Prospectus
December 29, 2022
December 29, 2022
GOLDMAN
SACHS ETF TRUST
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.
|
AN
INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE
FEDERAL DEPOSIT
INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND
INVOLVES
INVESTMENT RISKS, AND YOU MAY LOSE MONEY IN THE
FUND. |
◼
Goldman Sachs Bloomberg Clean
Energy Equity ETF
◼
Cboe BZX Exchange, Inc.:
GCLN
◼
Goldman Sachs
Equal Weight U.S. Large Cap Equity ETF
◼
Cboe BZX
Exchange, Inc.: GSEW
◼
Goldman Sachs
Hedge Industry VIP ETF
◼
NYSE Arca:
GVIP
◼
Goldman Sachs
Innovate Equity ETF
◼
NYSE Arca:
GINN
◼
Goldman Sachs
JUST U.S. Large Cap Equity ETF
◼
NYSE Arca:
JUST
|
|
|
|
|
Management
Fee |
|
|
Distribution
and Service (12b-1) Fee |
|
|
Other
Expenses |
|
|
Total
Annual Fund Operating Expenses |
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$ |
$ |
$ |
$ |
|
|
|
|
1
|
|
2
3
|
|
4
|
Portfolio
Management |
Goldman Sachs Asset
Management, L.P. is the investment adviser for the Fund.
Portfolio
Manager: Raj Garigipati, Managing
Director, has managed the Fund since February 2022.
|
Buying
and Selling Fund Shares |
Individual Shares of the
Fund may only be purchased and sold in secondary market transactions through a
broker or dealer at market price. Because Shares trade at market prices, rather
than NAV, Shares of the Fund may trade at a price greater than NAV (i.e., a premium) or less than
NAV (i.e., a discount).
You may incur costs
attributable to the difference between the highest price a buyer is willing to
pay for Shares (bid) and the lowest price a seller is willing to accept for
Shares (ask) (the “bid-ask spread”) when buying or selling Shares in the
secondary market.
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
www.gsamfunds.com.
|
Tax
Information |
For important tax
information, please see “Tax Information” on page 26 of the
Prospectus.
|
Payments
to Broker-Dealers and
Other
Financial Intermediaries |
For important information
about financial intermediary compensation, please see “Payments to
Broker-Dealers and Other Financial Intermediaries” on page 26 of the
Prospectus.
5
|
|
|
|
|
Management
Fee |
|
|
Distribution
and Service (12b-1) Fee |
|
|
Other
Expenses |
|
|
Total
Annual Fund Operating Expenses |
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$ |
$ |
$ |
$ |
|
|
|
|
6
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
1
Year |
Since
Inception |
Inception
Date | |
|
Goldman
Sachs Equal Weight U.S. Large Cap Equity ETF |
|
|
|
|
Returns
Before Taxes |
|
|
|
|
Returns
After Taxes on Distributions |
|
|
|
|
Returns
After Taxes on Distributions and Sale of Fund Shares |
|
|
|
|
Solactive
US Large Cap Equal Weight Index (GTR) (reflects no deduction for fees or
expenses) |
|
|
|
|
S&P
500 Index (Total Return, unhedged, USD) (reflects no deduction for fees or
expenses) |
|
|
|
|
Portfolio
Management |
Goldman
Sachs Asset Management, L.P. is the investment adviser for the Fund (the
“Investment Adviser” or “GSAM”).
Portfolio
Manager: Raj Garigipati, Managing
Director, has managed the Fund since September
2017.
|
Buying
and Selling Fund Shares |
Individual
Shares of the Fund may only be purchased and sold in secondary market
transactions through a broker or dealer at market price. Because Shares trade at
market prices, rather than NAV, Shares of the Fund may trade at a price greater
than NAV (i.e., a
premium) or less than NAV (i.e., a
discount).
You may
incur costs attributable to the difference between the highest price a buyer is
willing to pay for Shares (bid) and the lowest price a seller is willing to
accept for Shares (ask) (the “bid-ask spread”) when buying or selling Shares in
the secondary market.
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
www.gsamfunds.com.
|
Tax
Information |
For
important tax information, please see “Tax Information” on page 26 of the
Prospectus.
|
Payments
to Broker-Dealers and
Other
Financial Intermediaries |
For
important information about financial intermediary compensation, please see
“Payments to Broker-Dealers and Other Financial Intermediaries” on page 26 of
the Prospectus.
9
|
|
|
|
|
Management
Fee |
|
|
Distribution
and Service (12b-1) Fee |
|
|
Other
Expenses |
|
|
Total
Annual Fund Operating Expenses |
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$ |
$ |
$ |
$ |
|
|
|
|
10
|
|
11
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Year |
5
Years |
Since
Inception |
Inception
Date | |
|
Goldman
Sachs Hedge Industry VIP ETF |
|
|
|
|
|
Returns
Before Taxes |
|
|
|
|
|
Returns
After Taxes on Distributions |
|
|
|
|
|
Returns
After Taxes on Distributions and Sale of Fund Shares |
|
|
|
|
|
Goldman
Sachs Hedge Fund VIP Index™ (reflects no deduction for fees or
expenses) |
|
|
|
|
|
S&P
500 Index (Unhedged; reflects no deduction for fees or
expenses) |
|
|
|
|
|
Portfolio
Management |
Goldman
Sachs Asset Management, L.P. is the investment adviser for the Fund (the
“Investment Adviser” or “GSAM”).
Portfolio
Manager: Raj Garigipati, Managing
Director, has managed the Fund since November
2016.
|
Buying
and Selling Fund Shares |
Individual
Shares of the Fund may only be purchased and sold in secondary market
transactions through a broker or dealer at market price. Because Shares trade at
market prices, rather than NAV, Shares of the Fund may trade at a price greater
than NAV (i.e., a
premium) or less than NAV (i.e., a
discount).
You may
incur costs attributable to the difference between the highest price a buyer is
willing to pay for Shares (bid) and the lowest price a seller is willing to
accept for Shares (ask) (the “bid-ask spread”) when buying or selling Shares in
the secondary market.
13
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
www.gsamfunds.com.
|
Tax
Information |
For
important tax information, please see “Tax Information” on page 26 of the
Prospectus.
|
Payments
to Broker-Dealers and
Other
Financial Intermediaries |
For
important information about financial intermediary compensation, please see
“Payments to Broker-Dealers and Other Financial Intermediaries” on page 26 of
the Prospectus.
14
|
|
|
|
|
Management
Fee |
|
|
Distribution
and Service (12b-1) Fee |
|
|
Other
Expenses |
|
|
Total
Annual Fund Operating Expenses |
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$ |
$ |
$ |
$ |
|
|
|
|
15
16
|
|
17
18
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Year |
Since
Inception |
Inception
Date | |
|
Goldman
Sachs Innovate Equity ETF |
|
|
|
|
Returns
Before Taxes |
|
|
|
|
Returns
After Taxes on Distributions |
|
|
|
|
Returns
After Taxes on Distributions and Sale of Fund Shares |
|
|
|
|
Solactive
Innovative Global Equity Index |
|
|
|
|
Portfolio
Management |
Goldman
Sachs Asset Management, L.P. is the investment adviser for the Fund (the
“Investment Adviser” or “GSAM”).
19
Portfolio
Manager: Raj Garigipati, Managing
Director, has managed the Fund since November
2020.
|
Buying
and Selling Fund Shares |
Individual
Shares of the Fund may only be purchased and sold in secondary market
transactions through a broker or dealer at market price. Because Shares trade at
market prices, rather than NAV, Shares of the Fund may trade at a price greater
than NAV (i.e., a premium) or less than NAV (i.e., a discount).
You may
incur costs attributable to the difference between the highest price a buyer is
willing to pay for Shares (bid) and the lowest price a seller is willing to
accept for Shares (ask) (the “bid-ask spread”) when buying or selling Shares in
the secondary market.
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
www.gsamfunds.com.
|
Tax
Information |
For
important tax information, please see “Tax Information” on page 26 of the
Prospectus.
|
Payments
to Broker-Dealers and
Other
Financial Intermediaries |
For
important information about financial intermediary compensation, please see
“Payments to Broker-Dealers and Other Financial Intermediaries” on page 26 of
the Prospectus.
20
|
|
|
|
|
Management
Fee |
|
|
Distribution
and Service (12b-1) Fee |
|
|
Other
Expenses |
|
|
Total
Annual Fund Operating Expenses |
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$ |
$ |
$ |
$ |
|
|
|
|
21
|
|
22
23
|
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|
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|
|
|
|
|
|
|
|
|
|
|
1
Year |
Since
Inception |
Inception
Date | |
|
Goldman
Sachs JUST U.S. Large Cap Equity ETF |
|
|
|
|
Returns
Before Taxes |
|
|
|
|
Returns
After Taxes on Distributions |
|
|
|
|
Returns
After Taxes on Distributions and Sale of Fund Shares |
|
|
|
|
JUST
U.S. Large Cap Diversified Index (reflects no deduction for fees or
expenses) |
|
|
|
|
Russell
1000®
Index (Total Return, Unhedged, USD) (reflects no deduction for fees or
expenses) |
|
|
|
|
Portfolio
Management |
Goldman
Sachs Asset Management, L.P. is the investment adviser for the Fund (the
“Investment Adviser” or “GSAM”).
Portfolio
Manager: Raj Garigipati, Managing
Director, has managed the Fund since June
2018.
|
Buying
and Selling Fund Shares |
Individual
Shares of the Fund may only be purchased and sold in secondary market
transactions through a broker or dealer at market price. Because Shares trade at
market prices, rather than NAV, Shares of the Fund may trade at a price greater
than NAV (i.e., a
premium) or less than NAV (i.e., a
discount).
You may
incur costs attributable to the difference between the highest price a buyer is
willing to pay for Shares (bid) and the lowest price a seller is willing to
accept for Shares (ask) (the “bid-ask spread”) when buying or selling Shares in
the secondary market.
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
www.gsamfunds.com.
24
|
Tax
Information |
For
important tax information, please see “Tax Information” on page 26 of the
Prospectus.
|
Payments
to Broker-Dealers and
Other
Financial Intermediaries |
For
important information about financial intermediary compensation, please see
“Payments to Broker-Dealers and Other Financial Intermediaries” on page 26 of
the Prospectus.
25
Goldman
Sachs Equity ETFs –
Additional Summary Information
Additional Summary Information
|
Tax
Information |
The Funds'
distributions are taxable, and will be taxed as ordinary income or capital
gains, unless you are investing through a tax-deferred arrangement, such as a
401(k) plan or an individual retirement account. Investments made through
tax-deferred arrangements may become taxable upon withdrawal from such
arrangements.
|
Payments
to Broker-Dealers and
Other
Financial Intermediaries |
If you
purchase Shares of a Fund through a broker-dealer or other financial
intermediary (such as a bank), GSAM or other related companies may pay the
intermediary for the sale of Fund Shares or related services. These payments may
create a conflict of interest by influencing the broker-dealer or other
intermediary and your salesperson to recommend a Fund over another investment.
Ask your salesperson or visit your financial intermediary’s website for more
information.
26
Investment
Management Approach
|
INVESTMENT
OBJECTIVE |
The Fund
seeks to provide investment results that closely correspond, before fees and
expenses, to the performance of the Index. The Fund’s investment objective may
be changed without shareholder approval.
|
PRINCIPAL
INVESTMENT STRATEGIES |
Goldman Sachs
Bloomberg Clean Energy Equity ETF
The Fund seeks to achieve
its investment objective by investing at least 80% of its assets (exclusive of
collateral held from securities lending) in securities included in its
underlying index, in depositary receipts representing securities included in its
underlying index and in underlying stocks in respect of depositary receipts
included in its underlying index. Shareholders will be provided with sixty days’
notice in the manner prescribed by the Securities and Exchange Commission
(“SEC”) before any change in the Fund’s policy to invest at least 80% of its
assets in securities included in its underlying index.
The Index is comprised of
equity securities, including ADRs and GDRs. The Fund seeks to invest in the
Index components in approximately the same weighting that such components have
within the Index at the applicable time. The Fund may purchase a sample of
securities in its Index. There may also be instances in which the Investment
Adviser may choose to underweight or overweight a security in the Fund’s Index,
purchase securities not in the Fund’s Index that the Investment Adviser believes
are appropriate to substitute for certain securities in such Index or utilize
various combinations of other available investment techniques. The Fund may sell
securities that are represented in the Index in anticipation of their removal
from the Index or purchase securities not represented in the Index in
anticipation of their addition to the Index. The Fund may also, in order to
comply with the tax diversification requirements of the Internal Revenue Code of
1986, as amended (the “Code”), temporarily invest in securities not included in
the Index that are expected to be correlated with the securities included in the
Index.
The Index is designed to
deliver exposure to companies that are expected to have a significant impact on
energy decarbonization through their exposure to clean energy which includes,
but is not limited to, clean power infrastructure (generation, transmission and
distribution), solar energy, wind energy, energy storage, hydrogen energy,
energy digitalization and bioenergy. The Index is a free float-adjusted market
capitalization-weighted index designed to identify relevant companies using
curated data acquired from a variety of sources by the Index Provider. Some of
the clean energy companies in which the Fund invests may have operations that
involve traditional energy facilities (including oil, gas or other
hydrocarbons).
Given
the Fund’s investment objective of attempting to track the Index, the Fund does
not follow traditional methods of active investment management, which may
involve buying and selling securities based upon analysis of economic and market
factors. Also, unlike many investment companies, the Fund does not attempt to
outperform the Index and does not seek temporary defensive positions when
markets decline or appear overvalued.
The Index Provider
constructs the Index in accordance with a rules-based methodology that involves
three steps.
Step
1:
In the first step, the
Index Provider defines the Universe by identifying securities that are
constituents of the Bloomberg Global Equity Index and classified to be within
clean energy sectors by BNEF. BNEF is a strategic research provider covering
global commodity markets and the disruptive technologies driving the transition
to a low-carbon economy:
Step
2:
In the second step, the
Index Provider screens the Universe for thematic relevance to clean energy and
estimates the proportion of an issuer’s value attributable to clean energy
activities. The Index Provider’s estimates are based on quarterly data reviews
by sector specialists using reported segment revenues, along with any other
available metrics such as segmented EBITDA, alignment with the European Union’s
Taxonomy Regulation, current and planned activities of the issuer, and expected
growth of clean energy-relevant business lines relative to other business
lines.
Thematic relevance is then
divided into four categories based on percentage of a company’s value attributed
to clean energy activities: A4 (Minor Driver of Decarbonization) – 10% or Less,
A3 (Moderate Driver of Decarbonization) – 10% to 24%, A2 (Considerable Driver of
Decarbonization) – 25% to 49% and A1 (Main Driver of Decarbonization) – 50% to
100%. Securities of issuers within category A4 (Minor) or ESG-controversial
securities, and securities with high carbon impact and poor mitigation plans are
excluded from the Index.
27
Step
3:
In the third step, the
Index constituents are grouped by thematic relevance categories to maximize
relevance and impact. Each thematic category is assigned a weighting to maximize
exposure to securities with the greatest impact to de-carbonization as
follows:
◼
60% of the Index weight is
in securities classified as A1 (Main Driver of Decarbonization).
◼
30% of the Index weight is
in securities classified as A2 (Considerable Driver of
Decarbonization).
◼
10% of the index weight is
in securities classified as A3 (Moderate Driver of Decarbonization).
Within each category, the
weight for a single security is capped at a specified level that varies by
category. Any excess weight resulted from capping is redistributed
proportionally across the remaining uncapped securities in the Index
The Index is normally
rebalanced and reconstituted quarterly in March, June, September, and December.
The Index Provider may delay or change a scheduled rebalancing or reconstitution
of the Index or the implementation of certain rules at its sole
discretion.
As of December 1, 2022, the
Index consisted of 180 securities with a market capitalization range of between
approximately $500 million and $615 billion. The components of the Index may
change over time. The percentage of the portfolio exposed to any country or
geographic region will vary from time to time as the weightings of the
securities within the Index change, and the Fund may not be invested in each
country or geographic region at all times.
The Index was developed and
is maintained and calculated by the Index Provider. The Index Provider
determines the composition and relative weightings of the components in the
Index. As a user of the Index, GSAM may, from time to time, provide feedback or
make suggestions that may result in changes to the Index. However, ultimate
decision-making authority regarding index methodology changes will be retained
by the Index Provider. The Fund may hire an affiliate of the Fund and/or the
Investment Adviser to serve as calculation agent and/or index
provider.
The Fund is classified as
“diversified” under the Investment Company Act. However, the Fund may become
“non-diversified” solely as a result of a change in the relative market
capitalization or index weighting of one or more constituents of the Index. A
non-diversified fund may invest a larger percentage of its assets in fewer
issuers than diversified funds.
The Fund may concentrate
its investments (i.e., hold more than 25% of its total assets) in a particular
industry or group of industries to the extent that the Index is concentrated.
The degree to which components of the Index represent certain sectors or
industries may change over time.
