collects
most of the valuation data required for calculating the fund’s net asset
value.
State
Street Bank and Trust Company
State
Street Financial Center
One
Lincoln Street
Boston,
MA 02111
Principal
distributor
The
principal distributor distributes creation units for the fund on an agency
basis, does not maintain a secondary market in shares of the fund, and
has no role in determining the investment policies of the fund or the
securities that are purchased or sold by the fund. The distributor is not
affiliated with the advisor, the subadvisor or any other service provider
for the fund.
Foreside
Fund Services, LLC
Three
Canal Plaza, Suite 100
Portland,
ME 04101
Transfer
agent
The
transfer agent handles shareholder services, including recordkeeping
and statements, distribution of dividends, and processing of creation
and redemption orders.
State
Street Bank and Trust Company
State
Street Financial Center
One
Lincoln Street
Boston,
MA 02111
Additional
information
The fund
has entered into contractual arrangements with various parties that
provide services to the fund, which may include, among others, the advisor,
subadvisor, custodian, principal distributor, and transfer agent, as
described above and in the SAI. Fund shareholders are not parties to,
or intended
or “third-party” beneficiaries of, any of these contractual arrangements.
These contractual arrangements are not intended to, nor do they,
create in any individual shareholder or group of shareholders any right,
either directly or on behalf of the fund, to either: (a) enforce such
contracts against the service providers; or (b) seek any remedy under such
contracts against the service providers.
This
prospectus provides information concerning the fund that you should
consider in determining whether to purchase shares of the fund. Each of
this prospectus, the SAI, or any contract that is an exhibit to the fund’s
registration statement, is not intended to, nor does it, give rise to
an
agreement or contract between the fund and any investor. Each such document
also does not give rise to any contract or create rights in any individual
shareholder, group of shareholders, or other person. The foregoing
disclosure should not be read to suggest any waiver of any rights
conferred by federal or state securities laws.
Financial
highlights
This table
details the financial performance of the fund, including total return
information showing how much an investment in the fund has increased
or
decreased for the period shown below (assuming reinvestment of all dividends and
distributions). Certain information reflects financial results for a
single fund
share.
The
financial statements of the fund as of April 30, 2022, have been audited by
PricewaterhouseCoopers LLP (PwC), the fund’s independent registered
public accounting firm. The report of PwC, along with the fund’s financial
statements in the fund’s annual report for the fiscal period ended April 30,
2022, has been incorporated by reference into the SAI. Copies of the fund’s most
recent annual report are available upon request.
|
|
|
Preferred
Income ETF |
Per
share operating performance |
Period
ended |
|
Net
asset value, beginning of period |
|
|
Net
investment income2
|
|
|
Net
realized and unrealized gain (loss) on investments |
|
|
Total
from investment operations |
|
|
Less
distributions |
|
|
From
net investment income |
|
|
Net
asset value, end of period |
|
|
Total
return (%)3
|
|
|
Ratios
and supplemental data |
|
|
Net
assets, end of period (in millions) |
|
|
Ratios
(as a percentage of average net assets): |
|
|
Expenses
before reductions |
|
|
Expenses
including reductions |
|
|
Net
investment income |
|
|
Portfolio
turnover (%) |
|
|
|
|
1 |
Period
from 12-14-21 (commencement of operations) to 4-30-22. |
2 |
Based
on average daily shares outstanding. |
3 |
Total
returns would have been lower had certain expenses not been reduced during
the period. |
4 |
Not
annualized. |
5 |
Annualized.
Certain expenses are presented unannualized. |
6 |
Annualized. |
Buying
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. An authorized participant is either a “participating party” (i.e., a
broker-dealer or other participant in the clearing process through the
Continuous Net Settlement System of the National Securities Clearing
Corporation) or a Depository Trust Company participant, in either
case, who has executed an agreement with the distributor and transfer
agent with respect to creations and redemptions of creation units. 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 a national securities exchange
during the trading day. Shares can be bought and sold throughout
the trading day like shares of other publicly traded companies.
However, there can be no guarantee that an active trading market will
develop or be maintained, or that the fund shares listing will continue or
remain unchanged. The Trust does not impose any minimum investment
for shares of a fund purchased on an exchange. Buying or selling the
fund’s shares involves certain costs that apply to all securities transactions.
When buying or selling shares of the fund through a financial
intermediary, you may incur a brokerage commission or other charges
determined by your financial intermediary. Due to these brokerage
costs, if any, frequent trading may detract significantly from investment
returns. In addition, you may also incur the cost of the spread (the
difference between the bid price and the ask price). The commission
is frequently a fixed amount and may be a significant cost for
investors seeking to buy or sell small amounts of shares. The spread
varies over
time for shares of the fund based on its trading volume and market
liquidity, and is generally less if the fund has more trading volume and
market liquidity and more if the fund has less trading volume and market
liquidity.
