PRINCIPAL
EXCHANGE-TRADED FUNDS
The date of this Prospectus is
November 1, 2019
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Fund |
Ticker
Symbol |
Principal
U.S. Listing Exchange |
Principal Active Global
Dividend Income ETF |
GDVD |
Cboe BZX Exchange,
Inc. |
Principal Active Income
ETF |
YLD |
NYSE Arca |
Principal Contrarian Value
Index ETF |
PVAL |
The Nasdaq Stock Market
LLC |
Principal Healthcare
Innovators Index ETF |
BTEC |
The Nasdaq Stock Market
LLC |
Principal International
Multi-Factor Core Index ETF |
PDEV |
The Nasdaq Stock Market
LLC |
Principal Investment Grade
Corporate Active ETF |
IG |
NYSE Arca |
Principal Millennials Index
ETF |
GENY |
The Nasdaq Stock Market
LLC |
Principal Price Setters Index
ETF |
PSET |
The Nasdaq Stock Market
LLC |
Principal Shareholder Yield
Index ETF |
PY |
The Nasdaq Stock Market
LLC |
Principal Spectrum Preferred
Securities Active ETF |
PREF |
Cboe BZX Exchange,
Inc. |
Principal Sustainable Momentum
Index ETF |
PMOM |
The Nasdaq Stock Market
LLC |
Principal Ultra-Short Active
Income ETF |
USI |
NYSE Arca |
Principal U.S. Large-Cap
Multi-Factor Core Index ETF |
PLC |
The Nasdaq Stock Market
LLC |
Principal U.S. Mega-Cap
Multi-Factor Index ETF |
USMC |
The Nasdaq Stock Market
LLC |
Principal U.S. Small-Cap
Multi-Factor Index ETF |
PSC |
The Nasdaq Stock Market
LLC |
Principal U.S. Small-MidCap
Multi-Factor Core Index ETF |
PSM |
The Nasdaq Stock Market
LLC |
Beginning on
November 1, 2021, as permitted by regulations adopted by the Securities and
Exchange Commission, paper copies of the Fund’s annual and semi-annual
shareholder reports will no longer be sent by mail, unless you specifically
request paper copies of the report. Instead, the reports will be made available
on a website, and you will be notified by mail each time a report is posted and
provided with a website link to access the report.
If you already
elected to receive such reports electronically, you will not be affected by this
change and you do not need to take any action. If you have not previously
elected electronic delivery and you own these shares through a financial
intermediary, you may contact your financial intermediary to enroll in
electronic delivery. Please note that not all financial intermediaries may offer
this service. You may elect to receive all future reports in paper free of
charge.
If you own these
shares through a financial intermediary, you may contact your financial
intermediary or follow instructions included with this disclosure to elect to
continue to receive paper copies of reports. Your election to receive reports in
paper will apply to all funds with the Fund complex or to the shares you own
through your financial intermediary.
The Securities and Exchange
Commission has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
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TABLE OF
CONTENTS |
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FUND SUMMARIES |
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PRINCIPAL ACTIVE GLOBAL
DIVIDEND INCOME ETF |
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PRINCIPAL ACTIVE INCOME
ETF |
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PRINCIPAL CONTRARIAN VALUE
INDEX ETF |
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PRINCIPAL HEALTHCARE
INNOVATORS INDEX ETF |
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PRINCIPAL INTERNATIONAL
MULTI-FACTOR CORE INDEX ETF |
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PRINCIPAL INVESTMENT GRADE
CORPORATE ACTIVE ETF |
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PRINCIPAL MILLENNIALS INDEX
ETF |
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PRINCIPAL PRICE SETTERS INDEX
ETF |
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PRINCIPAL SHAREHOLDER YIELD
INDEX ETF |
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PRINCIPAL SPECTRUM PREFERRED
SECURITIES ACTIVE ETF |
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PRINCIPAL SUSTAINABLE MOMENTUM
INDEX ETF |
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PRINCIPAL ULTRA-SHORT ACTIVE
INCOME ETF |
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PRINCIPAL U.S. LARGE-CAP
MULTI-FACTOR CORE INDEX ETF |
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PRINCIPAL U.S. MEGA-CAP
MULTI-FACTOR INDEX ETF |
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PRINCIPAL U.S. SMALL-CAP
MULTI-FACTOR INDEX ETF |
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PRINCIPAL U.S. SMALL-MIDCAP
MULTI-FACTOR CORE INDEX ETF |
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ADDITIONAL INFORMATION ABOUT
INVESTMENT STRATEGIES AND RISKS |
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PORTFOLIO HOLDINGS
INFORMATION |
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MANAGEMENT OF THE
FUNDS |
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DISTRIBUTOR AND OTHER FUND
SERVICE PROVIDERS |
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PRICING OF FUND
SHARES |
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PURCHASE AND SALE OF
FUND SHARES |
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DIVIDENDS AND
DISTRIBUTIONS |
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FREQUENT PURCHASES AND
REDEMPTIONS |
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TAX
CONSIDERATIONS |
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DISTRIBUTION PLANS AND
INTERMEDIARY COMPENSATION |
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FUND ACCOUNT
INFORMATION |
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APPENDIX A - DESCRIPTION
OF BOND RATINGS |
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APPENDIX B - FINANCIAL
HIGHLIGHTS |
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ADDITIONAL
INFORMATION |
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PRINCIPAL ACTIVE
GLOBAL DIVIDEND INCOME ETF
Objective: The Fund seeks current income and
long-term growth of income and capital.
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund ("Shares").
Investors may pay brokerage commissions on their purchases and sales of Shares,
which are not reflected in the table or the example below.
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
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Management Fees |
0.58% |
Other Expenses |
—% |
Total Annual
Fund Operating Expenses (1) |
0.58% |
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(1) |
The investment management
agreement (the “Management Agreement”) between the Fund and Principal
Global Investors, LLC (“PGI”) provides that, for the duration of the
Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan
(if or when such fees are imposed), brokerage commissions and other
expenses connected to the execution of portfolio transactions, interest
expense, taxes, acquired fund fees and expenses, litigation expenses and
other extraordinary expenses. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. The Example also assumes
that your investment has a 5% return each year and that the Fund’s operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
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1
year |
3
years |
5
years |
10
years |
Principal Active Global
Dividend Income ETF |
$59 |
$186 |
$324 |
$726 |
Portfolio
Turnover
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. During the most recent fiscal
year, the Fund's annualized portfolio turnover rate was 31.5 % of the average value of its
portfolio.