Goldman Sachs Equal
Weight U.S. Large Cap Equity ETF
The Fund
seeks to achieve its investment objective by investing at least 80% of its
assets (exclusive of collateral held from securities lending) in securities
included in its underlying index. Shareholders will be provided with sixty days’
notice in the manner prescribed by the Securities and Exchange Commission
(“SEC”) before any change in the Fund’s policy to invest at least 80% of its
assets in securities included in its underlying index.
The Index
consists of equity securities of large capitalization U.S. issuers. The Index is
an equal-weight version of the Solactive US Large Cap Index, a market
capitalization-weighted index that includes equity securities of approximately
500 of the largest U.S. companies. The Index includes the same constituents as
the Solactive US Large Cap Index. However, unlike the Solactive US Large Cap
Index, in which each security is weighted based on its market value, each
security in the Index is given the same weight, approximately 0.2% of the Index,
at each rebalance.
As of December 1, 2022, the
Index consisted of 493 securities with a market capitalization range of between
approximately $9
billion
and
$2.359
trillion, and
an average market capitalization of approximately $75 billion. The Index is
reconstituted on a semi-annual basis in May and November to reflect changes in
the constituents of the Solactive US Large Cap Index. New securities from
initial public offerings are also added on a semi-annual basis in February and
August, subject to fulfillment of certain eligibility criteria. The Index is
rebalanced on a monthly basis to weight all constituents equally. The Index
Provider may delay or change a scheduled rebalancing or reconstitution of an
Index or the implementation of certain rules at its sole discretion.
Given
the Fund’s investment objective of attempting to track the Index, the Fund does
not follow traditional methods of active investment management, which may
involve buying and selling securities based upon analysis of economic and market
factors. Also, unlike many investment companies, the Fund does not attempt to
outperform the Index that it tracks and does not seek temporary defensive
positions when markets decline or appear overvalued.
The Fund
seeks to invest in the Index components in approximately the same weighting that
such components have within the Index at the applicable time. However, under
various circumstances, it may not be possible or practicable to purchase all of
the securities in the Index in the approximate Index weight. In these
circumstances, the Fund may purchase a sample of securities in the Index. There
may also be instances in which the Investment Adviser may choose to underweight
or overweight a security in the Fund’s Index, purchase securities not in the
Fund’s Index that the Investment Adviser believes are appropriate to substitute
for certain securities in such Index or utilize various combinations of other
available investment techniques. The Fund may sell securities that are
represented in the Index
28
Investment
Management Approach
in
anticipation of their removal from the Index or purchase securities not
represented in the Index in anticipation of their addition to the Index. The
Fund may also, in order to comply with the tax diversification requirements of
the Code, temporarily invest in securities not included in the Index that are
expected to be correlated with the securities included in the Index.
The Index
is owned and calculated by Solactive.
The Fund
may concentrate its investments (i.e., hold more than 25% of its total assets)
in a particular industry or group of industries to the extent that the Index is
concentrated. The degree to which components of the Index represent certain
sectors or industries may change over time.
Goldman Sachs Hedge
Industry VIP ETF
The Fund
seeks to achieve its investment objective by investing at least 80% of its
assets (exclusive of collateral held from securities lending) in securities
included in its underlying index, in depositary receipts representing securities
included in its underlying index and in underlying stocks in respect of
depositary receipts included in its underlying index.
The
Investment Adviser anticipates that, generally, the Fund will hold all of the
securities that comprise the Index in approximate proportion to their weightings
in such Index. However, under various circumstances, it may not be possible or
practicable to purchase all of those securities in those weightings. In these
circumstances, the Fund may purchase a sample of securities in the Index. There
also may be instances in which the Investment Adviser may choose to underweight
or overweight a security in the Fund’s Index, purchase securities not in the
Fund’s Index that the Investment Adviser believes are appropriate to substitute
for certain securities in the Index or utilize various combinations of other
available investment techniques. The Fund may sell securities that are
represented in the Index in anticipation of their removal from the Index or
purchase securities not represented in the Index in anticipation of their
addition to the Index. The Fund may also, in order to comply with the tax
diversification requirements of the Code, temporarily invest in securities not
included in the Index that are expected to be correlated with the securities
included in the Index.
Given
the Fund’s investment objective of attempting to track the Index, the Fund does
not follow traditional methods of active investment management, which may
involve buying and selling securities based upon analysis of economic and market
factors. Also, unlike many investment companies, the Fund does not attempt to
outperform the Index that it tracks and does not seek temporary defensive
positions when markets decline or appear overvalued.
The Index
is constructed using a rules-based portfolio construction process.
The Index
is owned and maintained by the Index Provider and calculated by the Calculation
Agent. The Fund may hire an affiliate of the Fund and/or the Investment Adviser
to serve as calculation agent.
Goldman Sachs
Innovate Equity ETF
The Fund
seeks to achieve its investment objective by investing at least 80% of its
assets (exclusive of collateral held from securities lending) in securities
included in its underlying index, in depositary receipts representing securities
included in its underlying index and in underlying stocks in respect of
depositary receipts included in its underlying index. Shareholders will be
provided with sixty days’ notice in the manner prescribed by the SEC before any
change in the Fund’s policy to invest at least 80% of its assets in securities
included in its underlying index.
The
Investment Adviser anticipates that, generally, the Fund will hold all of the
components that comprise the Index in approximate proportion to their weightings
in the Index. However, under various circumstances, it may not be possible or
practicable to purchase all of those components in those weightings. In these
circumstances, the Fund may purchase a sample of securities in the Index. There
also may be instances in which the Investment Adviser may choose to underweight
or overweight a component in the Index, purchase securities not in the Index
that the Investment Adviser believes are appropriate to substitute for certain
components in the Index or utilize various combinations of other available
investment techniques. The Fund may sell securities that are represented in the
Index in anticipation of their removal from the Index or purchase securities not
represented in the Index in anticipation of their addition to the Index. The
Fund may also, in order to comply with the tax diversification requirements of
the Code, temporarily invest in securities not included in the Index that are
expected to be correlated with the securities included in the Index.
Given
the Fund’s investment objective of attempting to track the Index, the Fund does
not follow traditional methods of active investment management, which may
involve buying and selling securities based upon analysis of economic and market
factors. Also, unlike many investment companies, the Fund does not attempt to
outperform the Index and does not seek temporary defensive positions when
markets decline or appear overvalued.
29
The Index
is designed to deliver exposure to companies that may benefit from technological
innovation and the resulting changes in the economy across five key Themes that
are potential drivers of changes in the economy. Each Theme is divided into
multiple Sub-Themes, which are further described in the “Additional Information
about the Themes and Sub-Themes” section below. The Themes are:
◼
Data-Driven
World Theme—Companies
that are positioned to potentially benefit from the unprecedented proliferation
of data, capitalizing on data storage, security and analysis, as well as
artificial intelligence and machine learning.
◼
Finance
Reimagined Theme—Companies
that are positioned to potentially benefit from the evolving financial
landscape, from the digitization of traditional financial services to the
development of blockchain technology.
◼
Human
Evolution Theme—Companies
that are positioned to potentially benefit from advances in medical treatment
and technology, from robotic surgery and precision medicine to gene therapy and
care for an older population.
◼
Manufacturing
Revolution Theme—Companies
that are positioned to potentially benefit from the technology-driven
transformation of the manufacturing industry, including the emergence of new
processes, products and energy sources.
◼
New
Age Consumer Theme—Companies
that are positioned to potentially benefit from structural shifts in the way we
consume goods and services, due to changes in demographics, technology and
consumer preferences.
The Index
is comprised entirely of securities that compose the Solactive Data Driven World
Index, the Solactive Finance Reimagined Index, the Solactive Human Evolution
Index, the Solactive Manufacturing Revolution Index, and the Solactive New Age
Consumer Index (the “Solactive Thematic Indexes”), which are designed to provide
exposure to the Data Driven World Theme, the Finance Reimagined Theme, the Human
Evolution Theme, the Manufacturing Revolution Theme and the New Age Consumer
Theme, respectively. The weight of each index constituent within the Index is
equal to the average weight of such index constituent across the Solactive
Thematic Indexes. In addition, a minimum weight of 0.025% and a maximum weight
of the lesser of 2% or the ADTV of such index constituent multiplied by 10-9
(for example, an ADTV of $10 million would correspond to a maximum weight of 1%)
are applied to each index constituent.
The Index
Provider determines the components of each Solactive Thematic Index in
accordance with a rules-based methodology that involves four steps. The
following index methodology applies to each Solactive Thematic
Index.
Step
1:
In the
first step, the Index Provider defines the Universe. The Universe is comprised
of companies that meet all the below criteria:
◼
The
company’s primary listing must be a regulated stock exchange approved by the
Index Provider;
◼
The
company’s stock must have an ADTV of at least $1,000,000 in U.S.
dollars;
◼
The company
must have a total market capitalization of at least $500,000,000 in U.S.
dollars; and
◼
The company
must not be classified as within certain industries by the FactSet Industries
and Economic Sectors classification in order to minimize non-theme-relevant
exposures in the Index.
Step
2:
In the
second step, the Index Provider screens publicly available information such as
financial news, business profiles, and company publications using keywords that
describe the Theme and its proprietary natural language processing algorithm to
identify companies within the Universe that have or are expected to have
significant exposure to a Sub-Theme. In addition, additional company and/or
third-party information is screened in order to verify a company’s relevance to
at least one of the Sub-Themes. Securities of issuers whose relevance to at
least one of the Sub-Theme cannot be verified is removed from the
Universe.
Step
3:
In the
third step, each company identified in Step 2 is assigned a thematic relevance
score with respect to each Sub-Theme. For each Sub-Theme, the Index Provider
identifies 50 companies with the highest thematic relevance scores. The Index
Provider then combines the thematic relevance scores for all Sub-Themes of each
company identified to calculate such company’s overall score. The top 100
companies with the highest overall scores are included in the Solactive Thematic
Index. In addition, certain buffer rules are applied to prevent excessive
turnover.
Step
4:
In the
fourth step, the Index Provider calculates a thematic beta for each index
constituent, which is a quantitative measurement of the exposure of the index
constituents to the applicable Theme. Index constituents are then weighted
according to a function of its market capitalization and thematic beta, subject
to minimum and maximum weight requirements.
The Index
is normally rebalanced quarterly on the third Friday of each January, April,
July and October. The Index Provider may delay or change a scheduled rebalancing
or reconstitution of the Index or the implementation of certain rules at its
sole discretion.
30
Investment
Management Approach
The Index
was developed and is maintained and calculated by the Index Provider. The Index
Provider determines the composition and relative weightings of the components in
the Index. As a user of the Index, GSAM may, from time to time, provide feedback
or make suggestions that may result in changes to the Index. However, ultimate
decision-making authority regarding index methodology changes will be retained
by the Index Provider. The Fund may hire an affiliate of the Fund and/or the
Investment Adviser to serve as calculation agent and/or index
provider.
As of December 1, 2022, the
Index was comprised of 463 securities that had a market capitalization range of
between approximately $300 million and $2.359
trillion
from issuers
primarily located in Asia, North America and Western Europe. The components of
the Index may change over time. The percentage of the portfolio exposed to any
industry, country or geographic region will vary from time to time as the
weightings of the components within the Index change, and the Fund may not be
invested in each industry, country or geographic region at all
times.
The Fund
may concentrate its investments (i.e., hold more than 25% of its total assets)
in a particular industry or group of industries to the extent that the Index is
concentrated. The degree to which components of the Index represent certain
sectors or industries may change over time.
Goldman Sachs JUST
U.S. Large Cap Equity ETF
The Fund
seeks to achieve its investment objective by investing at least 80% of its
assets (exclusive of collateral held from securities lending) in securities
included in its underlying index, in depositary receipts representing securities
included in its underlying index and in underlying stocks in respect of
depositary receipts included in its underlying index. Shareholders will be
provided with sixty days’ notice in the manner prescribed by the Securities and
Exchange Commission (“SEC”) before any change in the Fund’s policy to invest at
least 80% of its assets in securities included in its underlying
index.
The Index is designed to
deliver exposure to equity securities of large capitalization U.S. issuers that
engage in “just business behavior” based on rankings produced by the Index
Provider. The Index Provider publishes an annual ranking of issuers in the
Reference Index based on their quantitative performance assessment of certain
issue areas which, for the rankings published in 2022, were: how they treat
their workers, their customers, the communities they interact with, the
environment, and their shareholders.
The Index
Provider seeks to encourage greater accountability in the business community and
drive positive change among large publicly-traded U.S. corporations by (a)
defining business behaviors that the American public cares most about (through
extensive qualitative and quantitative survey research), (b) developing metrics
that correspond to these issues in accordance with a robust, transparent
methodology, (c) ranking the largest publicly traded U.S. companies on the basis
of these metrics, and (d) developing tools and products that allow investors to
direct capital towards more “just” companies.
To construct the annual
ranking, the Index Provider conducts representative surveys of the American
public on a regular basis in order to understand what issues represent “just”
corporate behavior, how these issues should be described, and the relative
importance of each issue. For the ranking published in 2022, the Index Provider
utilized the following “drivers” (weighted as indicated), as an indication of
“just” corporate behavior based on its survey research:
◼
Workers (39%)—Components
include payment of living and fair wages, safety in the workplace, and access to
benefits
◼
Customers
(11%)—Components
include non-discrimination policies and customer privacy
◼
Communities
(20%)—Components
include U.S. job creation and avoidance of business relationships with
oppressive or abusive entities
◼
Environment
(10%)—Components
include development and support of sustainable products and minimization of
pollution and efficient use of resources
◼
Shareholders and Governance
(19%)—Components
include accountability to all shareholders, acting ethically, and investor
returns
The Index
Provider develops metrics and collects data on how the companies in the
Reference Index perform across these issues. To assess each metric, the Index
Provider utilizes data derived from various sources, including publicly
available company reports, third-party data vendors, government data, academic
and not-for-profit data, press coverage, and crowd-sourced data. The Index
Provider constructs a ranking model that ranks each company based on these
metrics.
The Index
is a market capitalization-weighted index that consists of the top-ranked 50% of
companies in the Reference Index by industry, based on the most recent rankings
by the Index Provider. On the annual Index reconstitution date, Index
constituent weights are adjusted such that the Index is industry neutral and
matches the Reference Index’s industry weights, based on the ICB industry
classification. The Index Provider determines whether an issuer is a U.S. issuer
by reference to the index methodology of the Reference Index.
31
As of December 1, 2022, the
Index consisted of 457 securities with a market capitalization range of between
approximately $3
billion
and
$2.359
trillion. The
Index is reconstituted annually in December and rebalanced in March, June and
September on dates corresponding to the rebalance dates for the Reference Index.
The Index Provider may delay or change a scheduled rebalancing or reconstitution
of an Index or the implementation of certain rules at its sole discretion. The
components of the Index may change over time. FTSE Russell, which constructs the
Reference Index, will deem an issuer to be a U.S. issuer if it is incorporated
in, has a stated headquarters in, and trades in the U.S.; if any of these do not
match, the Reference Index methodology provides for consideration of certain
additional factors.
Given
the Fund’s investment objective of attempting to track the Index, the Fund does
not follow traditional methods of active investment management, which may
involve buying and selling securities based upon analysis of economic and market
factors. Also, unlike many investment companies, the Fund does not attempt to
outperform the Index that it tracks and does not seek temporary defensive
positions when markets decline or appear overvalued.
The Fund
seeks to invest in the Index components in approximately the same weighting that
such components have within the Index at the applicable time. However, under
various circumstances, it may not be possible or practicable to purchase all of
the securities in the Index in the approximate Index weight. In these
circumstances, the Fund may purchase a sample of securities in the Index. There
may also be instances in which the Investment Adviser may choose to underweight
or overweight a security in the Fund’s Index, purchase securities not in the
Fund’s Index that the Investment Adviser believes are appropriate to substitute
for certain securities in such Index or utilize various combinations of other
available investment techniques. The Fund may sell securities that are
represented in the Index in anticipation of their removal from the Index or
purchase securities not represented in the Index in anticipation of their
addition to the Index. The Fund may also, in order to comply with the tax
diversification requirements of the Internal Revenue Code of 1986, as amended
(the “Code”), temporarily invest in securities not included in the Index that
are expected to be correlated with the securities included in the
Index.
The Index
is calculated by Russell in accordance with the methodology and constituent list
developed and provided by the Index Provider.
The Fund
may concentrate its investments (i.e., hold more than 25% of its total assets)
in a particular industry or group of industries to the extent that the Index is
concentrated. The degree to which components of the Index represent certain
sectors or industries may change over time.
|
ADDITIONAL
INFORMATION ABOUT THE INNOVATE EQUITY ETF THEMES AND
SUB-THEMES |
◼
The
Data-Driven World Theme is separated into the following Sub-Themes.
◼
Internet of
Things Sub-Theme: refers to companies that enable the collection of consumer and
industrial network-connected devices beyond traditional appliances.
◼
Data
Infrastructure Sub-Theme: refers to companies that produce the range of hardware
components needed for transmission and storage of large quantities of data, such
as routers and switches, wired and wireless transmission networks, and
high-density storage.
◼
Cybersecurity
Sub-Theme: refers to companies offering products or services that ensure the
integrity, confidentiality and availability of information.