The fund’s
primary listing exchange is NYSE Arca. NYSE Arca is open for trading
Monday through Friday and is closed on the following holidays: New Year’s
Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday,
Memorial Day, Juneteenth,
Independence
Day, Labor Day, Thanksgiving
Day, and Christmas Day.
A “Business
Day” with respect to the fund is each day the New York Stock Exchange,
NYSE Arca and the Trust are open and includes any day that the fund is
required to be open under Section 22(e) of the Investment Company
Act. Orders from authorized participants to create or redeem creation
units will only be accepted on a Business Day. On days when NYSE Arca
closes earlier than normal, the fund may require orders to create or
redeem creation units to be placed earlier in the day. Please see the SAI
for more information.
Section
12(d)(1) of the Investment Company Act restricts investments by
registered investment companies and companies relying on Section 3(c)(1) or
Section 3(c)(7) of the Investment Company Act in the securities
of other investment companies.
The Board
of Trustees has not adopted a policy of monitoring for frequent
purchases and redemptions of fund shares (“frequent trading”)
that appear
to attempt to take advantage of potential arbitrage opportunities
presented by a lag between a change in the value of the fund’s
portfolio securities after the close of the primary markets for the fund’s
portfolio securities and the reflection of that change in the fund’s
NAV
(“market timing”). The Trust believes this is appropriate because ETFs, such
as the fund, are intended to be attractive to arbitrageurs, as trading
activity is critical to ensuring that the market price of fund shares
remains at or close to NAV. Since the fund issues and redeems creation
units at NAV plus applicable transaction fees, and the fund’s shares may
be purchased and sold on NYSE Arca at prevailing market prices, the
risks of frequent trading are limited. Registered investment companies
are permitted to invest in the fund beyond the limits set forth in Section
12(d)(1) subject to certain terms and conditions set forth in an SEC
exemptive order covering the Trust (until such exemptive order is rescinded
by the SEC) or pursuant to or an exemptive rule adopted by the
SEC.
Rule
12b-1 fees
Rule 12b-1
fees may be paid to the fund’s distributor and may be used by the
distributor for expenses relating to the distribution of, and shareholder
or administrative services for holders of, creation units, and for the
payment of service fees that come within Rule 2341 of the Conduct
Rules of the Financial Industry Regulatory Authority (FINRA).
Because
Rule 12b-1 fees may be paid out of the fund’s assets on an ongoing
basis, over time they may increase the cost of your investment and may
cost shareholders more than other types of sales charges. Currently,
no Rule 12b-1 fees are charged.
Your
broker-dealer or agent may charge you a fee to effect transactions in creation
units.
Payment
to broker-dealers and other financial intermediaries
The advisor
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
and certain other John Hancock funds 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 the advisor or its affiliates from their
own resources, which come directly or indirectly in part from fees paid
by the John Hancock funds complex. Payments of this type are sometimes
referred to as revenue-sharing payments. 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 or other John Hancock funds 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 the advisor or its affiliates.
Valuation
of fund shares
The NAV for
shares of the fund is normally determined once daily as of the close
of regular trading on the NYSE (typically 4:00 P.M., Eastern
time, on
each Business Day that the NYSE is open). In case of emergency
or other disruption resulting in the NYSE not opening for trading or
the NYSE closing at a time other than the regularly scheduled close, the
NAV may be determined as of the regularly scheduled close of the NYSE
pursuant to the advisor’s Valuation
Policies and Procedures. The time at
which shares and transactions are priced and until which orders are
accepted may vary to the extent permitted by the Securities and
Exchange Commission and applicable regulations. Shares of
the fund may be
purchased through a broker in the secondary market by individual
investors at market prices which may vary throughout the day and may
differ from the NAV. On holidays
or other days when the NYSE is closed, the
NAV is not calculated and the fund does not transact purchase or
redemption requests. Trading of securities that are primarily
listed on foreign exchanges may take place on weekends and U.S.
business holidays on which the fund’s NAV is not calculated. Consequently,
the fund’s portfolio securities may trade and the NAV of the fund’s
shares may be significantly affected on days when a shareholder
will not be able to purchase or redeem shares of the fund.
The NAV is
computed by dividing the total assets of the fund, minus liabilities
of the fund, by the number of fund shares outstanding. The current NAV
of the fund is available on our website at jhinvestments.com/etf.