Principal
Investment Strategies
The Fund is an actively managed
exchange-traded fund (“ETF”) that seeks to achieve its investment objective by
investing, under normal circumstances, at least 80% of its net assets, plus any
borrowings for investment purposes, in dividend-paying equity securities at the
time of purchase. The advisor uses quantitative screens (such as dividend yield,
return on invested capital, free cash flow and revenue growth metrics), followed
by qualitative research on an industry level (such as supply/demand
characteristics, near term expectation and longer term outlook) and on a company
level (such as competitive advantage, financial strength, and potential for
profitability) to identify companies it believes have the commitment and
capacity to pay dividends and whose potential for growth of capital is expected
to be above average.
The Fund invests in equity
securities of small, medium, and large market capitalization companies and in
growth and value stocks. The Fund invests in real estate investment trusts
(“REITs”).
The Fund invests in securities of
issuers located throughout the world, including U.S. and foreign companies.
Under normal market conditions, the Fund invests at least 40% of its net assets
in foreign and emerging market securities. The Fund typically holds investments
tied economically to at least three countries outside of the U.S.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund are listed below in alphabetical order
and not in order of significance.
Dividend-Oriented
Stocks Risk. Companies that have paid regular
dividends to shareholders may decrease or eliminate dividend payments in the
future. For example, a sharp rise in interest rates or economic downturn could
cause a company to unexpectedly reduce or eliminate its dividend. Additionally,
the Fund’s performance during a broad market advance could suffer because
dividend-paying stocks may not experience the same capital appreciation as
non-dividend paying stocks.
Emerging Markets
Risk. Investments in emerging market
countries may have more risk than those in developed market countries because
the emerging markets are less developed and more illiquid. Emerging market
countries can also be subject to increased social, economic, regulatory, and
political uncertainties and can be extremely volatile.
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
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Growth
Stock Risk.
If growth companies do not
increase their earnings at a rate expected by investors, the market price
of the stock may decline significantly, even if earnings show an absolute
increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
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Small and
Medium Market Capitalization Companies Risk. Investments in small and medium sized companies
may involve greater risk and price volatility than investments in larger,
more mature companies.
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Value Stock
Risk. Value stocks may continue to
be undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that would
cause the stock price to increase may not occur as anticipated or at all.
Moreover, a stock that appears to be undervalued actually may be
appropriately priced at a low level and therefore would not be profitable
for the fund.
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Foreign Currency
Risk. Risks of investing in securities
denominated in, or that trade in, foreign (non-U.S.) currencies include changes
in foreign exchange rates and foreign exchange restrictions.
Foreign
Securities Risk.
The risks of foreign
securities include loss of value as a result of: political or economic
instability; nationalization, expropriation or confiscatory taxation; settlement
delays; and limited government regulation (including less stringent reporting,
accounting, and disclosure standards than are required of U.S.
companies).
Market Trading
Risks. The Fund faces
numerous market trading risks, including the potential lack of an active market
for Fund shares, losses from trading in secondary markets, and disruption to the
activities of market makers, authorized participants, or other participants and
in the creation/redemption process of the Fund. ANY OF THESE FACTORS MAY LEAD TO
THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV.
Real Estate
Investment Trusts (“REITs”) Risk. In addition to risks associated with
investing in real estate securities, REITs are dependent upon management skills,
are not diversified, and are subject to heavy cash flow dependency, risks of
default by borrowers, and self-liquidation. Investment in REITs also involves
risks similar to risks of investing in small market capitalization companies,
such as limited financial resources, less frequent and limited volume trading,
and may be subject to more abrupt or erratic price movements than larger company
securities. A REIT could fail to qualify for tax-free pass-through of income
under the Internal Revenue Code. Fund shareholders will indirectly bear their
proportionate share of the expenses of REITs in which the fund invests.
Real Estate
Securities Risk.
Investing in real
estate securities subjects the fund to the risks associated with the real estate
market (which are similar to the risks associated with direct ownership in real
estate), including declines in real estate values, loss due to casualty or
condemnation, property taxes, interest rate changes, increased expenses, cash
flow of underlying real estate assets, regulatory changes (including zoning,
land use and rents), and environmental problems, as well as to the risks related
to the management skill and creditworthiness of the issuer.
Redemption and
Large Transaction Risk. Ownership of the fund's shares may
be concentrated in one or a few large investors (such as funds of funds,
institutional investors, and asset allocation programs) that may redeem or
purchase shares in large quantities. These transactions may cause the fund to
sell securities to meet redemptions or to invest additional cash at times it
would not otherwise do so, which may result in increased transaction costs,
increased expenses, changes to expense ratios, and adverse effects to fund
performance. Such transactions may also accelerate the realization of taxable
income if sales of portfolio securities result in gains.
Performance
The following information provides
some indication of the risks of investing in the Fund. Past performance (before
and after taxes) is not necessarily an indication of how the Fund will perform
in the future. You may get updated performance information by calling
1-800-787-1621 or online at www.principaletfs.com.
The bar chart shows the investment
returns of the Fund’s shares for each full calendar year of operations for 10
years (or, if shorter, the life of the Fund). The table shows for the last one,
five, and ten calendar year periods (or, if shorter, the life of the Fund), how
the Fund’s average annual total returns compare with those of one or more broad
measures of market performance.
Life of Fund returns are measured
from the date the Fund's shares were first sold (May 9, 2017).
Total Returns as
of December 31 (1)
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Highest
return for a quarter during the period of the bar chart
above: |
Q3
'18 |
3.45% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'18 |
(11.99)% |
(1)
The year-to-date return as of
September 30, 2019 is 16.39% .
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Average
Annual Total Returns (Based on NAV) |
For the
periods ended December 31, 2018 |
1 Year |
Life of
Fund |
Return
Before Taxes |
(9.44)% |
1.65% |
Return After
Taxes on Distributions |
(10.23)% |
0.81% |
Return After
Taxes on Distributions and Sale of Fund Shares |
(4.97)% |
1.28% |
MSCI All Country World Index NR
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(9.41)% |
1.49% |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts.