◼
Digital
Enterprise Sub-Theme: refers to companies developing software technologies
associated with the storage, processing and analytics of large-scale structured
and unstructured data, or to companies enabling the ability of a machine to
perform cognitive tasks typically associated with human brains, such as
perception, reasoning, learning, interacting with the environment and problem
solving.
◼
The Finance
Reimagined Theme is separated into the following Sub-Themes.
◼
Asset
Management Makeover Sub-Theme: refers to companies that may benefit from low
cost, often passive investments such as ETFs and index funds, or high cost,
often complex investments such as private equity and hedge funds.
◼
Blockchain
Sub-Theme: refers to companies that may benefit from the technology underlying
distributed ledgers, applicable to payments, currencies and to other fields and
industries that depend on a trusted intermediary.
32
Investment
Management Approach
◼
Digitization
of Finance Sub-Theme: refers to companies that may benefit from the impact of
technological changes on the support and delivery of traditional financial
services, such as payments, lending and insurance.
◼
The Human
Evolution Theme is separated into the following Sub-Themes.
◼
Genomics
Sub-Theme: refers to companies that may benefit from the study of genomes,
including genome sequencing and bioinformatics, and its application to
healthcare as genomic medicine and pharmacogenomics, including gene therapy,
gene editing and the use of biomarkers.
◼
Robotic
Surgery Sub-Theme: refers to companies developing technology that enables
minimally invasive surgery, as well as the use of miniaturized surgical
instruments and robotic systems to assist in surgical procedures.
◼
Digital
Health Sub-Theme: refers to companies that enable the use of electronic data and
software tools of analysis to assist in healthcare treatment and the development
of drugs.
◼
Human
Evolution Theme Life Extension and Precision Medicine Sub-Theme: refers to
companies developing medical treatments or techniques that are either physically
precise, targeting a specific group or type of cells, or tailored to a group of
patients, or companies developing medical products and services geared towards
managing the health of an aging population.
◼
The
Manufacturing Revolution Theme is separated into the following
Sub-Themes.
◼
Robotics
Sub-Theme: refers to companies that may benefit from the ability of a machine to
perform physical tasks that previously either were not possible or required a
human.
◼
3D Printing
Sub-Theme: refers to companies that may benefit from the additive process of
manufacturing a three-dimensional object from a digital design.
◼
Future
Mobility Sub-Theme: refers to companies that may benefit from road vehicles,
including automobiles and trucks that apply one or both of electrification and
partially or fully autonomous driving capabilities.
◼
Drones
Sub-Theme: refers to companies that may benefit from the development of aerial,
land or sea-based unmanned vehicles, either remotely operated or autonomous,
used in military, consumer or industrial applications.
◼
Clean
Energy Sub-Theme: refers to companies that may benefit from the development of
renewable resources of energy, such as solar, wind and biofuel, as well as
battery technology needed for the storage of intermittent power
sources.
◼
The New Age
Consumer Theme is separated into the following Sub-Themes.
◼
E-commerce
Sub-Theme: refers to companies that may benefit from the purchase and delivery
of goods and services over the internet.
◼
Social
Media Sub-Theme: refers to companies that offer online platforms that connect
people and allow members to interact with one another.
◼
Online
Gaming Sub-Theme: refers to companies offering games that are either partially
or primarily played through the internet, including video games and games that
may have traditionally been delivered in person, such as betting.
◼
Online
Music and Video Sub-Theme: refers to companies offering the digital distribution
of music or video.
◼
Experiences
over Goods Sub-Theme: refers to companies that may benefit from the demand for
experiences, and the goods that relate to those experiences, relative to the
demand for physical goods unrelated to those experiences.
◼
Evolution
of Education Sub-Theme: refers to companies delivering educational materials
over the internet, such as interactive and non-interactive multimedia content,
the streaming of lectures and the delivery of teaching and tutoring services
online, and for-profit education services in emerging markets.
◼
Health and
Wellness Sub-Theme: refers to companies offering consumer health-related goods
and services outside of traditional healthcare, for example relating to
nutrition, exercise and health tracking.
|
OTHER
INVESTMENT PRACTICES AND
SECURITIES |
Although
the Funds’ principal investment strategies are described in the Funds’
Summary—Principal Investment Strategies and Investment Management Approach –
Principal Investment Strategies sections of the Prospectus, the Fund may also
invest up to 20% of its assets in securities and other instruments not included
in its Index but which the Investment Adviser believes are correlated to its
Index, as well as in, among other instruments, futures (including index
futures), swaps, other derivatives, investment companies (including ETFs),
preferred stocks, warrants and rights, cash and cash equivalents and money
market instruments. In addition, the following tables identify some of the
investment techniques that may (but are not required to) be used by the Funds in
seeking to
33
achieve their investment
objective. The Funds may be subject to additional limitations on its investments
not shown here. Numbers in these tables show allowable usage only; for actual
usage, consult the Funds’ annual/semi-annual reports. For more information about
these and other investment practices and securities, see Appendix A. On each
business day, before commencement of trading in Fund Shares on NYSE Arca or
Cboe, the Funds will disclose on its website (http://www.gsamfunds.com) the
identities and quantities of the portfolio securities and other assets held by
the Funds that will form the basis for the Funds’ calculation of NAV at the end
of the business day. In addition, a description of the Funds’ policies and
procedures with respect to the disclosure of the Funds’ portfolio holdings is
available in the Funds’ Statement of Additional Information (“SAI”).
|
10 Percent
of total assets (including securities lending collateral) (italic
type)
10 Percent
of net assets (excluding borrowings for investment purposes) (roman
type)
• No
specific percentage limitation on usage; limited only by the objective and
strategies of the Fund. The Fund
may
only invest up to 20% of its assets in securities and other instruments
not included in its underlying index. |
Bloomberg
Clean
Energy
Equity ETF |
Equal
Weight U.S.
Large
Cap
Equity
ETF |
Hedge
Industry
VIP
ETF |
Innovate
Equity
ETF |
JUST
U.S.
Large
Cap
Equity
ETF |
|
Investment
Practices |
|
|
|
|
|
|
Borrowings |
33 1∕3 |
33 1∕3 |
33 1∕3 |
33 1∕3 |
33 1∕3 |
|
Derivatives,
including futures, options and swaps |
• |
• |
• |
• |
• |
|
Direct
Equity Investments |
|
• |
• |
• |
• |
|
Foreign
Currency Transactions (including forward contracts) |
|
|
|
• |
|
|
Futures |
|
20 |
20 |
20 |
20 |
|
Illiquid
Investments* |
15 |
15 |
15 |
15 |
15 |
|
Investment
Company Securities (including ETFs)** |
10 |
10 |
10 |
10 |
10 |
|
Preferred
Stock, Warrants and Stock Purchase Rights |
• |
• |
• |
• |
• |
|
Repurchase
Agreements |
• |
• |
• |
• |
• |
|
Securities
Lending |
33 1∕3 |
33 1∕3 |
33 1∕3 |
33 1∕3 |
33 1∕3 |
|
Warrants
and Stock Purchase Rights |
|
• |
• |
• |
• |
*
Illiquid
investments are any investments that the Fund reasonably expects cannot be sold
or disposed of in current market conditions in seven calendar days or less
without the sale or disposition significantly changing the market value of the
investment.
**
This
percentage limitation does not apply to the Fund’s investments in other
investment companies where a higher percentage limitation is permitted under the
Investment Company Act or rules,
regulations
or
exemptive
relief
thereunder.
|
• No
specific percentage limitation on usage; limited only by the objective and
strategies of the Fund. |
Bloomberg
Clean
Energy
Equity ETF |
Equal
Weight U.S.
Large
Cap
Equity
ETF |
Hedge
Industry
VIP
ETF |
Innovate
Equity
ETF |
JUST
U.S.
Large
Cap
Equity
ETF |
|
Investment
Securities |
|
|
|
|
|
|
American,
European, and Global Depositary Receipts |
|
|
|
• |
|
|
Emerging
Country Securities |
• |
|
|
• |
|
|
Equity
Investments |
• |
• |
• |
• |
• |
|
Foreign
Securities |
• |
|
• |
• |
|
|
Preferred
Stock, Warrants, and Stock Purchase Rights |
• |
• |
• |
• |
• |
34
Risks of
the Fund
Loss of
money is a risk of investing in the Fund (which, for the remainder of this
Prospectus, refers to one or more of the Funds offered in this Prospectus). An
investment in the Fund is not a bank deposit and is not insured or guaranteed by
the FDIC or any other governmental agency. The principal risks of the Fund are
discussed in the Summary section of the Prospectus. The following section
provides additional information on the risks that apply to the Fund, which may
result in a loss of your investment. The risks applicable to the Fund are
presented below in alphabetical order, and not in the order of importance or
potential exposure. The Fund should not be relied upon as a complete investment
program. With respect to the Hedge Industry VIP ETF, the Fund may be more
volatile and/or underperform relative to broad stock market indices. The Hedge
Industry VIP ETF is not intended to provide exposure to the entire investment
portfolio, including any short positions, of any hedge fund manager, hedge fund
or group of hedge funds or to the investment techniques or strategies employed
by hedge fund managers. There can be no assurance that the Fund will achieve its
investment objective. Investments in the Fund involve substantial risks which
prospective investors should consider carefully before investing.
|
✓ Principal
Risk
• Additional
Risk |
Bloomberg
Clean
Energy
Equity
ETF |
Equal
Weight
U.S.
Large Cap
Equity
ETF |
Hedge
Industry
VIP
ETF |
Innovate
Equity
ETF |
JUST
U.S.
Large
Cap
Equity
ETF |
|
Absence
of Active Market Risk |
• |
• |
• |
• |
• |
|
Asian
Investment Risk |
|
|
|
✓ |
|
|
Authorized
Participant Concentration Risk |
• |
• |
• |
• |
• |
|
Calculation
Methodology Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Clean
Energy Sector Risk |
✓ |
|
|
|
|
|
Cybersecurity
Risk |
• |
• |
• |
• |
• |
|
Depositary
Receipts Risk |
✓ |
|
✓ |
✓ |
|
|
Derivatives
Risk |
• |
• |
• |
• |
• |
|
Emerging
Countries Risk |
✓ |
|
|
• |
|
|
European
Investment Risk |
|
|
|
✓ |
|
|
Expenses
Risk |
• |
|
|
• |
|
|
Financial
Services Industry Group Risk |
|
|
|
• |
|
|
Foreign
Risk |
✓ |
|
• |
✓ |
|
|
Foreign
Custody Risk |
• |
|
• |
• |
|
|
Form
Filings and Public Data Risk |
|
|
✓ |
|
|
|
Geographic
Risk |
• |
|
|
✓ |
|
|
Index
Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Industry
Concentration Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Initial
Public Offering (“IPO”) Risk |
• |
|
|
|
|
|
“Just”
Investing Risk |
|
|
|
|
✓ |
|
Investment
Style Risk |
|
✓ |
✓ |
|
|
|
Large
Shareholder Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Liquidity
Risk |
• |
• |
• |
• |
• |
|
Market
Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Market
Trading Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Mid-Cap
and Small-Cap Risk |
✓ |
|
• |
✓ |
|
|
Portfolio
Turnover Rate Risk |
|
|
✓ |
|
|
|
Secondary
Listing Risk |
• |
• |
• |
• |
• |
|
Seed
Investor Risk |
✓ |
|
|
|
✓ |
|
Stock
Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Technology
Industry Group Risk |
|
|
|
✓ |
|
|
Thematic
Investing Risk |
|
|
|
✓ |
|
|
Tracking
Error Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Trading
Issues Risk |
• |
• |
• |
• |
• |
|
U.S.
Government Securities Risk |
• |
|
|
|
|
|
Valuation
Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
◼
Absence
of Active Market Risk—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 of
authorized participants to submit purchase or redemption orders for Creation
Units. ALPS Distributors, Inc., the distributor of the Shares (the
“Distributor”), does not maintain a secondary market in the Shares.
35
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 or “step away” from 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.
Market makers and authorized participants may be less willing to create or
redeem Fund Shares if there is a lack of an active market for the Shares or its
underlying investments, which may also contribute to the Fund’s Shares trading
at a premium or discount to NAV.
◼
Asian
Investment Risk—Investing
in certain Asian issuers may involve a higher degree of risk and special
considerations not typically associated with investing in issuers from more
established economies or securities markets. Many Asian countries can be
characterized as either developing or newly industrialized economies and tend to
experience more volatile economic cycles than developed countries. Some
countries in the region have in the past experienced currency devaluations that
resulted in high interest rate levels, sharp reductions in economic activity and
significant drops in securities prices. Some countries in the region have in the
past imposed restrictions on converting local currency which prevented foreign
firms from selling assets and repatriating funds. Many countries in the region
have historically encountered political uncertainty, corruption, military
intervention, social unrest and regional armed conflict. Examples include ethnic
and sectarian violence in Indonesia and India, armed conflict between India and
Pakistan and between North Korea and South Korea, and insurgencies in the
Philippines.
◼
Authorized
Participant Concentration Risk—Only an
authorized participant may engage in creation or redemption transactions
directly with the Fund, and the Fund may have a limited number of financial
institutions that act as authorized participants. None of those authorized
participants is obligated to engage in creation and/or redemption transactions.
To the extent that those authorized participants exit the business or are unable
to or choose not to process creation and/or redemption orders, and no other
authorized participant is able to step forward to create and redeem Shares,
there may be a significantly diminished trading market for Shares. As a result,
Shares may trade at a discount (or premium) to NAV and possibly face trading
halts and/or de-listing.
◼
Calculation
Methodology Risk—An index (the “Index”)
relies on various sources of information to assess the criteria of issuers
included in the Index(or the applicable reference index), including information
that may be based on assumptions and estimates. Neither the Fund, the
Investment Adviser nor index provider can offer assurances that the
Index’s calculation methodology or sources of information will provide a correct
valuation of securities, nor can they guarantee the availability or timeliness
of the production of the Index.
◼
Clean
Energy Sector Risk—The Bloomberg Clean Energy
Equity ETF concentrates its investments in the clean energy group of
industries to the extent the Index is concentrated in such group of
industries, and will therefore be susceptible to adverse economic, business,
social, political, environmental, regulatory or other developments affecting
that group of industries. Clean energy companies may be more volatile than
companies operating in more established industries. Certain valuation methods
used to value clean energy companies have not been in widespread use for a
significant period of time and may further increase the volatility of certain
clean energy company share prices. Clean energy companies and other companies
operating in the clean energy group of industries are subject to specific risks,
including, among others: fluctuations in commodity prices and/or interest rates;
changes in governmental or environmental regulation; reduced availability of
clean energy sources or other commodities for transporting, processing, storing
or delivering; slowdowns in new construction; seasonal weather conditions,
extreme weather or other natural disasters; and threats of attack by terrorists
on certain clean energy assets. Clean energy companies can be significantly
affected by the supply of, and demand for, particular energy products, which may
result in overproduction or underproduction. Additionally, changes in the
regulatory environment for clean energy companies may adversely impact their
profitability. Obsolescence of existing technology, short product cycles,
falling prices and profits, competition from new market entrants and general
economic conditions can significantly affect companies in the clean energy group
of industries. Certain investments may be dependent on U.S. and foreign
government policies, including tax incentives and subsidies. Adhering to the
clean energy company criteria and applying the Investment Adviser’s supplemental
clean energy analysis may also affect the Fund’s performance relative to other
energy sector-focused funds that do not adhere to such criteria or apply such
analysis.
Because many clean energy
infrastructure companies enter into long-term contracts for energy off-put, if
their counterparties experience economic stress, there could be subsequent
concerns regarding such long-term contracts. In addition, worsening or extreme
weather conditions, such as droughts, severe storms, and floods, could lead to
lower utilization of clean energy assets than anticipated at the signing of
long-term contracts. Further, as increased capital enters the renewable energy
space, combined with decreasing costs, there may be pressure on power pricing,
which in turn could result in lower rates of returns on certain projects. The
clean energy sector can also be significantly affected by changes in the prices
and supplies of other energy fuels, energy conservation, the success of
exploration projects, tax and other government regulations.
36
Risks
of the Fund
Certain factors may result
negatively contribute to the growth of the clean energy group of industries,
including changes in government policy to no longer focus on clean energy could
result in reduced capital investment in the sector. In addition, long-term clean
energy infrastructure growth is largely dependent on battery storage technology,
which today is insufficient to meet long-term policy goals. Moreover, due to the
volume of clean energy infrastructure needed to meet such policy goals,
construction slowdowns or the inability to construct projects on time could
result in reduced growth for the clean energy group of industries.
◼
Cybersecurity
Risk—The Fund
may be susceptible to operational and information security risks resulting from
cyber-attacks. Cyber-attacks include, among others, stealing or corrupting
confidential information and other data that is maintained online or digitally
for financial gain, denial-of-service attacks on websites causing operational
disruption, and the unauthorized release of confidential information and other
data. Cyber-attacks have the ability to cause significant disruptions and impact
business operations; to result in financial losses; to prevent shareholders from
transacting business; to interfere with the Fund’s calculation of NAV; and to
lead to violations of applicable privacy and other laws, regulatory fines,
penalties, reputational damage, reimbursement or other compensation costs and/or
additional compliance costs. Cyber-attacks affecting the Fund or its Investment
Adviser, custodian, Transfer Agent, or other third-party service providers may
adversely impact the Fund and its shareholders.