Valuation
of portfolio securities
Portfolio
securities are valued by various methods that are generally described
below. Portfolio securities also may be fair valued by the advisor’s Pricing
Committee in certain instances pursuant to procedures established
by the advisor and
adopted by the Board of Trustees.
Equity securities
are generally valued at the last sale price or, for certain markets,
the official closing price as of the close of the relevant exchange.
Securities not traded on a particular day are valued using last available
bid prices. A security that is listed or traded on more than one exchange is
typically valued at the price on the exchange where the security
was acquired or most likely will be sold. In certain instances, the Pricing
Committee may determine to value equity securities using prices obtained
from another exchange or market if trading on the exchange or market on
which prices are typically obtained did not open for trading as scheduled,
or if trading closed earlier than scheduled, and trading occurred as
normal on another exchange or market. Equity securities traded
principally in foreign markets are typically valued using the last sale price
or official closing price in the relevant exchange or market. On any day a
foreign market is closed and the NYSE is open, any foreign securities
will typically be valued using the last price or official closing price
obtained from the relevant exchange on the prior business day. Debt
obligations are typically valued based on evaluated prices provided by an
independent pricing vendor. The value of securities denominated in foreign
currencies is converted into U.S. dollars at the exchange rate supplied by
an independent pricing vendor, generally determined as of 4:00 p.m.
London time. Forward foreign currency contracts are valued at the
prevailing forward rates which are based on foreign currency exchange
spot rates and forward points supplied by an independent pricing
vendor. Exchange-traded options are valued at the mid-price of
the last
quoted bid and ask prices. Futures contracts whose settlement prices are
determined as of the close of the NYSE are typically valued based on
the settlement price while other futures contracts are typically valued at
the last traded price on the exchange on which they trade. Foreign
equity index futures that trade in the electronic trading market subsequent
to the close of regular trading may be valued at the last traded
price in the electronic trading market as of the close of the NYSE. Swaps and
unlisted options are generally valued using evaluated prices obtained
from an independent pricing vendor. Shares of other open-end investment
companies that are not ETFs (underlying funds) are valued based on
the NAVs of such underlying funds.
Pricing
vendors may use matrix pricing or valuation models that utilize certain
inputs and assumptions to derive values, including transaction data,
broker-dealer quotations, credit quality information, general market
conditions, news, and other factors and assumptions. The fund may receive
different prices when it sells odd-lot positions than it would receive for
sales of institutional round lot positions. Pricing vendors generally
value securities assuming orderly transactions of institutional round lot
sizes, but a fund may hold or transact in such securities in smaller,
odd lot sizes.
The Pricing
Committee engages in oversight activities with respect to pricing
vendors, which includes, among other things, monitoring significant
or unusual price fluctuations above predetermined tolerance levels from
the prior day, back-testing of pricing vendor prices against actual
trades, conducting periodic due diligence meetings and reviews, and
periodically reviewing the inputs, assumptions and methodologies used by
these vendors. Nevertheless, market quotations, official closing prices, or
information furnished by a pricing vendor could be inaccurate, which could
lead to a security being valued incorrectly.
If market
quotations, official closing prices, or information furnished by a pricing
vendor are not readily available or are otherwise deemed unreliable
or not representative of the fair value of such security because of market-
or issuer-specific events, a security will be valued at its fair value as
determined in good faith by the advisor. The
advisor
is assisted
in
its
responsibility to fair value securities by the advisor’s Pricing
Committee,
and the actual calculation of a security’s fair value may be made by the
Pricing Committee acting pursuant to the procedures established
by the advisor and
adopted by the Board of Trustees.
In certain
instances, therefore, the Pricing Committee may determine that a reported
valuation does not reflect fair value, based on additional information
available or other factors, and may accordingly determine in good faith
the fair value of the assets, which may differ from the reported valuation.
Fair value
pricing of securities is intended to help ensure that the fund’s NAV
reflects the fair market value of the fund’s portfolio securities as of
the close
of regular trading on the NYSE (as opposed to a value that no longer
reflects market value as of such close). The use of fair value pricing has
the effect of valuing a security based upon the price the fund might
reasonably expect to receive if it sold that security in an orderly transaction
between market participants, but does not guarantee that the
security can be sold at the fair value price. Further, because of the
inherent
uncertainty and subjective nature of fair valuation, a fair valuation
price may differ significantly from the value that would have been used
had a readily available market price for the investment existed and
these differences could be material.