Investment
Advisor and Portfolio Managers
Principal Global Investors,
LLC
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Daniel R. Coleman (since
2017), Portfolio Manager |
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Paul S. Kim (since 2017),
Portfolio Manager |
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Cliff Remily (since 2017),
Portfolio Manager |
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Daniela Spassova (since 2017),
Portfolio Manager |
Purchase and Sale
of Fund Shares
The Fund issues and redeems Shares
at net asset value (“NAV”) only with authorized participants ("APs") who have
entered into agreements with the Fund’s distributor and only in blocks of 50,000
Shares (each block of Shares is called a "Creation Unit"), or multiples thereof
("Creation Unit Aggregations"), in exchange for the deposit or delivery of a
basket of securities that the Fund specifies each day. Except when aggregated in
Creation Units, the Shares are not redeemable securities of the Fund. Typically,
the basket of assets will be made up of securities, but may include a cash
component. (See "Purchase and Redemption of Creation Units" in the Statement of
Additional Information for more information.)
Individual Shares of the Fund may be
purchased and sold only on a national securities exchange through brokers.
Shares of the Fund are listed for trading on Cboe BZX Exchange, Inc., and
because the Shares will trade at market prices rather than NAV, Shares may trade
at prices greater than NAV (at a premium), at NAV, or less than NAV (at a
discount).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary's website
for more information.
PRINCIPAL ACTIVE
INCOME ETF
Objective: The Fund seeks to provide current
income.
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund ("Shares").
Investors may pay brokerage commissions on their purchases and sales of Shares,
which are not reflected in the table or the example below.
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
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Management Fees (1) |
0.49% |
Other Expenses |
— |
Total Annual
Fund Operating Expenses (2) |
0.49% |
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(1) |
Fees have been restated to
reflect current fees. |
(2) |
The investment management
agreement (the “Management Agreement”) between the Fund and Principal
Global Investors, LLC (“PGI”) provides that, for the duration of the
Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan
(if or when such fees are imposed), brokerage commissions and other
expenses connected to the execution of portfolio transactions, interest
expense, taxes, acquired fund fees and expenses, litigation expenses and
other extraordinary expenses. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. The Example also assumes
that your investment has a 5% return each year and that the Fund’s operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
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1
year |
3
years |
5
years |
10
years |
Principal Active Income
ETF |
$50 |
$157 |
$274 |
$616 |
Portfolio
Turnover
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. During the most recent fiscal
year, the Fund's annualized portfolio turnover rate was 17.9 % of the average value of its
portfolio.
Principal
Investment Strategies
The Fund is an actively managed
exchange-traded fund (“ETF”) that seeks to achieve its investment objective by
investing, under normal circumstances, its assets in investment grade and
non-investment grade (commonly known as "junk") fixed income securities and in
equity securities. In pursuing its strategies, the Fund invests in a diversified
portfolio of a broad range of instruments. The Advisor actively and tactically
allocates the Fund’s assets among fixed income securities and equity securities
in an effort to take advantage of changing economic conditions that the Advisor
believes favors one asset class over another. Based on analysis of various
economic and market forces (such as interest rates, inflation, the business
cycle, fiscal policy, monetary policy, valuations, momentum, risk premiums,
investor sentiment, credit spreads, and fundamentals), the Advisor increases the
allocation to the asset class that it believes has a higher probability of
achieving the Fund’s objective of providing current income.
Fixed
Income. A portion of
the Fund's net assets is invested in a diversified portfolio of investment grade
and non-investment grade (commonly known as "junk") fixed income securities
issued by U.S., supranational and non-U.S. issuers, including investments in
convertible bonds, U.S. government and agency securities, asset-backed,
mortgage-backed, and commercial mortgage-backed securities (securitized
products), and sovereign debt. “Investment grade” securities are rated BBB- or
higher by S&P Global Ratings ("S&P Global") or Baa3 or higher by Moody's
Investors Service, Inc. ("Moody's") or, if unrated, of comparable quality in the
opinion of those selecting such investments. “Non-investment grade” securities
are rated Ba1 or lower by Moody’s and BB+ or lower by S&P Global. If
securities are rated differently by the rating agencies, the highest
rating is used. If the security has been rated by only one of those agencies,
that rating will determine whether the security is below investment grade. If
the security has not been rated by either of those agencies, those selecting
such investments will determine whether the security is of a quality comparable
to those rated below investment grade. The fixed income portfolio is not managed
to a particular average duration or maturity.
During the fiscal year ended June
30, 2019, the average ratings of the Fund’s fixed-income assets, based on market
value at each month-end, were as follows (all ratings are by Moody’s):
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0.00% in securities rated
Aaa |
15.25% in securities rated Baa
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24.77% in securities rated
Caa |
0.00% in securities rated
D |
0.00% in securities rated
Aa |
21.86% in securities rated
Ba |
0.00% in securities rated Ca
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3.41% in securities not
rated |
0.43% in securities rated A
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34.28% in securities rated
B |
0.00% in securities rated
C |
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Equity
Securities. A portion
of the Fund's net assets is invested in a diversified portfolio of dividend
paying equity securities issued by companies located in the U.S. and/or foreign
countries that trade on a U.S. or foreign exchange. The equity securities
include common stocks (including value stocks), preferred stocks, master limited
partnerships ("MLPs") and real estate investment trusts (“REITs”). Although not
a factor in the selection of the equity securities, such securities generally
are of medium market capitalization companies, which for this Fund are those
with market capitalizations similar to companies in the Russell
Midcap® Index (as of June 30, 2019, this
range was between approximately $642.5 million and $49.2 billion).
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund are listed below in alphabetical order
and not in order of significance.
Asset Allocation
Risk. A fund's
selection and weighting of asset classes may cause it to underperform other
funds with a similar investment objective.
Convertible
Securities Risk.
Convertible securities
are securities that are convertible into common stock. Convertible securities
are subject to credit and interest rate risks associated with fixed-income
securities and to stock market risk associated with equity
securities.
Dividend-Oriented
Stocks Risk. Companies that have paid regular
dividends to shareholders may decrease or eliminate dividend payments in the
future. For example, a sharp rise in interest rates or economic downturn could
cause a company to unexpectedly reduce or eliminate its dividend. Additionally,
the Fund’s performance during a broad market advance could suffer because
dividend-paying stocks may not experience the same capital appreciation as
non-dividend paying stocks.
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
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Medium
Market Capitalization Companies. Investments in medium sized companies may
involve greater risk and price volatility than investments in larger, more
mature companies.
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Value Stock
Risk. Value stocks may continue to
be undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that would
cause the stock price to increase may not occur as anticipated or at all.
Moreover, a stock that appears to be undervalued actually may be
appropriately priced at a low level and therefore would not be profitable
for the fund.