◼
Depositary
Receipts Risk—Foreign securities may
trade in the form of depositary receipts, including American Depositary Receipts
(“ADRs”), Global Depositary Receipts (“GDRs”), European Depositary Receipts
(“EDRs”), and Taiwanese Depositary Receipts (“TDRs”) (collectively “Depositary
Receipts”). To the extent the Fund acquires Depositary Receipts through banks
which do not have a contractual relationship with the foreign issuer of the
security underlying the Depositary Receipts to issue and service such
unsponsored Depositary Receipts, there may be an increased possibility that the
Fund would not become aware of and be able to respond to corporate actions such
as stock splits or rights offerings involving the foreign issuer in a timely
manner. In addition, the lack of information may result in inefficiencies in the
valuation of such instruments. Investment in Depositary Receipts does not
eliminate all the risks inherent in investing in securities of non-U.S. issuers.
The market value of Depositary Receipts is dependent upon the market value of
the underlying securities and fluctuations in the relative value of the
currencies in which the Depositary Receipts and the underlying securities are
quoted. The
Fund will not
invest in any Depositary Receipts that the Investment Adviser deems to be
illiquid or for which pricing information is not readily available. The issuers
of Depositary Receipts may discontinue issuing new Depositary Receipts and
withdraw existing Depositary Receipts at any time, which may result in costs and
delays in the distribution of the underlying assets to the Fund and may
negatively impact the Fund’s performance.
◼
Derivatives
Risk—The
Fund’s use of derivatives and other similar instruments
(collectively
referred to in this paragraph as “derivatives”) may result in losses, including
due to adverse market movements. Derivatives, which may pose risks in addition
to and greater than those associated with investing directly in securities,
currencies or other assets and instruments, may increase market exposure and be
illiquid or less liquid, volatile, difficult to price and leveraged so that
small changes in the value of the underlying assets or instruments may produce
disproportionate losses to the Fund. Certain derivatives are also subject to
counterparty risk, which is the risk that the other party in the transaction
will not fulfill,
or lacks the
capacity or authority to fulfill,
its
contractual obligations, liquidity risk,
which includes
the risk that the Fund will not be able to close its derivatives position when
it is advantageous to do so, and risks arising from margin requirements, which
include the risk that the Fund will be required to pay additional margin or set
aside additional collateral to maintain open derivative positions.
The use of
derivatives is a highly specialized activity that involves investment techniques
and risks different from those associated with investments in more traditional
securities and instruments, and there is no guarantee that the use of
derivatives will achieve their intended result. If the Investment Adviser is
incorrect in its expectation of the timing or level of fluctuation in securities
prices, interest rates, currency prices or other variables, the use of
derivatives could result in losses, which in some cases may be significant. A
lack of correlation between changes in the value of derivatives and the value of
the portfolio assets (if any) being hedged could also result in losses. In
addition, there is a risk that the performance of the derivatives or other
instruments used by the Investment Adviser to replicate the performance of a
particular asset class may not accurately track the performance of that asset
class. In addition, the Fund’s use of derivatives may increase or accelerate the
amount of taxes payable by shareholders.
The use of derivatives is
also subject to operational and legal risks. Operational risks generally refer
to risks related to potential operational issues, including documentation
issues, settlement issues, system failures, inadequate controls, and human
error. Legal risks generally refer to risks of loss resulting from insufficient
documentation or legality or enforceability of a contract.
Many of the
protections afforded to cleared transactions, such as the security afforded by
transacting through a clearing house, might not be available in connection with
over-the-counter (“OTC”) transactions. Therefore, in those instances in which
the Fund enters into OTC transactions, the Fund will be subject to the risk that
its direct counterparty will not perform its obligations under the transactions
and that the Fund will sustain losses.
◼
Emerging
Countries Risk—Investments
in securities of issuers located in, or otherwise economically tied to, emerging
countries are subject to the risks associated with investments in foreign
securities. The securities markets of most emerging countries are less liquid,
developed and efficient, are subject to greater price volatility, and have
smaller market capitalizations. In addition, emerging markets and frontier
countries may have more or less government regulation and generally do not
impose as extensive and frequent
37
accounting, auditing,
financial and other reporting requirements as the securities markets of more
developed countries. As a result, there could be less information available
about issuers in emerging and frontier market countries, which could negatively
affect the Investment Adviser’s ability to evaluate local companies or their
potential impact on the Fund’s performance. Further, investments in securities
of issuers located in certain emerging countries involve the risk of loss
resulting from problems in share registration, settlement or custody,
substantial economic, political and social disruptions and the imposition of
sanctions or exchange controls (including repatriation restrictions). The legal
remedies for investors in emerging and frontier markets may be more limited than
the remedies available in the U.S., and the ability of U.S. authorities
(e.g., SEC and the U.S.
Department of Justice) to bring actions against bad actors may be limited. These
risks are not normally associated with investments in more developed countries.
These risks may be greater for frontier markets. For more information about
these risks, see Appendix A.
◼
European
Investment Risk—Adverse regulatory,
economic and political events in Europe may cause the Fund’s investments to
decline in value. The economies and markets of European countries are often
closely connected and interdependent, and events in one country in Europe can
have an adverse impact on other European countries. The Fund makes investments
in securities of issuers that are domiciled in, or have significant operations
in, member countries of the European Union (“EU”) that are subject to economic
and monetary controls that can adversely affect the Fund’s investments. The
European financial markets have experienced volatility and adverse trends in
recent years and these events have adversely affected the exchange rate of the
euro and may continue to significantly affect European countries. On January 31,
2020, the United Kingdom (“UK”) withdrew from the EU (commonly known as
“Brexit”), which has resulted in ongoing market volatility and caused additional
market disruption on a global basis. The UK and the EU signed the EU-UK Trade
and Cooperation Agreement (“TCA”), which is an agreement on the terms governing
certain aspects of the EU’s and UK’s relationship post Brexit. However, under
the TCA, many aspects of the UK-EU relationship remain subject to further
negotiation. Although the full effects of Brexit are unknown at this time,
Brexit may continue to result in fluctuations of exchange rates, increased
illiquidity, inflation, and changes in legal and regulatory regimes to which
certain of the Fund’s assets are subject. These and other effects of Brexit
could negatively impact the value of the Fund’s investments.
◼
Expenses
Risk—By
investing in pooled investment vehicles (including ETFs) indirectly through the
Fund, the investor will incur not only a proportionate share of the expenses of
the other pooled investment vehicles held by the Fund (including operating costs
and investment management fees), but also expenses of the
Fund.
◼
Financial
Services Industry Group Risk—An adverse
development in the financial services industry group, including U.S. and foreign
banks, broker-dealers, insurance companies, finance companies (e.g., automobile
finance) and related asset-backed securities, may affect the value of the Fund's
investments more than if the Fund were not invested to such a degree in this
industry group. Companies in the financial services industry group may be
particularly susceptible to certain economic factors such as interest rate
changes, fiscal, regulatory and monetary policy and general economic cycles. For
example, deteriorating economic and business conditions can disproportionately
impact companies in the financial services industry group due to increased
defaults on payments by borrowers. Moreover, political and regulatory changes
can affect the operations and financial results of companies in the financial
services industry group, potentially imposing additional costs and expenses or
restricting the types of business activities of these
companies.
◼
Foreign
Risk—When the
Fund invests in foreign securities, it may be subject to risk of loss not
typically associated with U.S. issuers. Loss may result because of more or less
foreign government regulation; less public information; less stringent investor
protections;
less stringent
accounting, corporate governance, financial reporting and disclosure standards;
less liquid, developed or efficient trading markets; greater volatility; and
less economic, political and social stability in the countries in which the Fund
invests. Loss may also result from, among other things, deteriorating economic
and business conditions in other countries, including the United States,
regional and global conflicts, the imposition of sanctions, exchange controls
(including repatriation restrictions), foreign taxes, confiscation of assets and
property, trade restrictions (including tariffs), expropriations and other
government restrictions by the United States and other governments, higher
transaction costs, difficulty enforcing contractual obligations or from problems
in share registration, settlement or custody. The type and severity of sanctions
and other similar measures, including counter sanctions and other retaliatory
actions, that may be imposed could vary broadly in scope, and their impact is
impossible to predict. These types of measures may include, but are not limited
to, banning a sanctioned country from global payment systems that facilitate
cross-border payments, restricting the settlement of securities transactions by
certain investors, and freezing the assets of particular countries, entities, or
persons. The imposition of sanctions and other similar measures could, among
other things, cause a decline in the value and/or liquidity of securities issued
by the sanctioned country or companies located in or economically tied to the
sanctioned country, downgrades in the credit ratings of the sanctioned country
or companies located in or economically tied to the sanctioned country,
devaluation of the sanctioned country’s currency, and increased market
volatility and disruption in the sanctioned country and throughout the world.
Sanctions and other similar measures could limit or prevent the Fund from buying
and selling securities
(in the
sanctioned country and other markets), significantly delay or prevent the
settlement of securities transactions, and significantly impact the Fund’s
liquidity and performance. The Fund or the Investment Adviser may determine not
to invest in, or may limit its overall investment in, a particular issuer,
country or geographic region due to, among other things, heightened risks
regarding sanctions, repatriation restrictions, confiscation of assets and
38
Risks
of the Fund
property, expropriation or
nationalization. Such actions may increase the Fund’s tracking error relative to
its Index. Geopolitical developments in certain countries in which the Fund may
invest have caused, or may in the future cause, significant volatility in
financial markets. For
example,
Brexit has
resulted in ongoing market volatility and caused additional market disruption on
a global basis. The UK and the EU signed the TCA, which is an agreement on the
terms governing certain aspects of the EU's and UK's relationship post Brexit.
However, under the TCA, many aspects of the EU-UK relationship remain subject to
further negotiation. Although the full effects of Brexit are unknown at this
time, Brexit may continue to result in fluctuations of exchange rates, increased
illiquidity, inflation, and changes in legal and regulatory regimes to which
certain of the Fund’s assets are subject. These and other geopolitical
developments, including ongoing regional armed conflict in Europe, could
negatively impact the value of the Fund’s investments.
The Fund's investments in
foreign securities may also be subject to foreign currency risk, as described
above, the risk of negative foreign currency rate fluctuations, which may cause
the value of securities denominated in such foreign currency (or other
instruments through which the Fund may have exposure to foreign currencies) to
decline in value. Currency exchange rates may fluctuate significantly over
short periods of time. Foreign risks will normally be greatest when the
Fund invests in securities of issuers located in emerging countries. For more
information about these risks, see Appendix A.
◼
Foreign
Custody Risk—The Fund
may hold foreign securities and cash with foreign banks, agents, and securities
depositories appointed by the Fund’s custodian (each a “Foreign Custodian”).
Some Foreign Custodians may be recently organized or new to the foreign custody
business. In some countries, Foreign Custodians may be subject to little or no
regulatory oversight over or independent evaluation of their operations.
Further, the laws of certain countries may place limitations on the Fund’s
ability to recover its assets if a Foreign Custodian enters bankruptcy.
Investments in emerging markets may be subject to even greater custody risks
than investments in more developed markets. Custody services in emerging
countries are very often under-developed and may be considerably less well
regulated than in more developed countries, and thus may not afford the same
level of investor protection as would apply in developed
countries.
◼
Form
Filings and Public Data Risk—The public
filings (including Form 13F filings) used in the construction of the Index,
which disclose holdings as of the end of each calendar quarter, are filed up to
45 days after the end of the calendar quarter, rendering certain information
stale. Accordingly, a given investor may have already exited positions disclosed
on a form by the time the filing is available to the Fund. Further, Form 13F
filings may only disclose a subset of a particular investor’s holdings, as not
all securities are required to be reported. As a result, a Form 13F may not
provide a complete picture of the holdings of a given investor. Because Form 13F
filings are publicly available, it is possible that other investors are also
monitoring these filings and investing accordingly, which could result in
inflation of the share price of securities included in the
Index.
◼
Geographic
Risk—If the Fund
focuses its investments in securities of issuers located in a particular country
or geographic region, it will subject the Fund, to a greater extent than if
its investments were less focused, to the risks of volatile economic cycles
and/or conditions and developments that may be particular to that country or
region, such as: adverse securities markets; adverse exchange rates; adverse
social, political, regulatory, economic, business, environmental or other
developments; or natural disasters.
◼
Index
Risk—The Fund
will be negatively affected by general declines in the securities and asset
classes represented in the Index. In addition, because the Fund is not
“actively” managed, unless a specific security is removed from the Index, the
Fund generally would not sell a security because the security’s issuer was in
financial trouble. Market disruptions and regulatory restrictions could have an
adverse effect on the Fund’s ability to adjust its exposure to the required
levels in order to track the Index. The Fund also does not attempt to take
defensive positions under any market conditions, including declining markets.
Therefore, the Fund’s performance could be lower than funds that may actively
shift their portfolio assets to take advantage of market opportunities or to
lessen the impact of a market decline or a decline in the value of one or more
issuers.
Neither the
Fund, the Investment Adviser nor the Index Provider guarantee the accuracy,
availability or timeliness of the production of the Index. The Index
Provider may utilize third party data in constructing the Index, but it does not
guarantee the quality, accuracy or availability of such third party data. Errors
in index data, index computation or the construction of the Index in accordance
with its methodology may occur from time to time and may not be identified and
corrected by the Index Provider for a period of time or at all, which may
negatively or positively impact the Fund and its shareholders. For
example, during a period where an Index contains incorrect constituents, the
Fund would have market exposure to such constituents and would be underexposed
to the Index’s other constituents. Unusual market conditions may also
cause the Index Provider to modify, postpone or cancel a scheduled rebalance,
which could cause the Index to vary from its normal or expected composition. The
modification, postponement, or cancellation of a scheduled rebalance could mean
that Index constituents that would otherwise be removed at a rebalance due to
changes in market capitalizations, issuer credit ratings, or other reasons in
accordance with the Index's methodology may remain in the Index and the Fund,
causing the performance and constituents of the Index and the Fund to vary from
those expected under normal conditions.
39
Apart from
scheduled rebalances, the Index Provider or its agents may carry out additional
ad hoc rebalances to the Index in order, for example, to correct an error in the
selection of index constituents. When an Index is rebalanced and the Fund in
turn rebalances its portfolio to attempt to increase the correlation between the
Fund’s portfolio and its Index, any transaction costs and market exposure
arising from such portfolio rebalancing may be borne directly by the Fund and
its shareholders. Therefore, errors and additional ad hoc rebalances carried out
by the Index Provider or its agents to the Index may increase the costs to and
the tracking error risk of the Fund. In addition, any gains from errors by
the Index Provider will be kept by the Fund and its shareholders and any losses
or costs resulting from errors by the Index Provider will be borne by the Fund
and its shareholders.
◼
Industry
Concentration Risk—In following its
methodology, the Index from time to time may be concentrated to a significant
degree in securities of issuers located in a single industry or group of
industries. To the extent that the Index concentrates in the securities of
issuers in a particular industry or group of industries, the Fund also may
concentrate its investments to approximately the same extent. By concentrating
its investments in an industry or group of industries, the Fund may face more
risks than if it were diversified broadly over numerous industries or groups of
industries. If the Index is not concentrated in a particular industry or group
of industries, the Fund will not concentrate in a particular industry or group
of industries.
The
risks generally associated with the sectors in which a Fund is or is expected to
be concentrated are further described
below.
◼
Communication
Services Sector Risk—Companies
in the communication services sector may be subject to the risks of industry
competition, substantial capital requirements, government regulations and
obsolescence of communications products and services due to rapidly-changing
technological landscape.
◼
Consumer
Discretionary Sector Risk—Companies
engaged in the consumer discretionary sector are subject to fluctuations in
supply and demand. These companies may also be adversely affected by changes in
consumer spending trends as a result of world events, political and economic
conditions, volatility in commodity price, fluctuations in exchange rates,
imposition of import controls, increased competition, depletion of resources and
labor relation issues.
◼
Financials
Sector Risk—Companies
in the financials sector may be subject to extensive government regulations that
affect the scope of their activities, the prices they can charge for products
and services, and the amount of capital they must maintain. The profitability of
companies in the financials sector may be particularly susceptible to changes in
interest rates, increased default risk during economic downturns, and credit
rating downgrades. In addition, the financials sector has undergone, and may
continue to undergo, changes, including continuing consolidations, development
of new products and structures and changes to its regulatory framework.
Furthermore, increased government involvement in the financials sector,
including measures such as taking ownership positions in financial institutions,
could adversely affect a Fund’s investments in financial
institutions.
◼
Health
Care Sector Risk—Companies
in the health care sector may be affected by extensive government regulations,
restrictions on government reimbursement for medical expenses, rising costs of
medical products and services, pricing pressure, an increased emphasis on
outpatient services, limited number of products, industry innovation, changes in
technologies and other market developments. Many health care companies are
heavily dependent on patent protection and are subject to extensive litigation
based on product liability and similar claims.