Regarding
the fund’s investment in an underlying fund that is not an ETF, which (as
noted above) is valued at such underlying fund’s NAV, the prospectus
for such underlying fund explains the circumstances and effects of
fair value pricing for that underlying fund. The fund relies on a third-party
service provider for assistance with the daily calculation of the fund’s
NAV. The third-party service provider, in turn, relies on other parties for
certain pricing data and other inputs used in the calculation of the
fund’s NAV. Therefore, the fund is subject to certain operational risks
associated with reliance on its service provider and that service provider’s
sources of pricing and other data. NAV calculation may be adversely
affected by operational risks arising from factors such as errors or
failures in systems and technology. Such errors or failures may result in
inaccurately calculated NAVs, delays in the calculation of NAVs and/or the
inability to calculate NAV over extended time periods. The fund may be
unable to recover any losses associated with such failures.
Distributions
The fund
pays distributions from its investment income and from net realized
capital gains.
Distributions
from net investment income and distributions from net capital
gains, if any, are declared and paid as follows:
|
|
|
|
|
Investment
income dividends |
Capital
gains distributions |
|
Declared |
Paid |
Declared
and Paid |
John
Hancock Preferred Income
ETF |
Monthly |
Monthly |
Annually |
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 Depository Trust Company (DTC) participants
and indirect participants (each as described in the “Book entry”
section, below) to beneficial owners then of record with proceeds received
from the fund.
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.
Book
entry
DTC serves
as securities depository for the shares. (The shares may be held only
in book-entry form; stock certificates will not be issued.) DTC, or its
nominee, is the record or registered owner of all outstanding shares.
Beneficial ownership of shares will be shown on the records of DTC or its
participants (described below). Beneficial owners of shares are not
entitled to have shares registered in their names, will not receive or be
entitled to receive physical delivery of certificates in definitive form
and are not
considered the registered holder thereof. Accordingly, to exercise
any rights of a holder of shares, each beneficial owner must rely on the
procedures of: (i) DTC; (ii) “DTC participants,” i.e., securities
brokers and
dealers, banks, trust companies, clearing corporations and certain
other organizations, some of whom (and/or their representatives)
own DTC; and (iii) “indirect participants,” i.e., brokers, dealers,
banks and trust companies that clear through or maintain a custodial
relationship with a DTC Participant, either directly or indirectly, through
which such beneficial owner holds its interests. The Trust understands
that under existing industry practice, in the event the Trust requests
any action of holders of shares, or a beneficial owner desires to take any
action that DTC, as the record owner of all outstanding shares, is entitled
to take, DTC would authorize the DTC participants to take such action
and that the DTC participants would authorize the indirect participants
and beneficial owners acting through such DTC participants to take
such action and would otherwise act upon the instructions of beneficial
owners owning through them. As described above, the Trust recognizes
DTC or its nominee as the owner of all shares for all purposes.
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. Each “creator” or “authorized participant” enters into
an authorized participant agreement with the fund’s distributor.
A creation
transaction, which is subject to acceptance by the transfer agent,
generally takes place when an authorized participant deposits into the
fund a designated portfolio of securities and/or
cash in
exchange
for a specified number of creation units.
Similarly,
shares can be redeemed only in creation units, generally for a designated
portfolio of securities and/or
cash. 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 NAV after a creation or redemption order is received in an
acceptable form under the authorized participant agreement.
Only an
authorized participant may create or redeem creation units directly
with the fund. 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.
When 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, as amended (Securities Act). Further, an authorized participant
that is not a “qualified institutional buyer,” as such term is defined
under Rule 144A of the Securities Act, will not be able to receive restricted
securities eligible for resale under Rule 144A.
Creations
and redemptions must be made through a firm that is either a member of
the Continuous Net Settlement System of the National Securities
Clearing Corporation or a DTC participant and has executed an
agreement with the distributor with respect to creations and redemptions
of creation unit aggregations. Information about the
procedures
regarding creation and redemption of creation units (including
the cut-off times for receipt of creation and redemption orders) and
the applicable transaction fees is included in the fund’s SAI.
The fund
typically expects to wire redemption proceeds between 1 and 3 business
days following the receipt of the redemption request. Processing
time is not dependent on the chosen delivery method. In unusual
circumstances, the fund may temporarily suspend the processing
of sell requests or may postpone payment of proceeds for up to three
Business Days or longer, as allowed by federal securities laws.
Under
normal market conditions, the fund typically expects to meet redemption
requests through holdings of cash or cash equivalents or through
sales of portfolio securities, and may access other available liquidity
facilities. In unusual or stressed market conditions, such as, for example,
during a period of time in which a foreign securities exchange is closed,
in addition to the methods used in normal market conditions, the fund
may meet redemption requests through the use of its line of credit,
interfund lending facility, redemptions in kind, or such other liquidity
means or facilities as the fund may have in place from time to time.
Taxation
As with any
investment, you should consider how your investment in the fund will
be taxed. The tax information below is provided as general information.