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Fixed-Income
Securities Risk.
Fixed-income securities
are subject to interest rate, credit quality, and liquidity risks. The market
value of fixed-income securities generally declines when interest rates rise,
and increased interest rates may adversely affect the liquidity of certain
fixed-income securities. Moreover, an issuer of fixed-income securities could
default on its payment obligations due to increased interest rates or for other
reasons.
Foreign Currency
Risk. Risks of investing in securities
denominated in, or that trade in, foreign (non-U.S.) currencies include changes
in foreign exchange rates and foreign exchange restrictions.
Foreign
Securities Risk.
The risks of foreign
securities include loss of value as a result of: political or economic
instability; nationalization, expropriation or confiscatory taxation; settlement
delays; and limited government regulation (including less stringent reporting,
accounting, and disclosure standards than are required of U.S.
companies).
High Yield
Securities Risk.
High yield fixed-income
securities (commonly referred to as "junk bonds") are subject to greater credit
quality risk than higher rated fixed-income securities and should be considered
speculative.
Market Trading
Risks. The Fund faces
numerous market trading risks, including the potential lack of an active market
for Fund shares, losses from trading in secondary markets, and disruption to the
activities of market makers, authorized participants, or other participants and
in the creation/redemption process of the Fund. ANY OF THESE FACTORS MAY LEAD TO
THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV.
Master Limited
Partnership ("MLP") Risk. MLPs are publicly-traded limited
partnership interests or units. An MLP that invests in a particular industry
(e.g., oil and gas) will be harmed by detrimental economic events within that
industry. As partnerships, MLPs may be subject to less regulation (and less
protection for investors) under state laws than corporations. In addition, MLPs
may be subject to state taxation in certain jurisdictions, which may reduce the
amount of income an MLP pays to its investors.
Portfolio
Duration Risk.
Portfolio duration is a
measure of the expected life of a fixed-income security and its sensitivity to
changes in interest rates. The longer a fund's average portfolio duration, the
more sensitive the fund will be to changes in interest rates, which means funds
with longer average portfolio durations may be more volatile than those with
shorter durations.
Preferred
Securities Risk. Because preferred securities have a
lower priority claim on assets or earnings than senior bonds and other debt
instruments in a company's capital structure, they are subject to greater credit
and liquidation risk than more senior debt instruments. In addition, preferred
securities are subject to other risks, such as limited or no voting rights,
deferring or skipping distributions, interest rate risk, and redeeming the
security prior to any stated maturity date.
Real Estate
Investment Trusts (“REITs”) Risk. In addition to risks associated with
investing in real estate securities, REITs are dependent upon management skills,
are not diversified, and are subject to heavy cash flow dependency, risks of
default by borrowers, and self-liquidation. Investment in REITs also involves
risks similar to risks of investing in small market capitalization companies,
such as limited financial resources, less frequent and limited volume trading,
and may be subject to more abrupt or erratic price movements than larger company
securities. A REIT could fail to qualify for tax-free pass-through of income
under the Internal Revenue Code. Fund shareholders will indirectly bear their
proportionate share of the expenses of REITs in which the fund invests.
Real Estate
Securities Risk.
Investing in real
estate securities subjects the fund to the risks associated with the real estate
market (which are similar to the risks associated with direct ownership in real
estate), including declines in real estate values, loss due to casualty or
condemnation, property taxes, interest rate changes, increased expenses, cash
flow of underlying real estate assets, regulatory changes (including zoning,
land use and rents), and environmental problems, as well as to the risks related
to the management skill and creditworthiness of the issuer.
Redemption and
Large Transaction Risk. Ownership of the fund's shares may
be concentrated in one or a few large investors (such as funds of funds,
institutional investors, and asset allocation programs) that may redeem or
purchase shares in large quantities. These transactions may cause the fund to
sell securities to meet redemptions or to invest additional cash at times it
would not otherwise do so, which may result in increased transaction costs,
increased expenses, changes to expense ratios, and adverse effects to fund
performance. Such transactions may also accelerate the realization of taxable
income if sales of portfolio securities result in gains.
Securitized
Products Risk. Investments in securitized products
are subject to risks similar to traditional fixed income securities, such as
credit, interest rate, liquidity, prepayment, extension, and default risk, as
well as additional risks associated with the nature of the assets and the
servicing of those assets. Unscheduled prepayments on securitized products may
have to be reinvested at lower rates. A reduction in prepayments may increase
the effective maturities of these securities, exposing them to the risk of
decline in market value over time (extension risk).
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S.
Government-Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Performance
The following information provides
some indication of the risks of investing in the Fund. Past performance (before
and after taxes) is not necessarily an indication of how the Fund will perform
in the future. You may get updated performance information by calling
1-800-787-1621 or online at www.principaletfs.com.
The bar chart shows the investment
returns of the Fund’s shares for each full calendar year of operations for 10
years (or, if shorter, the life of the Fund). The table shows for the last one,
five, and ten calendar year periods (or, if shorter, the life of the Fund), how
the Fund’s average annual total returns compare with those of one or more broad
measures of market performance.
Life of Fund returns are measured
from the date the Fund's shares were first sold (July 8, 2015).
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'16 |
6.07% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'18 |
(5.73)% |
(1)
The year-to-date return as of
September 30, 2019 is 11.35% .
|
|
|
|
Average
Annual Total Returns (Based on NAV) |
For the
periods ended December 31, 2018 |
1 Year |
Life of
Fund |
Return
Before Taxes |
(4.47)% |
3.31% |
Return After
Taxes on Distributions |
(6.35)% |
1.21% |
Return After
Taxes on Distributions and Sale of Fund Shares |
(2.33)% |
1.72% |
Bloomberg Barclays U.S.
Corporate High Yield 2% Issuer Capped Index |
(2.08)% |
4.17% |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts.