◼
Information
Technology Sector Risk—Companies
in the information technology sector face intense competition, both domestically
and internationally, which may adversely affect their performance. Information
technology companies may have limited product lines, markets, financial
resources or personnel. The products of information technology companies may
face product obsolescence due to rapid technological developments and frequent
new product introduction, unpredictable changes in growth rates and competition
for the services of qualified personnel. Companies in the information technology
sector are heavily dependent on patent protection and the expiration of patents
may adversely affect the profitability of these companies.
◼
Industrials
Sector Risk—Companies
in the industrials sector maybe adversely affected by changes in government
regulations, world events and economic conditions. In addition, companies in the
industrials sector may be adversely affected by environmental damages, product
liability claims and exchange rates.
◼
Initial
Public Offering Risk—The Bloomberg Clean Energy
Equity ETF may invest in shares issued in an IPO. The market value of shares
issued in an IPO will fluctuate considerably due to factors such as the absence
of a prior public market, unseasoned trading, the small number of shares
available for trading and limited information about a company’s business model,
quality of management, earnings growth potential and other criteria used to
evaluate its investment prospects. The purchase of IPO shares may involve high
transaction costs. Investments in IPO shares, which are subject to market risk
and liquidity risk, involve greater risks than investments in shares of
companies that have traded publicly on an exchange for extended periods of time.
When a Fund’s asset base is small, a significant portion of the Fund’s
performance could be attributable to investments in IPOs, because such
investments would have a magnified impact on the Fund. As a Fund’s assets grow,
the effect of the Fund’s investments in IPOs on the Fund’s performance probably
will decline, which could reduce the Fund’s performance.
◼
“Just”
Investing Risk—The Index
is intended to provide exposure to the large cap U.S. equity markets on the
basis of “just business behavior,” which limits the issuers included in the
Index. As a result, the Index may be more volatile than a more
40
Risks
of the Fund
conventional
index. The Fund may outperform or underperform other funds that invest in
similar asset classes but employ different investment styles. In construction of
the Index, the methodology may weigh certain characteristics of “just business
behavior” of an issuer more heavily than the issuer’s performance or returns,
which may result in underperformance. There is no guarantee that the
construction methodology of the Index will accurately provide exposure to
companies that engage in “just business behavior.”
◼
Investment
Style Risk—The Equal
Weight U.S. Large Cap Equity ETF's Index is intended to provide exposure to the
large cap U.S. equity markets on an equal-weighted basis, and as a result the
Index may be more volatile than a more conventional index. The Fund may
outperform or underperform other funds that invest in similar asset classes but
employ different investment styles.
The Hedge
Industry VIP ETF's Index is intended to provide exposure to equity securities
whose performance is expected to influence the long portfolios of hedge funds,
and as a result the Index may be more volatile and/or underperform relative to a
more broad-based conventional index. The Index is not intended to provide
exposure to the entire investment portfolio of any hedge fund.
◼
Large
Shareholder Risk—Certain
large shareholders, including other funds advised by the Investment Adviser, may
from time to time own a substantial amount of the Fund’s Shares. In addition, a
third party investor, the Investment Adviser or an affiliate of the Investment
Adviser, an authorized participant, a lead market maker, or another
entity (i.e., a seed
investor) may invest in the Fund and hold its investment solely to facilitate
commencement of the Fund or to facilitate the Fund’s achieving a specified size
or scale. Any such investment may be held for a limited period of time.
There can be no assurance that any large shareholder would not redeem its
investment. Dispositions of a large number of Shares by these shareholders,
which may occur rapidly or unexpectedly, 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,
rather than executed in the secondary market. To the extent effected in cash,
these redemptions may also force the Fund to sell portfolio securities when it
might not otherwise do so, which may negatively impact the Fund’s NAV and
increase the Fund’s brokerage costs. Such cash redemptions may also accelerate
the realization of taxable income to shareholders, which could make investments
in Shares less tax-efficient than an investment in an ETF that is able to effect
redemptions in-kind. Similarly, large Fund share purchases through an authorized
participant may adversely affect the performance of the Fund to the extent that
the Fund is delayed in investing new cash or otherwise maintains a larger cash
position than it ordinarily would. To the extent these large shareholders
transact in Shares on the secondary market, such transactions may account for a
large percentage of the trading volume on NYSE Arca or Cboe and may, therefore,
have a material upward or downward effect on the market price of the
Shares.
◼
Liquidity
Risk—The Fund
may invest in securities or instruments that trade in lower volumes,
that are less
liquid than other investments
and/or that
may become illiquid or less liquid in response to market developments or adverse
investor perceptions. Investments that are illiquid or that trade in lower
volumes may be more difficult to value. When there is no willing buyer and
investments cannot be readily sold at the desired time or price, the Fund may
have to accept a lower price or may not be able to sell the security or
instrument at all. An inability to sell one or more portfolio positions can
adversely affect the Fund’s value.
Illiquidity
can be caused
by a drop in overall market trading volume, an inability to find a willing
buyer, or legal restrictions on the securities’ resale. To the extent the Fund
engages in cash redemptions, then liquidity risk may also refer to the risk that
the Fund will not be able to pay redemption proceeds within the allowable time
period or without significant dilution to remaining investors’ interests because
of unusual market conditions, an unusually high volume of redemption requests, a
redemption request by a large shareholder (such as a seed investor) or other
reasons. If the Fund is forced to sell securities at an unfavorable time and/or
under unfavorable conditions, such sales may adversely affect the Fund’s NAV and
dilute remaining investors’ interests.
◼
Market
Risk—The value
of the securities in which the Fund invests may go up or down in response
to the prospects of individual companies, particular sectors or governments
and/or general economic conditions throughout the world. Price changes may be
temporary or last for extended periods. The Fund's investments may be
overweighted from time to time in one or more sectors or countries, which
will increase the Fund's exposure to risk of loss from adverse developments
affecting those sectors or countries.
Global economies and
financial markets are becoming increasingly interconnected, and conditions and
events in one country, region or financial market may adversely impact issuers
in a different country, region or financial market. Furthermore, local, regional
and global events such as war, military conflict, acts of terrorism, social
unrest, natural disasters, recessions, inflation, rapid interest rate changes,
supply chain disruptions, sanctions, the spread of infectious illness or other
public health threats could also adversely impact issuers, markets and
economies, including in ways that cannot necessarily be foreseen. The Fund could
be negatively impacted if the value of a portfolio holding were harmed by such
political or economic conditions or events. In addition, governmental and
quasi-governmental organizations have taken a number of unprecedented actions
designed to support the markets. Such conditions, events and actions may result
in greater market risk.
◼
Market
Trading Risk—The NAV of
the Fund and the value of your investment may fluctuate. Market prices of Shares
may fluctuate, in some cases significantly, in response to the Fund’s NAV, the
intraday value of the Fund’s holdings and supply and demand for Shares. The Fund
faces numerous market trading risks, including disruptions to creations and
redemptions, the existence of extreme market volatility or potential lack of an
active trading market for Shares. 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,
41
the shareholder may pay
more for, or receive less than, the underlying value of the Shares,
respectively. The Investment Adviser 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 Index trading
individually or in the aggregate at any point in time. 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, perception of
unreliability of disclosed NAV, and other factors. Any of these factors, among
others, may result in Shares trading at a significant premium or discount to
NAV, which will be reflected in the intraday bid/ask spreads and/or the closing
price of Shares as compared to NAV. During such periods, you may be unable
to sell your Shares or may incur significant losses if you sell your Shares.
Additionally, 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. 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.
An investor
that buys or sells Shares through a broker will likely incur a brokerage
commission or other charge imposed by the broker. In addition, the market price
of Shares, like other exchange-traded securities, includes 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
will 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 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 and that discount is likely to be greatest
during significant market volatility. During such periods, you may be
unable to sell your Shares or may incur significant losses if you sell your
Shares.
Shares of
the Fund, like other publicly-traded securities, may be sold short. Shares are
therefore subject to the risk of price decreases and increased volatility
associated with being sold short.
◼
Mid-Cap
and Small-Cap Risk—The
securities of mid-capitalization and small-capitalization companies involve
greater risks than those associated with larger, more established companies and
may be subject to more abrupt or erratic price movements. Securities of such
issuers may lack sufficient market liquidity to enable the Fund to effect sales
at an advantageous time or without a substantial drop in price. Both
mid-capitalization and small-capitalization companies often have narrower
markets and more limited managerial and financial resources than larger, more
established companies. As a result, their performance can be more volatile and
they face greater risk of business failure, which could increase the volatility
of the Fund's portfolio. Generally, the smaller the company size, the greater
these risks become.
◼
Portfolio
Turnover Rate Risk—The Fund may engage in
frequent trading of portfolio securities to achieve its principal
investment strategy. A high rate of portfolio turnover involves correspondingly
greater expenses borne by the Fund and its shareholders, and may also result in
short-term capital gains taxable to shareholders, but this risk is expected to
be mitigated by in-kind redemptions.
◼
Secondary
Listing Risk—The Fund’s
Shares may be listed or traded on U.S. and non-U.S. stock exchanges other than
the U.S. stock exchange where the Fund’s primary listing is maintained. There
can be no assurance that the Fund’s Shares will continue to trade on any such
stock exchange or in any market or that the Fund’s Shares will continue to meet
the requirements for listing or trading on any exchange or in any market. The
Fund’s Shares may be less actively traded in certain markets than in others, and
investors are subject to the execution and settlement risks and market standards
of the market where they or their broker direct their trades for execution.
Certain information available to investors who trade Fund Shares on a U.S. stock
exchange during regular U.S. market hours may not be available to investors who
trade in other markets, which may result in secondary market prices in such
markets being less efficient. Shares of the Fund may trade in the secondary
market outside of the trading hours of the Fund’s primary exchange. At such
times, Shares may trade with more significant premiums or discounts than might
be experienced otherwise.
◼
Seed
Investor Risk—GSAM
and/or its affiliates may make payments to one or more investors that contribute
seed capital to the Fund. Such payments may continue for a specified period of
time and/or until a specified dollar amount is reached. Those payments will be
made from the assets of GSAM and/or such affiliates (and not the Fund). Seed
investors may contribute all or a majority of the assets in the Fund. There is a
risk that such seed investors may redeem all or part of their investments in the
Fund, particularly after payments from GSAM and/or its affiliates have ceased.
The timing of a redemption by a seed investor could benefit the seed investor.
As with redemptions by other large shareholders, such redemptions could have a
significant negative impact on the Fund, including by reducing the Fund's
liquidity, causing the Fund to realize gains that will be distributed and
taxable to remaining shareholders and increasing the Fund's transaction costs. A
large redemption may also have a material upward or downward effect on the
market price of the Fund's Shares.
42
Risks
of the Fund
◼
Stock
Risk—Stock
prices have historically risen and fallen in periodic cycles. U.S. and
foreign stock markets have experienced periods of substantial price volatility
in the past and may do so again in the future. Stock prices may fluctuate from
time to time in response to the activities of individual companies and in
response to general market and economic conditions. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments, and the stock prices of such companies may suffer a decline in
response.
◼
Technology
Industry Group Risk—The stock
prices of technology and technology-related companies and therefore the value of
the Fund may experience significant price movements as a result of intense
market volatility, worldwide competition, consumer preferences, product
compatibility, product obsolescence, government regulation, excessive investor
optimism or pessimism, or other factors. Many of the products and services
offered by technology companies are subject to the risk of short product cycles.
Certain technology-related companies may face special risks that their products
or services may not prove to be commercially successful. Such companies also may
be subject to risks relating to research and development costs and the
availability and price of components. As product cycles shorten and
manufacturing capacity increases, these companies could become increasingly
subject to aggressive pricing and competition, which hampers
profitability.
◼
Thematic
Investing Risk—The Fund
relies on the Index Provider for the identification of themes and sub-themes and
its performance may suffer if such themes or sub-themes are not correctly
identified or if a theme or sub-theme develops in an unexpected manner.
Performance may also suffer if the stocks included in the Indexes do not benefit
from the development of such themes or sub-themes. A failure to correctly
identify themes or sub-themes or a failure of a theme or sub-theme to develop in
the manner expected by the Index Provider may result from many causes, including
government or other oppositions to certain themes or sub-themes, incorrect or
incomplete demographic or economic data, social and political changes or natural
disasters. In addition, certain themes or sub-themes may go in and out of favor,
which could cause the Fund to outperform or underperform other funds that invest
in similar asset classes but employ different investment strategies. Performance
may also be impacted by the inclusion of non-theme-relevant exposures in an
Index. There is no guarantee that an Index will reflect the theme and sub-theme
exposures intended.
◼
Tracking
Error Risk—Tracking
error is the divergence of the Fund’s performance from that of the Index. The
performance of the Fund may diverge from that of the Index for a number of
reasons. Tracking error may occur because of transaction costs, the Fund’s
holding of cash, differences in accrual of dividends, changes to its Index or
the need to meet new or existing regulatory requirements. Unlike the Fund, the
returns of the Index are not reduced by investment and other operating expenses,
including the trading costs associated with implementing changes to its
portfolio of investments. The frequency at which the Index is rebalanced
may result in higher trading costs for the Fund and, as a result, greater
tracking error. Tracking error risk may be heightened during times of market
volatility or other unusual market conditions. With respect to the Goldman
Sachs Equal Weight U.S. Large Cap Equity ETF, this heightened tracking error
risk may be a result of the methodology used by the Index Provider to rebalance
the Fund's Index, which may cause the Fund to execute corresponding rebalancing
trades at prices that differ materially from the prices used by the Index
Provider to calculate the value of the Fund's Index. To the extent that
the Fund calculates its NAV based on fair value prices and the value of the
Index is based on securities’ closing prices (i.e., the value
of the Index is not based on fair value prices), the Fund’s ability to track the
Index may be adversely affected. The Fund may be required to deviate its
investments from the securities and relative weightings of the Index to comply
with the Investment Company Act, to meet the issuer diversification requirements
of the Code applicable to regulated investment companies, or as a result of
market restrictions or other legal reasons. The Fund’s investments may vary from
the securities of the Index due to the Fund’s inability to invest in certain
securities as a result of legal and compliance restrictions applicable to the
Fund and/or the Investment Adviser and regulatory limits or other restrictions
on securities that may be purchased by the Investment Adviser and its
affiliates. For tax efficiency purposes, the Fund may sell certain securities to
realize losses, which will result in a deviation from the
Index.
◼
Trading
Issues Risk—Trading in
ETF Shares on NYSE Arca or Cboe may be halted due to market conditions or for
reasons that, in the view of the exchange, make trading in ETF Shares
inadvisable. In addition, trading in ETF Shares on NYSE Arca or Cboe is subject
to trading halts caused by extraordinary market volatility pursuant to NYSE
Arca's or Cboe's “circuit breaker” rules. If a trading halt or
unanticipated closing of the exchange occurs, a shareholder may be unable to
purchase or sell ETF Shares. There can be no assurance that the requirements of
NYSE Arca or Cboe necessary to maintain the listing of the Fund will continue to
be met or will remain unchanged.
◼
U.S.
Government Securities Risk—The U.S. government may not
provide financial support to U.S. government agencies, instrumentalities or
sponsored enterprises if it is not obligated to do so by law. U.S. Government
Securities issued by those agencies, instrumentalities and sponsored
enterprises, including those issued by the Federal National Mortgage Association
(“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”) and the
Federal Home Loan Banks, are neither issued nor guaranteed by the U.S. Treasury
and, therefore, are not backed by the full faith and credit of the United
States. The maximum potential liability of the issuers of some U.S. Government
Securities held by the Fund may greatly exceed their current resources,
including any legal right to support from the U.S. Treasury. It is possible that
issuers of U.S. Government Securities will not have the funds to meet their
payment obligations in the future. Fannie Mae and Freddie Mac have been
operating under conservatorship,
43
with the Federal Housing
Finance Agency (“FHFA”) acting as their conservator, since September 2008. The
entities are dependent upon the continued support of the U.S. Department of the
Treasury and FHFA in order to continue their business operations. These factors,
among others, could affect the future status and role of Fannie Mae and Freddie
Mac and the value of their securities and the securities which they guarantee.
Additionally, the U.S. government and its agencies and instrumentalities do not
guarantee the market values of their securities, which may
fluctuate.
◼
Valuation
Risk—The sale
price the Fund could receive for a security may differ from the Fund’s valuation
of the security and may differ from the value used by the Fund's Index,
particularly for securities that trade in low volume or volatile markets or that
are valued using a fair value methodology.Because non-U.S. exchanges may be open
on days when the Fund does not price its Shares, the value of foreign securities
or assets in the Fund's portfolio may change on days when investors will not be
able to purchase or sell the Fund's Shares. The Fund relies on various sources
to calculate its NAV. The information may be provided by third parties that are
believed to be reliable, but the information may not be accurate due to errors
by such pricing sources, technological issues or otherwise. NAV calculation may
also be impacted by operational risks arising from factors such as failures in
systems and technology.
More
information about the Fund’s portfolio securities and investment techniques, and
their associated risks, is provided in Appendix A. You should consider the
investment risks discussed in this section and in Appendix A. Both are important
to your investment choice.