More tax information is available in the SAI. You should consult
your tax advisor about the federal, state, local or foreign tax consequences
of your investment in the fund. Except as otherwise noted, the tax
information provided assumes that you are a U.S. citizen or resident.
Unless your
investment is through an IRA or other tax-advantaged account,
you should carefully consider the possible tax consequences of fund
distributions and the sale of your fund shares.
Distributions
The fund
contemplates declaring as dividends each year all or substantially
all of its taxable income. Distributions you receive from the fund are
generally subject to federal income tax, and may also be subject to
state or local taxes. This is true whether you reinvest your distributions
in additional fund shares or receive them in cash. For federal
income tax purposes, the fund’s distributions attributable to net investment
income and short-term capital gains are taxable to you as ordinary
income while distributions of long-term capital gains are taxable to
you as long-term capital gains, no matter how long you have owned your
fund shares.
Under
current provisions of the Code, the maximum individual rate applicable
to long-term capital gains is generally either 15% or 20%, depending
on whether the individual’s income exceeds certain threshold amounts.
Fund distributions to noncorporate shareholders attributable to
dividends received by the fund from U.S. and certain qualified foreign
corporations
will generally be taxed at the long-term capital gain rate, as long as
certain other requirements are met. For these lower rates to apply, the
non-corporate shareholder must own fund shares for at least 61 days
during the 121-day period beginning 60 days before the fund’s ex-dividend
date (or 91 days
during the 181–day period beginning 90 days before
the fund’s ex-dividend date in the case of certain preferred stock
dividends paid by the fund). The
percentage of dividends eligible
for the
lower rates may be reduced as a result of the fund’s securities lending
activities, hedging activities or high portfolio turnover rate.
A
percentage of the fund’s dividends paid to corporate shareholders may
be eligible
for the corporate dividends-received deduction. This percentage
may, however, be reduced as a result of the fund’s securities lending
activities, hedging activities or high portfolio turnover rate.
Distributions
in excess of the fund’s current and accumulated earnings and profits
are treated as a tax-free return of your investment to the extent of
your basis in the shares, and generally as capital gain thereafter.
A return of capital, which for tax purposes is treated as a return of
your investment, reduces your basis in shares, thus reducing any loss or
increasing any gain on a subsequent taxable disposition of shares. A
distribution will reduce the fund’s NAV per share and may be taxable to
you as ordinary income or capital gain even though, from an economic
standpoint, the distribution may constitute a return of capital. Character
and tax status of all distributions will be available to shareholders
after the close of each calendar year.
An
additional 3.8% Medicare tax is imposed on certain net investment income
(including ordinary dividends and capital gain distributions received
from the fund and net gains from redemptions or other taxable dispositions
of fund shares) of U.S. individuals, estates and trusts to the extent that
such person’s “modified adjusted gross income” (in the case of an
individual) or “adjusted gross income” (in the case of an estate or trust)
exceeds certain threshold amounts.
The fund’s
transactions in derivatives (such as futures contracts and swaps) will
be subject to special tax rules, the effect of which may be to accelerate
income to the fund, defer losses to the fund, cause adjustments
in the holding periods of the fund’s securities and convert short-term
capital losses into long-term capital losses. These rules could therefore
affect the amount, timing and character of distributions to you. The fund’s
use of derivatives may result in the fund realizing more short-term
capital gains and ordinary income subject to tax at ordinary income tax
rates than it would if it did not use derivatives.
Although
distributions are generally treated as taxable to you in the year they are
paid, distributions declared in October, November or December but paid in
January are taxable as if they were paid in December.
The fund
may be subject to foreign withholding or other foreign taxes on income or
gain from certain foreign securities. In general, the fund may deduct
these taxes in computing its taxable income.
If you buy
shares of the fund before it makes a distribution, the distribution
will be taxable to you even though it may actually be a return of a
portion of your investment. This is known as “buying into a
dividend.”
Taxes
on creations and redemptions of creation units
A person
who exchanges securities for creation units generally will recognize a
gain or loss. The gain or loss will be equal to the difference between the
market value of the creation units at the time of exchange and the sum
of the exchanger’s aggregate basis in the securities surrendered
and the amount of any cash paid for such creation units. A person who
exchanges creation units for securities will generally recognize a
gain or loss equal to the difference between the exchanger’s basis in
the creation units and the sum of the aggregate market value of the
securities received. The Internal Revenue Service (IRS), however, may assert
that a loss realized upon an exchange of primarily securities
for
creation units cannot be deducted currently under the rules governing
“wash sales,” or on the basis that there has been no significant change in
economic position. Persons exchanging securities for creation units or
redeeming creation units should consult their own tax adviser with
respect to whether wash sale rules apply and when a loss might be deductible
and the tax treatment of any creation or redemption transaction.