Investment
Advisor and Portfolio Managers
Principal Global Investors,
LLC
|
|
• |
Charles D. Averill (since
2015), Portfolio Manager (remove on
December 31, 2019) |
|
|
• |
Todd A. Jablonski (since
2015), Portfolio Manager |
|
|
• |
Paul S. Kim (since 2015),
Portfolio Manager |
|
|
• |
Daniela Spassova (since 2016),
Portfolio Manager |
|
|
• |
Gregory L. Tornga (since
2017), Portfolio Manager |
Purchase and Sale
of Fund Shares
The Fund issues and redeems Shares
at net asset value (“NAV”) only with authorized participants ("APs") who have
entered into agreements with the Fund’s distributor and only in blocks of 50,000
Shares (each block of Shares is called a "Creation Unit"), or multiples thereof
("Creation Unit Aggregations"), in exchange for the deposit or delivery of a
basket of securities that the Fund specifies each day. Except when aggregated in
Creation Units, the Shares are not redeemable securities of the Fund. Typically,
the basket of assets will be made up of securities, but may include a cash
component. (See "Purchase and Redemption of Creation Units" in the Statement of
Additional Information for more information.)
Individual Shares of the Fund may be
purchased and sold only on a national securities exchange through brokers.
Shares of the Fund are listed for trading on NYSE Arca, Inc. and because the
Shares will trade at market prices rather than NAV, Shares may trade at prices
greater than NAV (at a premium), at NAV, or less than NAV (at a
discount).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary's website
for more information.
PRINCIPAL
CONTRARIAN VALUE INDEX ETF
|
|
Objective: |
The Fund seeks to provide
investment results that closely correspond, before expenses, to the
performance of the Nasdaq US Contrarian Value Index (the
"Index"). |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund (“Shares”).
Investors may pay brokerage commissions on their purchases and sales of Shares,
which are not reflected in the table or the example below.
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
Management Fees |
0.29% |
Other Expenses |
—% |
Total Annual
Fund Operating Expenses (1) |
0.29% |
|
|
|
(1) |
The investment management
agreement (the “Management Agreement”) between the Fund and Principal
Global Investors, LLC (“PGI”) provides that, for the duration of the
Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan
(if or when such fees are imposed), brokerage commissions and other
expenses connected to the execution of portfolio transactions, interest
expense, taxes, acquired fund fees and expenses, litigation expenses and
other extraordinary expenses. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. The Example also assumes
that your investment has a 5% return each year and that the Fund’s operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal Contrarian Value
Index ETF |
$30 |
$93 |
$163 |
$368 |
Portfolio
Turnover
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. During the most recent fiscal
year, the Fund's annualized portfolio turnover rate was 47.1 % of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the Fund
invests at least 80% of its net assets, plus any borrowings for investment
purposes, in equity securities of companies that compose the Index at the time
of purchase. The Index uses a quantitative model designed to identify equity
securities of companies in the Nasdaq US Large Mid Cap Index (the "Parent
Index") that appear to be undervalued by the market relative to their
fundamental value.
To be eligible for the Index, a
security must be a component of the Parent Index, which is composed of equity
securities of U.S. issuers with medium and large market capitalizations.
Securities are included in the Index based on their book yields. Based upon the
most recent median book yield of securities in the Parent Index as compared to
the average of the median book yields over the prior 28 quarters, the Index
methodology determines a market condition of either "bear" (where the recent
book yield exceeds the prior book yields by a threshold amount) or "normal"
(where a bear market is not present). Securities in either the top 30% by book
yield (in a bear market) or the top 30% by adjusted book yield rankings (in a
normal market) are then selected for the Index.
After selection, the securities are
weighted, with those in the higher ranking groups receiving relatively more
weight. Because securities in the financial sector often perform differently
than other securities with respect to book yields, securities are selected for
the Index separately from Financials and non-Financials according to Industry
Classification Benchmark ("ICB") so that each such ICB classification maintains
its respective weight from the Parent Index.
The Index is rebalanced annually.
Additionally, throughout the year securities that become ineligible for the
Index are removed and not replaced. The market condition is monitored quarterly.
If the market condition changes from bear to normal or vice versa, there is a
special rebalance. The Fund will make corresponding changes to its portfolio
shortly after Index changes are made public. As of June 30, 2019, the Index
included 277 components, and the Parent Index included 967 components. More
detailed information about the Index methodology is provided in the prospectus
under Fund Account Information.
The Fund employs a passive
investment approach designed to attempt to track the performance of the Index.
In seeking its objective, the Fund typically employs a "full replication"
strategy which involves investing in all the securities that make up the Index,
in the same approximate proportions as the Index. The Fund can, however, use a
“sampling” methodology to purchase a subset of the securities in the Index in an
effort to hold a portfolio of securities with generally the same risk and return
characteristics of the Index. The Fund can also purchase securities not included
in the Index that the advisor believes will help the fund track the Index.
The Fund will not concentrate its
investments (invest more than 25% of its assets) in a particular industry except
to the extent the Index is so concentrated.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund are listed below in alphabetical order
and not in order of significance.
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
|
|
• |
Growth
Stock Risk. If growth companies do
not increase their earnings at a rate expected by investors, the market
price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend
yield that can lessen price declines in market downturns.
|
|
|
• |
Medium
Market Capitalization Companies. Investments in medium sized companies may
involve greater risk and price volatility than investments in larger, more
mature companies.
|
|
|
• |
Value Stock
Risk.
Value stocks may continue to be
undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that would
cause the stock price to increase may not occur as anticipated or at all.
Moreover, a stock that appears to be undervalued actually may be
appropriately priced at a low level and therefore would not be profitable
for the fund.
|
Index Fund
Risk. An index fund has operating and
other expenses while an index does not. As a result, over time, index funds tend
to underperform the index. The correlation between fund performance and index
performance may also be affected by the type of passive investment approach used
by a fund (sampling or replication), changes in securities markets, changes in
the composition of the index, and the timing of purchases and sales of fund
shares.
Industry
Concentration Risk. A
fund that concentrates investments in a particular industry or group of
industries has greater exposure than other funds to market, economic and other
factors affecting that industry or group of industries.
Market Trading
Risks. The Fund faces
numerous market trading risks, including the potential lack of an active market
for Fund shares, losses from trading in secondary markets, and disruption to the
activities of market makers, authorized participants, or other participants and
in the creation/redemption process of the Fund. ANY OF THESE FACTORS MAY LEAD TO
THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV.
Redemption and
Large Transaction Risk. Ownership of the fund's shares may
be concentrated in one or a few large investors (such as funds of funds,
institutional investors, and asset allocation programs) that may redeem or
purchase shares in large quantities. These transactions may cause the fund to
sell securities to meet redemptions or to invest additional cash at times it
would not otherwise do so, which may result in increased transaction costs,
increased expenses, changes to expense ratios, and adverse effects to fund
performance. Such transactions may also accelerate the realization of taxable
income if sales of portfolio securities result in gains.