44
Tax
Advantaged Product Structure
Unlike many
conventional mutual funds which are only bought and sold at closing NAVs, the
Shares of the Fund, like Shares of certain other ETFs, have been designed to be
redeemed principally in-kind in Creation Units at each day’s market close. These
in-kind arrangements are designed to mitigate adverse effects on the Fund’s
portfolio that could arise from frequent cash redemption transactions that
affect the NAV of the Fund. Moreover, in contrast to conventional mutual funds,
where frequent redemptions can have an adverse tax impact on taxable
shareholders because of the need to sell portfolio securities which, in turn,
may generate taxable gain, the in-kind redemption mechanism of the Fund, as
applicable, to the extent used, generally is not expected to lead to a tax event
for shareholders whose Shares are not being redeemed. There is no guarantee that
these tax advantages will be realized or will materially reduce the amount of
taxable capital gains distributed by the Fund to
shareholders.
45
Service
Providers
|
INVESTMENT
ADVISER |
|
Investment
Adviser |
Fund |
|
Goldman
Sachs Asset Management, L.P. (“GSAM”)
200
West Street
New
York, NY 10282 |
Goldman
Sachs Bloomberg Clean Energy Equity ETF
Goldman
Sachs Equal Weight U.S. Large Cap Equity ETF
Goldman
Sachs Hedge Industry VIP ETF
Goldman
Sachs Innovate Equity ETF
Goldman
Sachs JUST U.S. Large Cap Equity ETF
|
GSAM has been registered as
an investment adviser with the SEC since 1990 and is an indirect, wholly-owned
subsidiary of The Goldman Sachs Group, Inc. and an affiliate of Goldman
Sachs & Co. LLC (“Goldman Sachs”). Founded in 1869, The Goldman Sachs
Group, Inc. is a publicly-held financial holding company and a leading global
investment banking, securities and investment management firm. As of September
30, 2022, GSAM, including its investment advisory affiliates, had assets under
supervision of approximately $ 2.19 trillion.
The
Investment Adviser is responsible for the day-to-day management of the Fund and
places purchase and sale orders for the Fund’s portfolio transactions in U.S.
and foreign markets. As permitted by applicable law, these orders may be
directed to any executing brokers, dealers, futures commission merchants
(“FCMs”) or other counterparties, including Goldman Sachs and its affiliates.
While the Investment Adviser is ultimately responsible for the management of the
Fund, it is able to draw upon the research and expertise of its asset management
affiliates with respect to managing certain portfolio securities. In addition,
the Investment Adviser has access to proprietary tools developed by Goldman
Sachs (subject to legal, internal, regulatory and Chinese wall restrictions),
and will apply quantitative and qualitative analysis in determining the
appropriate allocations among categories of issuers and types of
securities.
The
Investment Adviser also performs the following additional services for the Fund,
to the extent such services are not required to be performed by others pursuant
to the fund administration and accounting agreement, the custodian agreement,
the transfer agency agreement, distribution agreement or such other agreements
with service providers to the Fund that the Board has approved:
◼
Supervises
non-advisory operations of the Fund, including oversight of vendors hired by the
Fund, oversight of Fund liquidity and risk management, oversight of regulatory
inquiries and requests with respect to the Fund made to the Investment Adviser,
valuation and accounting oversight and oversight of ongoing compliance with
federal and state securities laws, tax regulations, and other applicable
law
◼
Provides
personnel to perform such executive, administrative and clerical services as are
reasonably necessary to provide effective administration of the Fund
◼
Arranges
for: (a) the preparation of all required tax returns, (b) the preparation and
submission of reports to existing shareholders, (c) the periodic updating of
prospectuses and statements of additional information and (d) the preparation of
reports to be filed with the SEC and other regulatory authorities
◼
Maintains the records of
the Fund
◼
Provides
office space and necessary office equipment and services for the Investment
Adviser
◼
Markets the
Fund
An
investment in the Fund may be negatively impacted because of the operational
risks arising from factors such as processing errors and human errors,
inadequate or failed internal or external processes, failures in systems and
technology, changes in personnel, and errors caused by third-party service
providers or trading counterparties. The use of certain investment strategies
that involve manual or additional processing, such as over-the-counter
derivatives, increases these risks. Although the Fund attempts to minimize such
failures through controls and oversight, it is not possible to identify all of
the operational risks that may affect the Fund or to develop processes and
controls that completely eliminate or mitigate the occurrence of such failures.
The Fund and its shareholders could be negatively impacted as a
result.
GSAM may manage other
funds, accounts, additional pooled vehicles and/or separate accounts that have
similar investment strategies to those of the Fund. These funds, pooled vehicles
or accounts may perform differently than the Fund despite their similar
strategies. Because the pooled vehicles may not be registered under the
Investment Company Act, they are subject to fewer regulatory restraints than the
Fund (e.g., fewer trading constraints) and may employ strategies that are not
subject to the same constraints as the Fund.
46
Service
Providers
From time
to time, Goldman Sachs or any of its affiliates may purchase and hold Shares of
the Fund. Goldman Sachs and its affiliates reserve the right to redeem or sell
at any time some or all of the Shares acquired for their own
accounts.
|
MANAGEMENT
FEE AND OTHER EXPENSES |
Pursuant to the Fund’s
Management Agreement, as compensation for its services to the Fund, the
Investment Adviser is entitled to a management fee, computed daily and payable
monthly, at an annual rate listed below (as a percentage of the Fund’s average
daily net assets). Under the Management Agreement, the Investment Adviser is
responsible for substantially all the expenses of the Fund, excluding payments
under the Fund’s 12b-1 plan (if any), interest expenses, taxes, acquired fund
fees and expenses, brokerage fees, costs of holding shareholder meetings and
litigation, indemnification and extraordinary expenses.
|
Fund |
Fee
as a
Percentage
of
Average
Daily
Net
Assets |
|
Bloomberg
Clean Energy Equity ETF |
0.45% |
|
Equal
Weight U.S. Large Cap Equity ETF |
0.09% |
|
Hedge
Industry VIP ETF |
0.45% |
|
Innovate
Equity ETF |
0.50% |
|
JUST
U.S. Large Cap Equity ETF |
0.20% |
The
Investment Adviser may waive a portion of its management fee, including fees
earned as the Investment Adviser to any of the affiliated funds in which the
Fund invests, except those management fees it earns from the Fund’s
investments of cash collateral received in connection with securities lending
transactions in affiliated funds, from time to time, and may discontinue or
modify any such waivers in the future, consistent with the terms of any fee
waiver arrangements that may be in place.
A discussion regarding the
basis for the Board of Trustees’ approval of the Management Agreement for the
Fund is available in the Fund's semi-annual report dated February 28,
2022.
|
FUND
MANAGERS |
The
individuals jointly and primarily responsible for the day-to-day management of
the Fund are listed below. The Fund’s portfolio managers' individual
responsibilities may differ and may include, among other things, oversight and
maintenance of allocations to index securities, selecting the composition of
creation and redemption baskets, general oversight of the implementation
processes and management of the Fund’s portfolio.
|
Name
and Title
|
Fund
Responsibility |
Years
Primarily
Responsible |
Five
Year
Employment
History |
|
Raj
Garigipati
Managing
Director |
Portfolio
Manager—
Bloomberg
Clean Energy
Equity
ETF
Equal
Weight U.S. Large Cap
Equity
ETF
Hedge
Industry VIP ETF
Innovate
Equity ETF
JUST
U.S. Large Cap Equity ETF |
Since
2021
2017
2016
2020
2018 |
Mr.
Garigipati joined the ETF Portfolio Management
team
in 2015. Prior to joining the ETF Portfolio
Management
team, he had been the Chief Risk Officer
of
the Quantitative Investment Strategies team since
2011. |
For
information about portfolio manager compensation, other accounts managed by a
portfolio manager and portfolio manager ownership of securities in the Fund, see
the SAI.
|
DISTRIBUTOR |
ALPS
Distributors, Inc., 1290 Broadway, Suite 1000, Denver, Colorado 80203, serves as
the exclusive distributor of Creation Units of Shares of the Fund pursuant to a
“best efforts” arrangement as provided by a distribution agreement with the
Trust on behalf of the Fund. Shares of the Fund are offered and sold on a
continuous basis by the Distributor, acting as agent. The Distributor does not
maintain a secondary market in the Fund’s Shares.
47
|
TRANSFER
AGENT, CUSTODIAN AND
PROVIDER
OF ADMINISTRATIVE SERVICES |
The Bank of
New York Mellon (“BNYM”), 240 Greenwich Street, New York, New York 10286, serves
as the Trust’s transfer and dividend disbursing agent. Under its transfer agency
agreement with the Trust, BNYM has undertaken with the Trust to provide the
following services with respect to the Fund: (i) perform and facilitate the
performance of purchases and redemptions of Creation Units, (ii) prepare and
transmit by means of Depository Trust Company’s (“DTC”) book-entry system
payments for dividends and distributions on or with respect to the Shares
declared by the Trust on behalf of the Fund, as applicable, (iii) prepare and
deliver reports, information and documents as specified in the transfer agency
agreement, (iv) perform the customary services of a transfer agent and dividend
disbursing agent, and (v) render certain other miscellaneous services as
specified in the transfer agency agreement or as otherwise agreed
upon.
BNYM is the
custodian of the Trust’s portfolio securities and cash. The custodian of the
Trust may change from time to time. BNYM also maintains the Trust’s accounting
records. BNYM may appoint domestic and foreign sub-custodians and use
depositories from time to time to hold securities and other instruments
purchased by the Trust in foreign countries and to hold cash and currencies for
the Trust.
BNYM
provides administrative services pursuant to a fund administration agreement
with the Trust (the “Fund Administration and Accounting Agreement”) pursuant to
which BNYM provides certain services, including, among others, (i) preparation
of certain shareholder reports and communications; (ii) preparation of certain
reports and filings with the SEC; (iii) certain NAV computation services; and
(iv) such other services for the Trust as may be mutually agreed upon between
the Trust and BNYM. For its services under the Fund Administration and
Accounting Agreement, BNYM receives such fees based on a stated percentage of
net assets as are agreed upon from time to time between the parties. In
addition, BNYM is reimbursed for reasonable out-of-pocket expenses incurred in
connection with the Fund Administration and Accounting Agreement. In addition,
an affiliate of BNYM will also provide certain other services for the Trust,
including, (i) providing foreign exchange transaction services and (ii)
executing trades in connection with certain creation and redemption transactions
effected partially in cash. For these services, the BNYM affiliate will receive
compensation based on levels that are negotiated with the Trust and/or the
Investment Adviser. BNYM also provides certain middle office services to GSAM
pursuant to a service agreement.
|
ACTIVITIES
OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER
ACCOUNTS
MANAGED BY GOLDMAN SACHS |
The
involvement of the Investment Adviser, Goldman Sachs and their affiliates in the
management of, or their interest in, other accounts and other activities of
Goldman Sachs will present conflicts of interest with respect to the Fund and
will, under certain circumstances, limit the Fund’s investment activities.
Goldman Sachs is a worldwide, full service investment banking, broker dealer,
asset management and financial services organization and a major participant in
global financial markets that provides a wide range of financial services to a
substantial and diversified client base that includes corporations, financial
institutions, governments and individuals. As such, it acts as a broker-dealer,
investment adviser, investment banker, underwriter, research provider,
administrator, financier, adviser, market maker, trader, prime broker,
derivatives dealer, clearing agent, lender, counterparty, agent, principal,
distributor, investor or in other commercial capacities for accounts or
companies or affiliated or unaffiliated investment funds (including pooled
investment vehicles and private funds) in which one or more accounts, including
the Fund, invest. In those and other capacities, Goldman Sachs and its
affiliates advise and deal with clients and third parties in all markets and
transactions and purchase, sell, hold and recommend a broad array of
investments, including securities, derivatives, loans, commodities, currencies,
credit default swaps, indices, baskets and other financial instruments and
products for their own accounts or for the accounts of their customers and have
other direct and indirect interests in the global fixed income, currency,
commodity, equities, bank loans and other markets in which the Fund directly and
indirectly invests. Thus, it is expected that the Fund will have multiple
business relationships with and will invest in, engage in transactions with,
make voting decisions with respect to, or obtain services from entities for
which Goldman Sachs and its affiliates perform or seek to perform investment
banking or other services. The Investment Adviser and/or certain of its
affiliates are the managers of the Goldman Sachs Funds. The Investment Adviser
and its affiliates earn fees from this and other relationships with the Fund.
Although management fees paid by the Fund to the Investment Adviser and certain
other fees paid to the Investment Adviser’s affiliates are based on asset
levels, the fees are not directly contingent on Fund performance, and the
Investment Adviser and its affiliates will still receive significant
compensation from the Fund even if shareholders lose money. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds which
have investment objectives similar to those of the Fund and/or which engage in
and compete for transactions in the same types of securities, currencies and
instruments as the Fund. Goldman Sachs and its affiliates will not have any
obligation to make available any information regarding their proprietary
activities or strategies, or the activities or strategies used for other
accounts managed by them, for the benefit of the management of the Fund. The
results of the Fund’s investment activities, therefore, will likely differ from
those of Goldman Sachs, its affiliates and other accounts managed by Goldman
Sachs, and it is possible that the Fund could sustain losses during periods in
which Goldman Sachs and its affiliates and other accounts achieve significant
profits on their trading for proprietary or other accounts. In addition, the
Fund may
48
Service
Providers
enter into
transactions in which Goldman Sachs and its affiliates or their other clients
have an adverse interest. For example, the Fund may take a long position in a
security at the same time that Goldman Sachs and its affiliates or other
accounts managed by the Investment Adviser or its affiliates take a short
position in the same security (or vice versa). These and other transactions
undertaken by Goldman Sachs, its affiliates or Goldman Sachs-advised clients
may, individually or in the aggregate, adversely impact the Fund. Transactions
by one or more Goldman Sachs-advised clients or the Investment Adviser may have
the effect of diluting or otherwise disadvantaging the values, prices or
investment strategies of the Fund. The Fund’s activities will, under certain
circumstances, be limited because of regulatory restrictions applicable to
Goldman Sachs and its affiliates, and/or their internal policies designed to
comply with such restrictions. As a global financial services firm, Goldman
Sachs and its affiliates also provide a wide range of investment banking and
financial services to issuers of securities and investors in securities. Goldman
Sachs, its affiliates and others associated with it are expected to create
markets or specialize in, have positions in and/or effect transactions in,
securities of issuers held by the Fund, and will likely also perform or seek to
perform investment banking and financial services for one or more of those
issuers. Goldman Sachs and its affiliates are expected to have business
relationships with and purchase or distribute or sell services or products from
or to distributors, consultants or others who recommend the Fund or who engage
in transactions with or for the Fund.
For more information about
conflicts of interest, see the section entitled “Potential Conflicts of
Interest” in the SAI.
The Fund
will, from time to time, make brokerage and other payments to Goldman Sachs and
its affiliates in connection with the Fund’s portfolio investment transactions,
in accordance with applicable law.
The Fund’s
Board of Trustees may approve a securities lending program where an affiliate of
the Investment Adviser is retained to serve as the securities lending agent for
the Fund to the extent that the Fund engages in the securities lending program.
For these services, the lending agent would receive a fee from the Fund,
including a fee based on the returns earned on the Fund’s investment of the cash
received as collateral for the loaned securities.
49
Distributions
The Fund
pays distributions from its investment income and from net realized capital
gains.
Distributions from net
investment income, if any, are normally declared and paid quarterly for the
Goldman Sachs Equal Weight U.S. Large Cap Equity ETF and Goldman Sachs JUST U.S.
Large Cap Equity ETF, semi-annually for the Goldman Sachs Bloomberg Clean Energy
Equity ETF and annually for the Goldman Sachs Hedge Industry VIP ETF and Goldman
Sachs Innovate Equity ETF and
distributions
from net capital gains, if any, are normally declared and paid annually for the
Fund. In addition, the Fund may occasionally make a distribution at a time when
it is not normally made.
In addition to the net
investment income dividends paid quarterly, semi-annually or annually, as
applicable, the Fund may also earn additional net investment income throughout
the year. Any additional net investment income will be distributed annually as a
declared event and paid to shareholders of record for such events.
From time
to time a portion of the Fund’s distributions may constitute a return of capital
for tax purposes, and/or may include amounts in excess of the Fund’s net
investment income for the period calculated in accordance with generally
accepted accounting principles (“GAAP”).
Dividends
and other distributions on Shares of the Fund are distributed on a pro rata
basis to beneficial owners of such Shares. Dividend payments are made through
DTC Participants and Indirect Participants (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.
50
Shareholder
Guide
|
Buying
and Selling Shares |
Shares of
the Fund may be acquired or redeemed directly from the Fund at NAV only in
Creation Units or multiples thereof, as discussed in the Creations and
Redemptions section of the Prospectus. Only an Authorized Participant (as
defined in the Creations and Redemptions section below) may engage in creation
or redemption transactions directly with the Fund. Once created, Shares of the
Fund generally trade in the secondary market in amounts less than a Creation
Unit.