Under
current U.S. federal income tax laws, any capital gain or loss realized
upon a redemption (or creation) of creation units is generally treated as
long-term capital gain or loss if the shares (or securities surrendered)
have been held for more than one year and as a short-term capital
gain or loss if the shares (or securities surrendered) have been held for
one year or less.
Sales
of fund shares
Your sale
of fund shares is a taxable transaction for federal income tax purposes,
and may also be subject to state and local taxes. When you sell your
shares, you will generally recognize a capital gain or loss in an amount
equal to the difference between your adjusted tax basis in the shares and
the amount received. Generally, this capital gain or loss is long-term
or short-term depending on whether your holding period exceeds one
year, except that any loss realized on shares held for six months or
less will be treated as a long-term capital loss to the extent of any capital
gain dividends that were received on the shares. Additionally, any loss
realized on a sale or redemption of shares of a fund may be disallowed
under “wash sale” rules to the extent the shares disposed of are
replaced with other shares of that fund within a period of 61 days beginning
30 days before and ending 30 days after the date of disposition,
such as pursuant to a dividend reinvestment in shares of that fund.
If disallowed, the loss will be reflected in an adjustment to the basis of
the shares acquired.
Other
information
You may be
subject to backup withholding at a rate of 24% with respect to taxable
distributions if you do not provide your correct taxpayer identification
number, or certify that it is correct, or if you have been notified by
the IRS that you are subject to backup withholding.
Non-U.S.
investors are generally subject to U.S. withholding tax with respect to
dividends received from the fund and may be subject to estate tax with
respect to their fund shares.
Withholding
of U.S. tax (at a 30% rate) is required with respect to payments of
taxable dividends made to certain non-U.S. entities that fail to comply
(or be deemed compliant) with extensive new reporting and withholding
requirements designed to inform the U.S. Department of the Treasury of
U.S.-owned foreign investment accounts. Shareholders may be
requested to provide additional information to enable the applicable
withholding
agent to determine whether withholding is required.
Legislation
passed by Congress requires reporting to you and the IRS annually on
Form 1099-B not only the gross proceeds of fund shares you sell or
redeem but also their cost basis. Shareholders should contact their
intermediaries with respect to reporting of cost basis and available
elections
with respect to their accounts. You should carefully review the cost basis
information provided by the applicable intermediary and make any
additional basis, holding period or other adjustments that are
required
when reporting these amounts on your federal income tax returns.
Disclaimers
IOPV
THE FUND IS
NOT SPONSORED, ENDORSED, SOLD OR MARKETED BY ICE DATA
INDICES, LLC, OR ITS AFFILIATES (ICE DATA) OR THEIR RESPECTIVE
THIRD PARTY SUPPLIERS.
ICE DATA OR
ITS THIRD PARTY SUPPLIERS MAKE NO EXPRESS OR IMPLIED
WARRANTIES, AND HEREBY EXPRESSLY DISCLAIM ALL WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
WITH RESPECT TO THE IOPVS, ETF STATISTICS, FUND OR ANY FUND
DATA INCLUDED THEREIN. IN NO EVENT SHALL ICE DATA HAVE ANY
LIABILITY FOR ANY SPECIAL, PUNITIVE, DIRECT, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
Continuous
offering
The method
by which creation units are created and traded may raise certain
issues under applicable securities laws. Because new creation units are
issued and sold by the Trust on an ongoing basis, a “distribution,”
as such term is used in the Securities Act, may occur at any point.
Broker dealers and other persons are cautioned that some activities
on their part may, depending on the circumstances, result in their being
deemed participants in a distribution in a manner that could render them
statutory underwriters and subject them to the prospectus delivery
and liability provisions of the Securities Act.
For
example, a broker dealer firm or its client may be deemed a statutory
underwriter
if it takes creation units after placing an order with the transfer
agent for review and approval by the distributor, breaks them down into
constituent shares, and sells such shares directly to customers,
or if it chooses to couple the creation of a supply of new shares with
an active selling effort involving solicitation of secondary market
demand for shares. A determination of whether one is an underwriter
for purposes of the Securities Act must take into account all the facts
and circumstances pertaining to the activities of the broker dealer or
its client in the particular case, and the examples mentioned above
should not be considered a complete description of all the activities
that could lead to a categorization as an underwriter.