Performance
The following information provides
some indication of the risks of investing in the Fund. Past performance (before
and after taxes) is not necessarily an indication of how the Fund will perform
in the future. You may get updated performance information by calling
1-800-787-1621 or online at www.principaletfs.com.
The bar chart shows the investment
returns of the Fund’s shares for each full calendar year of operations for 10
years (or, if shorter, the life of the Fund). The table shows for the last one,
five, and ten calendar year periods (or, if shorter, the life of the Fund), how
the Fund’s average annual total returns compare with those of one or more broad
measures of market performance.
Life of Fund returns are measured
from the date the Fund's shares were first sold (October 18, 2017).
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q3
'18 |
4.75% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'18 |
(17.17)% |
(1)
The year-to-date return as of
September 30, 2019 is 20.64% .
|
|
|
|
Average
Annual Total Returns (Based on NAV) |
For the
periods ended December 31, 2018 |
1 Year |
Life of
Fund |
Return
Before Taxes |
(13.50)% |
(7.35)% |
Return After
Taxes on Distributions |
(13.79)% |
(7.70)% |
Return After
Taxes on Distributions and Sale of Fund Shares |
(7.74)% |
(5.55)% |
Nasdaq US Contrarian Value
Index |
(13.29)% |
(7.09)% |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts.
Investment
Advisor and Portfolio Managers
Principal Global Investors,
LLC
|
|
• |
Paul S. Kim (since 2017),
Portfolio Manager |
|
|
• |
Mark R. Nebelung (since 2017),
Portfolio Manager |
|
|
• |
Jeffrey A. Schwarte (since
2017), Portfolio Manager |
Purchase and Sale
of Fund Shares
The Fund issues and redeems Shares
at net asset value (“NAV”) only with authorized participants ("APs") who have
entered into agreements with the Fund’s distributor and only in blocks of 50,000
Shares (each block of Shares is called a "Creation Unit"), or multiples thereof
("Creation Unit Aggregations"), in exchange for the deposit or delivery of a
basket of securities that the Fund specifies each day. Except when aggregated in
Creation Units, the Shares are not redeemable securities of the Fund. Typically,
the basket of assets will be made up of securities, but may include a cash
component. (See "Purchase and Redemption of Creation Units" in the Statement of
Additional Information for more information.)
Individual Shares of the Fund may be
purchased and sold only on a national securities exchange through brokers.
Shares of the Fund are listed for trading on The Nasdaq Stock Market LLC and
because the Shares will trade at market prices rather than NAV, Shares may trade
at prices greater than NAV (at a premium), at NAV, or less than NAV (at a
discount).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary's website
for more information.
PRINCIPAL
HEALTHCARE INNOVATORS INDEX ETF
|
|
Objective: |
The Fund seeks to provide
investment results that closely correspond, before expenses, to the
performance of the Nasdaq Healthcare Innovators Index (the
"Index"). |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund (“Shares”).
Investors may pay brokerage commissions on their purchases and sales of Shares,
which are not reflected in the table or the example below.
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
Management Fees |
0.42% |
Other Expenses |
—% |
Total Annual
Fund Operating Expenses (1) |
0.42% |
|
|
|
(1) |
The investment management
agreement (the “Management Agreement”) between the Fund and Principal
Global Investors, LLC (“PGI”) provides that, for the duration of the
Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan
(if or when such fees are imposed), brokerage commissions and other
expenses connected to the execution of portfolio transactions, interest
expense, taxes, acquired fund fees and expenses, litigation expenses and
other extraordinary expenses. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. The Example also assumes
that your investment has a 5% return each year and that the Fund’s operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal Healthcare Innovators
Index ETF |
$43 |
$135 |
$235 |
$530 |
Portfolio
Turnover
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. During the most recent fiscal
year, the Fund's annualized portfolio turnover rate was 34.5 % of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the Fund
invests at least 80% of its net assets, plus any borrowings for investment
purposes, in equity securities of companies that compose the Index at the time
of purchase. The Index uses a quantitative model designed to identify equity
securities in the Nasdaq US Benchmark Index (the "Parent Index") (including
growth and value stock) that are small and medium capitalization U.S. healthcare
companies. Most of the companies in the Index are "early-stage companies" within
the healthcare equipment and supplies, pharmaceuticals, biotechnology, and life
sciences industries that are not yet consistently profitable. Examples include
companies developing products and services and companies in the pre-marketing
stage seeking regulatory approvals.
To be eligible for the Index, a
security must be a component of the Parent Index, and each security must be
classified as Health Care according to Industry Classification Benchmark (ICB).
Securities are ranked based upon their market capitalization and liquidity. The
Index employs a modified market capitalization weighting methodology; final
eligible securities receive a maximum weight of 3%, and all excess weight is
distributed proportionally across the remaining index securities.
The Index is rebalanced
semi-annually. Additionally, throughout the year securities that become
ineligible for the Index are removed and not replaced. The Fund will make
corresponding changes to its portfolio shortly after Index changes are made
public. As of June 30, 2019, the Index included 190 components, and the Parent
Index included 2,834 components. More detailed information about the Index
methodology is provided in the prospectus under Fund Account
Information.
The Fund employs a passive
investment approach designed to attempt to track the performance of the Index.
In seeking its objective, the Fund typically employs a "full replication"
strategy which involves investing in all the securities that make up the Index,
in the same approximate proportions as the Index. The Fund can, however, use a
“sampling” methodology to purchase a subset of the securities in the Index in an
effort to hold a portfolio of securities with generally the same risk and return
characteristics of the Index. The Fund can also invest in securities not
included in the Index that the Advisor believes will help the fund track the
Index.
The Fund will not concentrate its
investments (invest more than 25% of its assets) in a particular industry except
to the extent the Index is so concentrated. Given the present composition of the
Index, the Fund expects to concentrate its investments in one or more industries
within the healthcare sector. As of June 30, 2019, the Fund’s investments were
concentrated in the biotechnology industry.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund are listed below in alphabetical order
and not in order of significance.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s) (such as market capitalization or style) may underperform other
market segments or the equity markets as a whole.
|
|
• |
Growth
Stock Risk.
If growth companies do not
increase their earnings at a rate expected by investors, the market price
of the stock may decline significantly, even if earnings show an absolute
increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
|
|
|
• |
Small and
Medium Market Capitalization Companies Risk. Investments in small and medium sized companies
may involve greater risk and price volatility than investments in larger,
more mature companies.
|
|
|
• |
Value Stock
Risk. Value stocks may continue to
be undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that would
cause the stock price to increase may not occur as anticipated or at all.