Shares of
the Fund are listed for trading on a national securities exchange during the
trading day. Shares can be bought and sold throughout the trading day at market
price 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 the 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 primary listing
exchange is for the Hedge Industry VIP ETF, Innovate Equity ETF, and JUST U.S.
Large Cap ETF is NYSE Arca, and the primary listing exchange for the Bloomberg
Clean Energy Equity ETF and Equal Weight U.S. Large Cap Equity ETF is Cboe. NYSE
Arca and Cboe are 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 National Independence Day,
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
or Cboe, 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 or Cboe closes earlier than normal,
the Fund may require orders to create or redeem Creation Units to be placed
earlier in the day. See the SAI for more information.
The Trust’s
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 or Cboe at prevailing market prices, the
risks of frequent trading are limited.
Section 12(d)(1) of the
Investment Company Act restricts investments by registered investment companies
and companies relying on Sections 3(c)(1) or 3(c)(7) of the Investment Company
Act in the securities of other investment companies. Registered investment
companies are permitted to invest in the Fund beyond the limits set forth in
Section 12(d)(1), subject to certain terms and conditions, including that such
investment companies enter into an agreement with the Trust.
The Fund
and the Distributor will have the sole right to accept orders to purchase Shares
and reserve the right to reject any purchase order in whole or in
part.
|
Payments
to Broker-Dealers and Other Financial
Intermediaries |
GSAM and/or
the Distributor (upon direction of the Fund) may make payments to
broker-dealers, registered investment advisers or other financial intermediaries
(each, a “Financial Intermediary”) related to activities that are designed to
make registered representatives, other professionals and individual investors
more knowledgeable about the Fund or for other activities, such as participation
in marketing activities and presentations, educational training programs, the
support or purchase of technology platforms/software and/or reporting systems.
GSAM and/or the Distributor (upon direction of the Fund) may also make payments
to Financial Intermediaries for certain printing, publishing and mailing costs
associated with the Fund or materials relating to exchange-traded funds in
general and/or for the provision of analytical or other data to GSAM or its
affiliates relating to the sales of Fund Shares. In addition, GSAM and/or the
Distributor may make payments to Financial Intermediaries that make Fund Shares
available to their clients or for otherwise promoting the Fund, including
through provision of consultative services to GSAM or its affiliates relating to
51
marketing
of the Fund and/or sale of Fund Shares and other Goldman Sachs Funds. Such
payments, which may be significant to the Financial Intermediary, are not made
by the Fund. Rather, such payments are made by GSAM and/or the Distributor from
their own resources, which may come directly or indirectly in part from
management fees paid by the Fund. Payments of this type are sometimes referred
to as marketing support or 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
marketing support payments it is eligible to receive. Therefore, such payments
to a Financial Intermediary create conflicts of interest between the Financial
Intermediary and its customers and may cause the Financial Intermediary to
recommend the Fund over another investment. More information regarding these
payments is contained in the SAI. A shareholder should contact his or her
Financial Intermediary’s salesperson or other investment professional for more
information regarding any such payments the Financial Intermediary firm may
receive from GSAM and/or the Distributor.
|
Net
Asset Value |
The Fund
generally calculates its NAV as follows:
|
NAV
= |
(Value
of Assets of the Fund)
–
(Liabilities of the Fund) |
|
|
Number
of Outstanding Shares of the
Fund |
The Fund’s NAV per share is
generally calculated by the Fund’s provider of administrative services on each
business day as of the close of regular trading on the New York Stock Exchange
(normally 4:00 p.m. Eastern time) or such other times as the New York Stock
Exchange or NASDAQ market may officially close. The Fund’s investments for which
market quotations are readily available are valued at market value on the basis
of quotations provided by sources. If accurate quotations are not readily
available, if the Fund’s provider of administrative services is unable for other
reasons to facilitate pricing of individual securities or calculate the Fund’s
NAV, or if the Investment Adviser believes that such quotations do not
accurately reflect fair value, the fair value of the Fund’s investments may be
determined in good faith under valuation procedures approved by the Board of
Trustees. Thus, such pricing may be based on subjective judgments and it is
possible that the prices resulting from such valuation procedures may differ
materially from the value realized on a sale. Cases where there is no clear
indication of the value of the Fund’s investments include, among others,
situations where a security or other asset or liability does not have a price
source or a price is unavailable.
Equity
securities listed on an exchange are generally valued at the last available sale
price on the exchange on which they are principally traded.
Fixed
income securities are generally valued on the basis of prices (including
evaluated prices) and quotations provided by pricing services or securities
dealers. Pricing services may use matrix pricing or valuation models, which
utilize certain inputs and assumptions, including, but not limited to, yield or
price with respect to comparable fixed income securities, to determine current
value. Pricing services generally value fixed income securities assuming orderly
transactions of an institutional round lot size, but the Fund may hold or
transact in such securities in smaller odd lot sizes. Odd lots may trade at
lower prices than institutional round lots.
Investments
in other open-end registered investment companies (if any), excluding
investments in ETFs, are valued based on the NAV of those open-end registered
investment companies (which may use fair value pricing as discussed in their
prospectuses). Investments in ETFs will generally be valued at the last sale
price or official closing price on the exchange on which they are principally
traded.
In
addition, the Investment Adviser, consistent with its procedures and applicable
regulatory guidance, may (but need not) determine to make an adjustment to the
previous closing prices of securities in light of significant events, to reflect
what it believes to be the fair value of the securities at the time of
determining the Fund’s NAV. Significant events that could affect a large number
of securities in a particular market may include, but are not limited to:
situations relating to one or more single issuers in a market sector;
significant fluctuations in U.S. or foreign markets; market dislocations; market
disruptions or unscheduled market closings; equipment failures; natural or
man-made disasters or acts of God; armed conflicts; governmental actions or
other developments; as well as the same or similar events which may affect
specific issuers or the securities markets even though not tied directly to the
securities markets. Other significant events that could relate to a single
issuer may include, but are not limited to: corporate actions such as
reorganizations, mergers and buy-outs; corporate announcements, including those
relating to earnings, products and regulatory news; significant litigation;
ratings downgrades; bankruptcies; and trading limits or suspensions.
Fair
valuation involves the risk that the values used by the Fund to price its
investments may be different from those used by other investment companies and
investors to price the same investments.
Foreign
securities may trade in their local markets on days the Fund is closed. As a
result, if the Fund holds foreign securities, its NAV may be impacted on days
when investors may not purchase or sell Fund Shares on the secondary market or
purchase or redeem Creation Units through the Fund.
52
Shareholder
Guide
The Fund
relies on various sources to calculate its NAV. The ability of the Fund’s
provider of administrative services to calculate the NAV per share of the Fund
is subject to operational risks associated with processing or human errors,
systems or technology failures, cyber attacks and errors caused by third party
service providers, data sources, or trading counterparties. Such failures may
result in delays in the calculation of the Fund’s NAV and/or the inability to
calculate NAV over extended time periods. The Fund may be unable to recover any
losses associated with such failures. In addition, if the third party service
providers and/or data sources upon which the Fund directly or indirectly relies
to calculate its NAV or price individual securities are unavailable or otherwise
unable to calculate the NAV correctly, it may be necessary for alternative
procedures to be utilized to price the securities at the time of determining the
Fund’s NAV.
|
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 or multiples thereof. 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 BNYM, as the Trust’s transfer
agent, generally takes place when an Authorized Participant deposits into the
Fund a designated portfolio of securities (including any portion of such
securities for which cash may be substituted) and a specified amount of cash 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 (including any portion of such securities for which cash
may be substituted) held by the Fund and a specified amount of 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.
Please note
the following with respect to the price at which transactions are
processed:
◼
NAV per
Share is generally calculated by the Fund's fund accounting agent on each
business day as of the close of regular trading on the New York Stock Exchange
(normally 4:00 p.m. Eastern time) or such other times as the New York Stock
Exchange or NASDAQ market may officially close. Fund Shares will generally not
be priced on any day the New York Stock Exchange is closed.
◼
The Trust
reserves the right to reprocess creation and redemption transactions that were
processed at a NAV that is subsequently adjusted, and to recover amounts from
(or distribute amounts to) Authorized Participants accordingly based on the
official closing NAV, as adjusted.
◼
The Trust
reserves the right to advance the time by which creation and redemption orders
must be received for same business day credit as otherwise permitted by the
SEC.
◼
Consistent
with industry practice, investment transactions not settling on the same day are
recorded and factored into the Fund’s NAV on the business day following trade
date (T+1). The use of T+1 accounting generally does not, but may, result in a
NAV that differs materially from the NAV that would result if all transactions
were reflected on their trade dates.
53
Note:
The time at which transactions and Shares are priced and the time by which
orders must be received may be changed in case of an emergency or if regular
trading on the New York Stock Exchange is stopped at a time other than its
regularly scheduled closing time. In the event the New York Stock Exchange does
not open for business, the Trust may, but is not required to, open the Fund for
creation and redemption transactions if the Federal Reserve wire payment system
is open. To learn whether the Fund is open for business during this situation,
please call the appropriate phone number located on the back cover of the
Prospectus.
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.
To the
extent the Fund engages in in-kind transactions, the Fund intends to comply with
the U.S. federal securities laws in accepting securities for deposit and
satisfying redemptions with redemption securities by, among other means,
assuring that any securities accepted for deposit and any securities used to
satisfy redemption requests will be sold in transactions that would be exempt
from registration under the Securities Act of 1933, as amended (the “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.
54
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 adviser 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 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
non-corporate 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 their Fund
Shares for at least 61 days during the 121-day period beginning 60 days before
the Fund’s ex-dividend date. The amount of the Fund’s distributions that would
otherwise qualify for this favorable tax treatment will be reduced as a result
of the Fund’s securities lending 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.
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. 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 or high portfolio turnover
rate. Character and tax status of all distributions will be available to
shareholders after the close of each calendar year.
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. Rather than deducting these foreign taxes, if more than 50% of
the Fund’s total assets at the close of a taxable year
consists of
stock or securities of foreign corporations, the Fund may make an election to
treat a proportionate amount of those taxes as constituting a distribution to
each shareholder, which would generally allow you either (i) to credit (subject
to certain holding period and other limitations) that proportionate amount of
taxes against your U.S. Federal income tax liability as a foreign tax credit or
(ii) to take that amount as an itemized deduction.
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.”
55
|
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 , 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 long-term capital gain dividends that were received on the
Shares. Additionally, any loss realized on a sale, exchange or redemption of
Shares of the 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 the 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 and may be subject to
estate tax with respect to their Fund shares. However, withholding is generally
not required on properly reported distributions to non-U.S. investors of
long-term capital gains. Non-U.S. investors generally are not subject to U.S.
federal income tax withholding on certain distributions of interest income
and/or short-term capital gains that are reported by the Fund. It is expected
that the Fund will generally report short-term gains, to the extent
permitted, but the Fund does not intend to report any distributions attributable
to interest income. Therefore, all distributions of interest income will be
subject to withholding when paid to non-U.S. investors.
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 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 with-holding agent to determine whether withholding is
required.
Reporting
to you and the IRS is required annually on Form 1099-B with respect to 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.
56
Index
Provider
Goldman Sachs
Bloomberg Clean Energy Equity ETF
“Bloomberg®” and the Bloomberg Goldman
Sachs Global Clean Energy Index are service marks of Bloomberg Finance L.P. and
its affiliates, including Bloomberg Index Services Limited (“BISL”), the
administrator of the index (collectively, “Bloomberg”), and have been licensed
for use for certain purposes by GSAM. The Fund is not sponsored, endorsed, sold
or promoted by Bloomberg. Bloomberg does not make any representation or
warranty, express or implied, to the owners of or counterparties to the Fund or
any member of the public regarding the advisability of investing in securities
generally or in the Fund particularly. The only relationship of Bloomberg to
GSAM. is the licensing of certain trademarks, trade names and service marks and
of the Index, which is determined, composed and calculated by BISL without
regard to GSAM or the Fund. Bloomberg has no obligation to take the needs of
GSAM or the owners of the Fund into consideration in determining, composing or
calculating the Index. Bloomberg is not responsible for and has not participated
in the determination of the timing of, prices at, or quantities of the Fund to
be issued. Bloomberg shall not have any obligation or liability, including,
without limitation, to Fund customers, in connection with the administration,
marketing or trading of the Fund.
BLOOMBERG DOES NOT
GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA RELATED
THERETO AND SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS
THEREIN. BLOOMBERG DOES NOT MAKE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS
TO BE OBTAINED BY GSAM, OWNERS OF THE FUND OR ANY OTHER PERSON OR ENTITY FROM
THE USE OF THE INDEX OR ANY DATA RELATED THERETO. BLOOMBERG DOES NOT MAKE ANY
EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
INDEX OR ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, TO THE
MAXIMUM EXTENT ALLOWED BY LAW, BLOOMBERG, ITS LICENSORS, AND ITS AND THEIR
RESPECTIVE EMPLOYEES, CONTRACTORS, AGENTS, SUPPLIERS, AND VENDORS SHALL HAVE NO
LIABILITY OR RESPONSIBILITY WHATSOEVER FOR ANY INJURY OR DAMAGES—WHETHER DIRECT,
INDIRECT, CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR OTHERWISE—ARISING IN CONNECTION
WITH THE FUND OR THE INDEX OR ANY DATA OR VALUES RELATING THERETO—WHETHER
ARISING FROM THEIR NEGLIGENCE OR OTHERWISE, EVEN IF NOTIFIED OF THE POSSIBILITY
THEREOF.
Goldman Sachs Equal
Weight U.S. Large Cap Equity ETF
The Goldman
Sachs Equal Weight U.S. Large Cap Equity ETF is not sponsored, promoted, sold or
supported in any other manner by Solactive AG nor does Solactive AG offer any
express or implicit guarantee or assurance either with regard to the results of
using the Solactive US Large Cap Equal Weight Index (GTR) (“Solactive Index”)
and/or Solactive Index trade mark or the Solactive Index Price at any time or in
any other respect. The Solactive Index is calculated and published by Solactive
AG. Solactive AG uses its best efforts to ensure that the Solactive Index is
calculated correctly. Irrespective of its obligations towards Goldman Sachs
Equal Weight U.S. Large Cap Equity ETF, Solactive AG has no obligation to point
out errors in the Solactive Index to third parties including but not limited to
investors and/or financial intermediaries of Goldman Sachs Equal Weight U.S.
Large Cap Equity ETF. Neither publication of a Solactive Index by Solactive AG
nor the licensing of the Solactive Index or Solactive Index trade mark for the
purpose of use in connection with the Goldman Sachs Equal Weight U.S. Large Cap
Equity ETF constitutes a recommendation by Solactive AG to invest capital in
said fund nor does it in any way represent an assurance or opinion of Solactive
AG with regard to any investment in this fund.
Goldman Sachs Hedge
Industry VIP ETF
The Goldman Sachs Hedge
Fund VIP IndexTM is owned and maintained by Goldman Sachs Asset Management,
L.P., an affiliate of the Fund, and calculated by the Calculation Agent. The
Calculation Agent publishes information regarding the market value of the Index.
The Fund may hire an affiliate of the Fund and/or the Investment Adviser to
serve as calculation agent.
GOLDMAN
SACHS ASSET MANAGEMENT, L.P., THE GOLDMAN SACHS GROUP, INC., AND GOLDMAN SACHS
& CO. LLC (COLLECTIVELY, “GOLDMAN SACHS”) DOES NOT GUARANTEE NOR MAKE ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS OR SHAREHOLDERS OF
THE FUND OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF INVESTING IN
SECURITIES GENERALLY OR IN THE FUND PARTICULARLY OR THE ABILITY OF THE INDEX TO
TRACK GENERAL MARKET PERFORMANCE. GOLDMAN SACHS, IN ITS CAPACITY AS THE INDEX
PROVIDER OF THE INDEX, LICENSES CERTAIN TRADEMARKS AND TRADE NAMES TO THE FUND.
GOLDMAN SACHS HAS NO OBLIGATION TO TAKE THE NEEDS OF THE FUND OR THE
SHAREHOLDERS OF THE FUND INTO CONSIDERATION IN DETERMINING, COMPOSING OR
CALCULATING THE INDEX. GOLDMAN SACHS, ITS AFFILIATES AND ANY OF THEIR CLIENTS
MAY HOLD LONG OR SHORT POSITIONS IN SECURITIES HELD BY THE FUND OR IN RELATED
DERIVATIVES, INCLUDING THOSE LINKED TO THE INDEX.