Broker
dealers who are not “underwriters” but are participating in a distribution
(as contrasted to ordinary secondary trading transactions), and thus
dealing with shares that are part of an “unsold allotment” within the meaning
of Section 4(3)(C) of the Securities Act, would be unable to take
advantage of the prospectus delivery exemption provided by Section
4(3) of the Securities Act. This is because the prospectus delivery
exemption in Section 4(3) of the Securities Act is not available in respect of
such transactions as a result of Section 24(d) of the Investment
Company Act. As a result, broker dealer firms should note that
dealers who are not underwriters but are participating in a distribution
(as contrasted with ordinary secondary market transactions) and thus
dealing with the Shares that are part of an overallotment within the meaning
of Section 4(3)(A) of the Securities Act would be unable to take
advantage of the prospectus delivery exemption provided by Section
4(3) of the Securities Act. Firms that incur a prospectus delivery obligation
with respect to shares are reminded that, under Rule 153 of the
Securities Act, a prospectus delivery obligation under Section
5(b)(2) of
the Securities Act owed to an exchange member in connection with a sale
on NYSE Arca is satisfied by the fact that the prospectus is available
at NYSE Arca upon request. The prospectus delivery mechanism
provided in Rule 153 is only available with respect to transactions
on an exchange.
In
addition, certain affiliates of the fund and the advisor may purchase
and resell
fund shares pursuant to this prospectus.
Intraday
value
The trading
prices of the fund’s shares in the secondary market generally differ from
the fund’s daily NAV and are affected by market forces such as the
supply of and demand for fund shares and underlying securities held by the
fund, economic conditions and other factors. Information regarding
the intraday value of the fund’s shares (IOPV) is disseminated every 15
seconds throughout each trading day by the national securities exchange on
which the fund’s shares are listed or by market data vendors or
other information providers. The IOPV is based on the current market
value of the securities and/or cash required to be deposited in exchange
for a creation unit. The IOPV does not necessarily reflect the precise
composition of the current portfolio of securities held by the fund at a
particular point in time or the best possible valuation of the current
portfolio. Therefore, the IOPV should not be viewed as a “real-time”
update of the fund’s NAV, which is computed only once a day. The IOPV is
generally determined by using current market quotations and/or
price quotations obtained from broker-dealers and other market intermediaries
that may trade in the portfolio securities held by the fund and
valuations based on current market rates. The quotations and/or valuations
of certain fund holdings may not be updated during U.S. trading
hours if such holdings do not trade in the United States. The fund is not
involved in, or responsible for, the calculation or dissemination of
the IOPV
and makes no warranty as to its accuracy.
Appendix
- Related performance information of the subadvisor
Historical
performance of the Manulife Investment Management (US) Preferred Income
Composite1
John
Hancock Preferred Income ETF (the fund) commenced operations
on December 14, 2021. The fund is subadvised by Manulife Investment Management
(US) LLC (Manulife IM (US)). Manulife IM (US) manages accounts with investment
styles, objectives, policies, and strategies substantially similar to
those that are used to manage the fund. These accounts are included in a
composite, the performance of which is presented in this Appendix (Composite).
Manulife IM (US) has been responsible for the day-to-day management of the
accounts for all periods shown in the Appendix. Joseph H. Bozoyan has
been a portfolio manager primarily responsible for the day-to-day management of
the accounts since 2015, Bradley
L. Lutz has
been a portfolio
manager primarily responsible for the day-to-day management of the accounts
since 2017, and each
of James Gearhart, Jonas Grazulis and Caryn E.
Rothman has been a portfolio manager primarily responsible for the day-to-day
management of the accounts since 2022. Further, effective as of
December 31, 2022, Bradley L. Lutz will no longer serve as a portfolio manager
for the fund. As of December 31, 2022, Joseph H. Bozoyan, James
Gearhart, Jonas Grazulis, and Caryn E. Rothman will continue as portfolio
managers of the fund and will be jointly and primarily responsible for
the
day-to-day management of the fund’s portfolio.
Performance
presented in the Composite has been generated on an asset-weighted basis and
includes the reinvestment of dividends. The Composite includes
the performance of accounts that are pooled investment vehicles that borrow for
investment purposes in excess of the vehicles’ net assets, a form of
leverage. It is not anticipated that the fund will borrow to create leverage. In
accordance with industry standards, the performance of the Composite
does not reflect the effects of this leverage in its return calculations because
Manulife IM (US) does not have full discretion to adjust the leverage of
the accounts. The Composite’s performance would be materially different for
periods shown if the Composite returns reflected the effect of leverage.