Moreover, a stock that appears to be undervalued actually may be
appropriately priced at a low level and therefore would not be profitable
for the fund.
|
Index Fund
Risk. An index fund has operating and
other expenses while an index does not. As a result, over time, index funds tend
to underperform the index. The correlation between fund performance and index
performance may also be affected by the type of passive investment approach used
by a fund (sampling or replication), changes in securities markets, changes in
the composition of the index, and the timing of purchases and sales of fund
shares.
Industry
Concentration Risk. A
fund that concentrates investments in a particular industry or group of
industries has greater exposure than other funds to market, economic and other
factors affecting that industry or group of industries.
|
|
•
|
Healthcare
Sector Risk. Given the present
composition of the Index, the Fund expects to have more than 25% of its
assets invested in one or more industries within the healthcare sector. A
fund that invests in securities of companies in the healthcare sector
(which includes companies involved in several industries, including
biotechnology research and production, drugs and pharmaceuticals and
health care facilities and services) is subject to the direct risks of
investing in such companies. These companies are subject to extensive
competition (due to, among others, generic drug sales or the loss of
patent protection), product liability litigation and increased government
regulation. Research and development costs of bringing new drugs to market
are substantial, and there is no guarantee that a proposed product will
ever come to market. Such companies are heavily dependent on patent and
intellectual property rights, the loss or impairment of which may
adversely affect profitability. Healthcare facility operators may be
affected by the demand for services, efforts by government or insurers to
limit rates, restriction of government financial assistance and
competition from other providers. |
Market Trading
Risks. The Fund faces
numerous market trading risks, including the potential lack of an active market
for Fund shares, losses from trading in secondary markets, and disruption to the
activities of market makers, authorized participants, or other participants and
in the creation/redemption process of the Fund. ANY OF THESE FACTORS MAY LEAD TO
THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV.
Redemption and
Large Transaction Risk. Ownership of the fund's shares may
be concentrated in one or a few large investors (such as funds of funds,
institutional investors, and asset allocation programs) that may redeem or
purchase shares in large quantities. These transactions may cause the fund to
sell securities to meet redemptions or to invest additional cash at times it
would not otherwise do so, which may result in increased transaction costs,
increased expenses, changes to expense ratios, and adverse effects to fund
performance. Such transactions may also accelerate the realization of taxable
income if sales of portfolio securities result in gains.
Performance
The following information provides
some indication of the risks of investing in the Fund. Past performance (before
and after taxes) is not necessarily an indication of how the Fund will perform
in the future. You may get updated performance information by calling
1-800-787-1621 or online at www.principaletfs.com.
The bar chart shows the investment
returns of the Fund’s shares for each full calendar year of operations for 10
years (or, if shorter, the life of the Fund). The table shows for the last one,
five, and ten calendar year periods (or, if shorter, the life of the Fund), how
the Fund’s average annual total returns compare with those of one or more broad
measures of market performance.
Life of Fund returns are measured
from the date the Fund's shares were first sold (August 19, 2016).
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q1
'17 |
16.66% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'18 |
(24.91)% |
(1)
The year-to-date return as of
September 30, 2019 is 9.94% .
|
|
|
|
Average
Annual Total Returns (Based on NAV) |
For the
periods ended December 31, 2018 |
1 Year |
Life of
Fund |
Return
Before Taxes |
(11.20)% |
4.61% |
Return After
Taxes on Distributions |
(11.20)% |
4.58% |
Return After
Taxes on Distributions and Sale of Fund Shares |
(6.63)% |
3.53% |
Nasdaq US Healthcare Innovators
Index |
(10.82)% |
5.09% |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts.
Investment
Advisor and Portfolio Managers
Principal Global Investors,
LLC
|
|
• |
Paul S. Kim (since 2016),
Portfolio Manager |
|
|
• |
Mark R. Nebelung (since 2016),
Portfolio Manager |
|
|
• |
Jeffrey A. Schwarte (since
2016), Portfolio Manager |
Purchase and Sale
of Fund Shares
The Fund issues and redeems Shares
at net asset value (“NAV”) only with authorized participants ("APs") who have
entered into agreements with the Fund’s distributor and only in blocks of 50,000
Shares (each block of Shares is called a "Creation Unit"), or multiples thereof
("Creation Unit Aggregations"), in exchange for the deposit or delivery of a
basket of securities that the Fund specifies each day. Except when aggregated in
Creation Units, the Shares are not redeemable securities of the Fund. Typically,
the basket of assets will be made up of securities, but may include a cash
component. (See "Purchase and Redemption of Creation Units" in the Statement of
Additional Information for more information.)
Individual Shares of the Fund may be
purchased and sold only on a national securities exchange through brokers.
Shares of the Fund are listed for trading on The Nasdaq Stock Market LLC and
because the Shares will trade at market prices rather than NAV, Shares may trade
at prices greater than NAV (at a premium), at NAV, or less than NAV (at a
discount).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary's website
for more information.
PRINCIPAL
INTERNATIONAL MULTI-FACTOR CORE INDEX ETF
|
|
Objective: |
The Fund seeks to provide
investment results that closely correspond, before expenses, to the
performance of the Nasdaq Developed Select Leaders Core Index (the
"Index"). |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund (“Shares”).
Investors may pay brokerage commissions on their purchases and sales of Shares,
which are not reflected in the table or the example below.
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
Management Fees |
0.25% |
Other Expenses |
—% |
Total Annual
Fund Operating Expenses (1) |
0.25% |
|
|
|
|
|
|
(1) |
The investment management
agreement (the “Management Agreement”) between the Fund and Principal
Global Investors, LLC (“PGI”) provides that, for the duration of the
Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan
(if or when such fees are imposed), brokerage commissions and other
expenses connected to the execution of portfolio transactions, interest
expense, taxes, acquired fund fees and expenses, litigation expenses and
other extraordinary expenses. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. The Example also assumes
that your investment has a 5% return each year and that the Fund’s operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal International
Multi-Factor Core Index ETF |
$26 |
$80 |
$141 |
$318 |
Portfolio
Turnover
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. This is a new fund and does
not yet have a portfolio turnover rate to disclose.