57
GOLDMAN
SACHS DOES NOT GUARANTEE THE ADEQUACY, TIMELINESS, ACCURACY AND/OR THE
COMPLETENESS OF THE INDEX OR ANY DATA RELATED THERETO. GOLDMAN SACHS HEREBY
EXPRESSLY DISCLAIMS ANY AND ALL LIABILITY FOR ANY ERRORS, OMISSIONS, OR
INTERRUPTIONS THEREIN OR IN THE CALCULATION THEREOF. GOLDMAN SACHS MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
MARKS, THE INDEX OR ANY DATA INCLUDED THEREIN AS TO THE RESULTS TO BE OBTAINED
BY THE FUND, THE SHAREHOLDERS, OR ANY OTHER PERSON OR ENTITY FROM USE OF THE
INDEX
OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, GOLDMAN SACHS HEREBY
EXPRESSLY DISCLAIMS ANY AND ALL LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT,
OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
Goldman Sachs
Innovate Equity ETF
The Goldman
Sachs Innovate Equity ETF is not sponsored, promoted, sold or supported in any
other manner by Solactive AG nor does Solactive AG offer any express or implicit
guarantee or assurance either with regard to the results of using the Solactive
Innovative Global Equity Index (“Solactive Index”) and/or Solactive Index trade
mark or the Solactive Index Price at any time or in any other respect. The
Solactive Index is calculated and published by Solactive AG. Solactive AG uses
its best efforts to ensure that the Solactive Index is calculated correctly.
Irrespective of its obligations towards Goldman Sachs Innovate Equity ETF,
Solactive AG has no obligation to point out errors in the Solactive Index to
third parties including but not limited to investors and/or financial
intermediaries of Goldman Sachs Innovate Equity ETF. Neither publication of a
Solactive Index by Solactive AG nor the licensing of the Solactive Index or
Solactive Index trade mark for the purpose of use in connection with the Goldman
Sachs Innovate Equity ETF constitutes a recommendation by Solactive AG to invest
capital in said fund nor does it in any way represent an assurance or opinion of
Solactive AG with regard to any investment in this fund.
Goldman Sachs JUST
U.S. Large Cap Equity ETF
JUST
Capital
Foundation,
Inc.
(“JUST
Capital”), the index provider, is a nonprofit charitable organization that seeks
to provide all of society’s stakeholders—employees, concerned citizens, business
leaders and others—with the information they need to assess how just companies
are in order to build a more just marketplace that better reflects the true
priorities of the American people. The Index furthers JUST Capital’s purposes of
encouraging greater accountability among business corporations with respect to
the issue areas addressed in the Reference Index by providing a practical
application of the issues on which JUST Capital seeks to educate the public and
supporting development of a platform for investors to demand greater social
responsibility from businesses in which the public invests.
Neither JUST Capital nor
any of its affiliates (collectively, the “JUST Parties”) in any way sells,
sponsors, supports, promotes, or endorses the Goldman Sachs JUST U.S. Large Cap
Equity ETF (the “GS ETF”), or has involvement in its operations or distribution.
The JUST US Large Cap Diversified Index (the “JUST Index”) has been licensed by
Russell on an “as is” basis to Goldman Sachs Asset Management L.P. (“Goldman
Sachs”) in connection with Goldman Sachs’ sponsorship of the GS ETF, and JUST
Capital’s only relationship with Goldman Sachs is the licensing of certain
trademarks and trade names of JUST Capital or its affiliates. The JUST Parties
and any other person or entity involved in or related to compiling, computing,
or creating the JUST Index expressly disclaim all representations, warranties,
and liabilities relating to or in connection with the GS ETF (including, without
limitation, any warranties of originality, accuracy, completeness, timeliness,
non-infringement, merchantability, and fitness for a particular
purpose).
No JUST
Party makes any claim, prediction, warranty, or representation whatsoever,
expressly or impliedly, either as to (i) the results to be obtained from the use
of the JUST Index, the GS ETF, or any of the data included in either of the
foregoing, (ii) the level at which the JUST Index or GS ETF is said to stand at
any particular time on any particular day or otherwise, (iii) the suitability of
the JUST Index for the purpose to which it is being put in connection with the
GS ETF, or (iv) the advisability of investing in securities generally or in any
index or ETF, including those provided by Goldman Sachs. No JUST Party has
provided, nor will any provide, any financial or investment advice or
recommendation in relation to the JUST Index or the GS ETF to Goldman Sachs
Asset Management or to its clients. No JUST Party shall be (i) liable (whether
in negligence or otherwise) to any person for any error in the JUST Index or
(ii) under any obligation to advise any person of any error therein. Without
limiting any of the foregoing, in no event shall any JUST Party have any
liability for any direct, indirect, special, incidental, punitive, consequential
(including without limitation lost profits), or any other damages in connection
with the JUST Index or the GS ETF.
Data and
information regarding the JUST Index is proprietary to JUST Capital or its
licensors, and reproduction of such data and information is prohibited except
with the prior written permission of JUST Capital. JUST Index® and JUST
Capital Index® are
trademarks of JUST Capital and have been licensed for use by Goldman Sachs Asset
Management L.P. by JUST Capital and/or its agent.
58
Index
Provider
Frank
Russell Company (“Russell”) acts solely as calculation agent in respect of the
JUST US Large Cap Diversified Index and does not in any way sponsor, support,
promote or endorse the JUST US Large Cap Diversified Index or the Goldman Sachs
JUST U.S. Large Cap Equity ETF. The JUST US Large Cap Diversified Index was
provided on an “as is” basis. Russell, its affiliates and any other person or
entity involved in or related to compiling, computing or creating the JUST US
Large Cap Diversified Index (collectively, the “Russell Parties”) expressly
disclaim all warranties (including, without limitation, any warranties of
originality, accuracy, completeness, timeliness, non-infringement,
merchantability and fitness for a particular purpose).
Russell
does not make any claim, prediction, warranty or representation whatsoever,
expressly or impliedly, either as to (i) the results to be obtained from the use
of the JUST US Large Cap Diversified Index (upon which the Goldman Sachs JUST
U.S. Large Cap Equity ETF is based), (ii) the figure at which the JUST US Large
Cap Diversified Index is said to stand at any particular time on any particular
day or otherwise, or (iii) the suitability of the JUST US Large Cap Diversified
Index for the purpose to which it is being put in connection with the Goldman
Sachs JUST U.S. Large Cap Equity ETF. Russell has not provided and will not
provide any financial or investment advice or recommendation in relation to the
JUST US Large Cap Diversified Index to Goldman Sachs Asset Management or to its
clients. The JUST US Large Cap Diversified Index is calculated by Russell or its
agent as calculation agent. Russell shall not be (a) liable (whether in
negligence or otherwise) to any person for any error in the Index or (b) under
any obligation to advise any person of any error therein.
Without
limiting any of the foregoing, in no event shall any Russell Party have any
liability for any direct, indirect, special, incidental, punitive, consequential
(including without limitation lost profits) or any other damages in connection
with the JUST US Large Cap Diversified Index or the Goldman Sachs JUST U.S.
Large Cap Equity ETF.
59
Other
Information
|
PREMIUM/DISCOUNT
INFORMATION |
Information
regarding how often Shares of the Fund, as applicable, traded on NYSE Arca or
Cboe at a price above (i.e., premium)
or below (i.e., discount)
to the NAV of the Fund during the past calendar year and subsequent quarters can
be found at www.gsamfunds.com.
|
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 which 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
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(a)(3)(C) of the Securities Act, would be unable to take advantage of the
prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act.
This is because the prospectus delivery exemption in Section 4(a)(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(a)(3)(A) of the Securities Act would be unable to take
advantage of the prospectus delivery exemption provided by Section 4(a)(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 or Cboe is
satisfied by the fact that the prospectus is available at NYSE Arca or Cboe 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 Investment Adviser may purchase
and resell Fund Shares pursuant to the Prospectus.
|
DISTRIBUTION
AND SERVICE PLAN |
The Board of Trustees of
the Trust has adopted a distribution and service plan (“Plan”) pursuant to Rule
12b-1 under the Investment Company Act. Under the Plan, the Fund is authorized
to pay distribution fees in connection with the sale and distribution of its
Shares and pay service fees in connection with the provision of ongoing services
to shareholders of the Fund and the maintenance of shareholder accounts in an
amount up to 0.25% of its average daily net assets each year.
No Rule 12b-1 fees are
currently paid by the Fund, and there are no current plans to impose these fees.
However, in the event Rule 12b-1 fees are charged in the future, because these
fees are paid out of the Fund’s assets on an ongoing basis, these fees will
increase the cost of your investment in the Fund. By purchasing Shares subject
to distribution fees and service fees, you may pay more over time than you would
by purchasing Shares with other types of sales charge arrangements. Long-term
shareholders may pay more than the economic equivalent of the maximum front-end
sales charge permitted by the rules of FINRA. The net income attributable to
Shares will be reduced by the amount of distribution fees and service fees and
other expenses of the Fund.
60
Appendix
A
Additional
Information on Portfolio Risks, Securities and Techniques
|
A. General
Portfolio Risks |
The Fund
will be subject to the risks associated with equity investments. “Equity
investments” may include common stocks, preferred stocks, interests in real
estate investment trusts (“REITs”), convertible debt obligations, convertible
preferred stocks, equity interests in trusts, partnerships, joint ventures,
limited liability companies and similar enterprises, other investment companies
(including ETFs), warrants, stock purchase rights and synthetic and derivative
instruments (such as swaps and futures contracts) that have economic
characteristics similar to equity securities. In general, the values of equity
investments fluctuate in response to the activities of individual companies and
in response to general market and economic conditions. Accordingly, the values
of the equity investments that the Fund holds may decline over short or extended
periods. The stock markets tend to be cyclical, with periods when stock prices
generally rise and periods when prices generally decline. This volatility means
that the value of your investment in the Fund may increase or decrease. In
recent years, certain stock markets have experienced substantial price
volatility. To the extent the Fund’s net assets decrease or increase in the
future due to price volatility or share redemption or purchase activity, the
Fund’s expense ratio may correspondingly increase or decrease from the expense
ratio disclosed in the Prospectus.
To the
extent the Fund invests in pooled investment vehicles (including investment
companies and ETFs) and partnerships, the Fund will be affected by the
investment policies, practices and performances of such entities in direct
proportion to the amount of assets the Fund invests therein.
The
following sections provide further information on certain types of securities
and investment techniques that may be used by the Fund, including their
associated risks. To the extent the Fund purchases these securities and engages
in these investment techniques, the Fund will also be subject to these risks.
Additional information is provided in the SAI, which is available upon request.
Among other things, the SAI describes certain fundamental investment
restrictions that cannot be changed without shareholder approval. You should
note, however, that all investment objectives, and all investment policies not
specifically designated as fundamental are non-fundamental and may be changed
without shareholder approval. If there is a change in the Fund’s investment
objective, you should consider whether the Fund remains an appropriate
investment in light of your then current financial position and
needs.
|
B.
Other Portfolio Risks |
Risks
of Investing in Mid-Capitalization and Small-Capitalization Companies.
The Fund
may, to the extent consistent with its investment policies, invest in mid- and
small-capitalization companies. Investments in mid- and small-capitalization
companies involve greater risk and portfolio price volatility than investments
in larger capitalization stocks. Among the reasons for the greater price
volatility of these investments are the less certain growth prospects of smaller
firms and the lower degree of liquidity in the markets for such securities. Mid-
and small-capitalization companies may be thinly traded and may have to be sold
at a discount from current market prices or in small lots over an extended
period of time. In addition, these securities are subject to the risk that
during certain periods the liquidity of particular issuers or industries, or all
securities in particular investment categories, will shrink or disappear
suddenly and without warning as a result of adverse economic or market
conditions, or adverse investor perceptions whether or not accurate. Because of
the lack of sufficient market liquidity, the Fund may incur losses because it
will be required to effect sales at a disadvantageous time and only then at a
substantial drop in price. Mid- and small-capitalization companies include
“unseasoned” issuers that do not have an established financial history; often
have limited product lines, markets or financial resources; may depend on or use
a few key personnel for management; and may be susceptible to losses and risks
of bankruptcy. Mid- and small-capitalization companies may be operating at a
loss or have significant variations in operating results; may be engaged in a
rapidly changing business with products subject to a substantial risk of
obsolescence; may require substantial additional capital to support their
operations, to finance expansion or to maintain their competitive position; and
may have substantial borrowings or may otherwise have a weak financial
condition. In addition, these companies may face intense competition, including
competition from companies with greater financial resources, more extensive
development, manufacturing, marketing, and other capabilities, and a larger
number of qualified managerial and technical personnel. Transaction costs for
these investments are often higher than those of larger capitalization
companies. Investments in mid- and small-capitalization companies may be more
difficult to price precisely than other types of securities because of their
characteristics and lower trading volumes.
Risks
of Derivative Investments. The Fund
may invest in derivative instruments, including without limitation, options,
futures, options on futures, forwards, participation notes, swaps, options on
swaps, structured securities and other derivatives relating to foreign currency
transactions. Losses from derivative instruments can result from a lack of
correlation between changes in the value of derivative instruments and the
portfolio assets (if any) being hedged, the potential illiquidity of the markets
for derivative instruments, the failure of the counterparty to perform its
contractual obligations, or the risks related to leverage factors associated
with such
61
transactions.
Derivatives are also subject to risks arising from margin requirements, which
include the risk that the Fund will be required to pay additional margin or set
aside additional collateral to maintain open derivative positions and the risk
of loss by the Fund of margin deposits in the event of the bankruptcy or other
similar insolvency with respect to a broker or counterparty with whom the Fund
has an open derivative position. Losses may also arise if the Fund receives cash
collateral under the transactions and some or all of that collateral is invested
in the market. To the extent that cash collateral is so invested, such
collateral will be subject to market depreciation or appreciation, and the Fund
may be responsible for any loss that might result from its investment of the
counterparty’s cash collateral. If cash collateral is not invested, the Fund may
be exposed to additional risk of loss in the event of the insolvency of its
custodian holding such collateral. The use of these management techniques also
involves the risk of loss if the Investment Adviser is incorrect in its
expectation of the timing or level of fluctuations in securities prices,
interest rates, currency prices or other variables. Derivative instruments may
be harder to value, subject to greater volatility and more likely subject to
changes in tax treatment than other investments.
Risks
of Illiquid Investments. The Fund
may not acquire any “illiquid investment” if, immediately after the acquisition,
the Fund would have invested more than 15% of its net assets in illiquid
investments that are assets. An “illiquid investment” is any investment that the
Fund reasonably expects cannot be sold or disposed of in current market
conditions in seven calendar days or less without the sale or disposition
significantly changing the market value of the investment. In determining
whether an investment is an illiquid investment, the Investment Adviser will
take into account actual or estimated daily transaction volume of an investment,
group of related investments or asset class and other relevant market, trading,
and investment-specific considerations. In addition, in determining the
liquidity of an investment, the Investment Adviser must determine whether
trading varying portions of a position in a particular portfolio investment or
asset class, in sizes that the Fund would reasonably anticipate trading, is
reasonably expected to significantly affect its liquidity, and if so, the Fund
must take this determination into account when classifying the liquidity of that
investment or asset class.
Investments
purchased by the Fund that are liquid at the time of purchase may subsequently
become illiquid. If one or more investments in the Fund’s portfolio become
illiquid, the Fund may exceed the 15 percent limitation in illiquid investments.
In the event that changes in the portfolio or other external events cause the
Fund to exceed this limit, the Fund must take steps to bring its illiquid
investments that are assets to or below 15% of its net assets within a
reasonable period of time. This requirement would not force the Fund to
liquidate any portfolio instrument where the Fund would suffer a loss on the
sale of that instrument.
In cases
where no clear indication of the value of the Fund’s portfolio instruments is
available, the portfolio instruments will be valued at their fair value
according to the valuation procedures approved by the Board of Trustees. These
cases include, among others, situations where a security or other asset or
liability does not have a price source, or the secondary markets on which an
investment has previously been traded are no longer viable, due to its lack of
liquidity. For more information on fair valuation, please see “Shareholder
Guide—Net Asset Value.”
Foreign
Custody Risk. The Fund
may hold foreign securities and cash with Foreign Custodians. Some Foreign
Custodians may be recently organized or new to the foreign custody business. In
some countries, Foreign Custodians may be subject to little or no regulatory
oversight over or independent evaluation of their operations. Further, the laws
of certain countries may place limitations on the Fund’s ability to recover
assets if a Foreign Custodian enters bankruptcy. Investments in emerging market
countries may be subject to even greater custody risks than investments in more
developed markets. Custody services in emerging market countries are very often
undeveloped and may be considerably less well regulated than in more developed
countries, and thus may not afford the same level of investor protection as
would apply in developed countries.
Geographic
Risk. If the
Fund focuses its investments in securities of issuers located in a particular
country or geographic region, the Fund may be subjected to a greater extent than
if investments were less focused, to the risks of volatile economic cycles
and/or conditions and developments that may be particular to that country or
region, such as: adverse securities markets; adverse exchange rates; adverse
social, political, regulatory, economic, business, environmental or other
developments; or natural disasters.
Risks
of Emerging Countries. The Fund
may invest in securities of issuers located in, or otherwise economically tied
to, emerging countries. The risks of foreign investment are heightened when the
issuer is located in an emerging country. Emerging countries are generally
located in Africa, Asia, the Middle East, Eastern and Central Europe, and
Central and South America. The Fund’s purchase and sale of portfolio securities
in certain emerging countries may be constrained by limitations relating to
daily changes in the prices of listed securities, periodic trading or settlement
volume and/or limitations on aggregate holdings of foreign investors. Such
limitations may be computed based on the aggregate trading volume by or holdings
of the Fund, its investment adviser, its affiliates and its respective clients
and other service providers. The Fund may no