This
Appendix presents historical performance information for the Composite as a
whole. Because of the similarities between the fund and the Composite,
this information may help provide an indication of the fund’s risks by showing
how a similar Composite has performed historically. The performance
of the Composite, however, is not the performance of the fund, and you should
not assume that the fund will have the same performance as the
Composite. The performance of the fund may be greater or less than the
performance of the Composite due to, among other things, the number of the
holdings in and composition of the fund’s portfolio, as well as the asset size
and cash flow differences between the fund and the Composite. The accounts in
the Composite are not subject to the creations and redemption process of an ETF,
which, if they had applied, might have affected the accounts’
performance results. The inception date of the Composite is September 1,
2002.
This
Appendix includes an index for purposes of comparing the performance of the
Composite. The ICE BofA U.S. All Capital Securities Index is a broad-based
securities index that reflects the investment strategies and performance target
of the accounts underlying the Composite.
Performance
information—bar chart and table—is presented on the following page for the
Composite. The bar chart shows how the Composite’s total return has
varied over time, and the table shows the Composite’s performance over the last
year, three (3) years, five (5) years, and ten (10) years as of
June 30,
2022 (as
compared with a broad-based market index for reference). The past performance of
the Composite is no guarantee of future results in
managing the fund. The
information in this Appendix does not represent the performance of the fund and
is no indication of how it would
have performed in the past or will perform in the future.
The past
performance of the Composite has been calculated net of its fees and expenses.
The Composite’s returns would be lower if the Composite reflected
the fees and expenses of the fund. In addition, a fund shareholder may incur
other expenses that are specific to ETF trading in the secondary market,
including bid-ask spreads and brokerage commissions. The accounts in the
Composite do not reflect such expenses. The performance of the Composite
would be lower if it reflected such expenses.
An index is
unmanaged and it is not possible to invest directly in an index. As such,
year-by-year index figures do not account for any sales charges, fees, or
fund expenses. As indicated above, past performance does not indicate future
results.
The
composite performance information presented herein has been calculated and
provided by the fund’s subadvisor. Although the performance is believed to
be reliable, John Hancock Investment Management LLC does not guarantee or make
any warranty, express or implied, as to the accuracy, adequacy or
completeness of such information.
1The
Composite is composed of all portfolios with an investment style, objectives,
policies, and strategies substantially similar to those that are used to manage
the fund by Manulife IM
(US).
Manulife
Investment Management (US) Preferred Income Composite
Net
assets of Composite as of June 30,
2022:
$2,039.73
million
Calendar
year total returns—Composite(%)
Year to
date total return: The
Composite’s total return for the six month
period ended June 30,
2022, was
-9.39%.
Best
quarter: 2020, Q2,
10.64% Worst
quarter: 2020, Q1,
–17.57%
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Composite
annualized total returns (%) |
1
year |
3
years |
5
years |
10
years |
For
period ended June 30, 2022 |
|
|
|
|
Composite |
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|
ICE
BofA U.S. All Capital Securities Index (reflects no deduction for fees,
expenses, or taxes) |
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The
ICE BofA
U.S. All Capital Securities Index measures
the performance of preferred securities.
For more
information
The
following documents are or will be available that offer further information on
the fund:
Annual/semiannual
reports to shareholders
Additional
information about the fund’s investments is available in the fund’s annual and
semiannual reports (if applicable) 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
year.
As of
January 1, 2021, paper copies of the fund’s shareholder reports are no longer
sent by mail. Instead, the reports are made available on jhinvestments.com/etf,
and you will be notified and provided with a link each time a report is posted
to the website. You may request to receive paper reports from the
fund or from your financial intermediary, free of charge, at any time. You may
also request to receive documents through eDelivery.
Statement
of Additional Information (SAI)
The SAI
contains more detailed information on all aspects of the fund and includes a
summary of the fund’s policy regarding disclosure of its portfolio holdings,
as well as legal and regulatory matters. A current SAI has
been filed with the SEC and is incorporated by reference into (and is legally a
part of) this prospectus.
To
obtain a free copy of these documents or request other
information
There are
several ways you can get a current annual/semiannual report, prospectus, or SAI
from John Hancock, request other information, or make inquiries:
Online:
jhinvestments.com/etf
By
mail:
John
Hancock Investment Management
200
Berkeley Street
Boston, MA
02116
By
phone:
800-225-6020
You can
also view or obtain copies of these documents through the SEC:
Online:
sec.gov
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©
2022 John Hancock Exchange-Traded Fund Trust 200
Berkeley Street Boston, MA 02116 800-225-6020,
jhinvestments.com
Manulife,
Manulife Investment Management, Stylized M Design, and Manulife Investment
Management & Stylized M Design are trademarks of The Manufacturers
Life Insurance
Company and are used by its affiliates under license. |
|
SEC
file number: 811-22733 8850PN
9/1/22 |