Principal
Investment Strategies
Under normal circumstances, the Fund
invests at least 80% of its net assets, plus any borrowings for investment
purposes, in equity securities of companies that compose the Index at the time
of purchase. The Index uses a quantitative model designed to identify equity
securities of companies in the Nasdaq Developed Market Ex-US Ex‑Korea Large Mid
Cap Index (the "Parent Index") that exhibit potential for high degrees of
sustainable shareholder value, growth and strong momentum.
The Parent Index is composed of
developed foreign market equity securities of issuers that have medium and large
market capitalizations. The Index includes securities in the top 50% of the
Parent Index by market capitalization, or (if not in the top 50% by market cap)
the top 50% by rank (discussed below). To determine the rankings of securities
in the bottom 50% by market cap, a currency-neutral approach is used (each
currency maintains similar weight as the initial universe of stocks).
Securities are ranked according to
three factors:
|
|
• |
The Shareholder Yield (Value)
Factor ranks securities based on the collective financial impact on a
company's shareholders from the return of free cash flow through cash
dividends, stock repurchases, and debt reduction. This factor is designed
to identify securities with low prices relative to their fundamental
value. |
|
|
• |
The Pricing Power (Quality
Growth) Factor ranks securities based on consistent sales growth, earnings
quality and growth, and profitability, while taking price volatility into
account. |
|
|
• |
The Momentum Factor ranks
securities by evaluating price momentum over multiple horizons to
determine sustainability. |
The Index uses modified market-cap
weighting to give greater weight to securities that rank higher.
The Index is rebalanced
semi-annually. Additionally, throughout the year securities that become
ineligible for the Index are removed and not replaced. The Fund will make
corresponding changes to its portfolio shortly after the Index changes are made
public. As of June 30, 2019, the Index included 629 components, and the Parent
Index included 1,177 components. More detailed information about the Index
methodology is provided in the prospectus under Fund Account
Information.
The Fund employs a passive
investment approach designed to attempt to track the performance of the Index.
In seeking its objective, the Fund typically employs a "full replication"
strategy which involves investing in all the securities that make up the Index,
in the same approximate proportions as the Index. The Fund can, however, use a
“sampling” methodology to purchase a subset of the securities in the Index in an
effort to hold a portfolio of securities with generally the same risk and return
characteristics of the Index. The Fund can also purchase securities not included
in the Index that the advisor believes will help the fund track the
Index.
The Fund will not concentrate its
investments (invest more than 25% of its assets) in a particular industry except
to the extent the Index is so concentrated.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund are listed below in alphabetical order
and not in order of significance.
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
|
|
• |
Growth
Stock Risk.
If growth companies do not
increase their earnings at a rate expected by investors, the market price
of the stock may decline significantly, even if earnings show an absolute
increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
|
|
|
• |
Medium
Market Capitalization Companies. Investments in medium sized companies may
involve greater risk and price volatility than investments in larger, more
mature companies.
|
|
|
• |
Value Stock
Risk.
Value stocks may continue to be
undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that would
cause the stock price to increase may not occur as anticipated or at all.
Moreover, a stock that appears to be undervalued actually may be
appropriately priced at a low level and therefore would not be profitable
for the fund.
|
Foreign Currency
Risk. Risks of investing in securities
denominated in, or that trade in, foreign (non-U.S.) currencies include changes
in foreign exchange rates and foreign exchange restrictions.
Foreign
Securities Risk.
The risks of foreign
securities include loss of value as a result of: political or economic
instability; nationalization, expropriation or confiscatory taxation; settlement
delays; and limited government regulation (including less stringent reporting,
accounting, and disclosure standards than are required of U.S.
companies).
Index Fund
Risk. An index fund has operating and
other expenses while an index does not. As a result, over time, index funds tend
to underperform the index. The correlation between fund performance and index
performance may also be affected by the type of passive investment approach used
by a fund (sampling or replication), changes in securities markets, changes in
the composition of the index, and the timing of purchases and sales of fund
shares.
Industry
Concentration Risk.
A fund that
concentrates investments in a particular industry or group of industries has
greater exposure than other funds to market, economic and other factors
affecting that industry or group of industries.
Market Trading
Risks. The Fund faces
numerous market trading risks, including the potential lack of an active market
for Fund shares, losses from trading in secondary markets, and disruption to the
activities of market makers, authorized participants, or other participants and
in the creation/redemption process of the Fund. ANY OF THESE FACTORS MAY LEAD TO
THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV.
Momentum Style
Risk. Stocks that
previously exhibited high momentum characteristics may not experience positive
momentum or may experience more volatility than the market as a whole. In
addition, there may be periods when momentum style is out of favor, during which
the investment performance of a Fund that uses momentum-based strategies may
suffer.
Redemption and
Large Transaction Risk. Ownership of the fund's shares may
be concentrated in one or a few large investors (such as funds of funds,
institutional investors, and asset allocation programs) that may redeem or
purchase shares in large quantities. These transactions may cause the fund to
sell securities to meet redemptions or to invest additional cash at times it
would not otherwise do so, which may result in increased transaction costs,
increased expenses, changes to expense ratios, and adverse effects to fund
performance. Such transactions may also accelerate the realization of taxable
income if sales of portfolio securities result in gains.
Performance
No performance information is shown
because the Fund has not yet had a calendar year of performance. The Fund’s
performance is benchmarked against the Nasdaq Developed Select Leaders Core
Index. Performance information provides an indication of the risks of investing
in the Fund. Past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future. You may get updated
performance information by calling 1-800-787-1621 or online at
www.principaletfs.com.
Investment
Advisor and Portfolio Managers
Principal Global Investors,
LLC
|
|
• |
Paul S. Kim, Portfolio Manager
(since 2019) |
|
|
• |
Mark R. Nebelung, Portfolio
Manager (since 2019) |
|
|
• |
Jeffrey A. Schwarte, Portfolio
Manager (since 2019) |
Purchase and Sale
of Fund Shares
The Fund issues and redeems Shares
at net asset value (“NAV”) only with authorized participants who have entered
into agreements with the Fund’s distributor and only in blocks of 100,000 Shares
(each block of Shares is called a "Creation Unit"), or multiples thereof
("Creation Unit Aggregations"), in exchange for the deposit or delivery of a
basket of securities that the Fund specifies each day. Except when aggregated in
Creation Units, the Shares are not redeemable securities of the Fund. Typically,
the basket of assets will be made up of securities, but may include a cash
component. (See "Purchase and Redemption of Creation Units" in the Statement of
Additional Information for more information.)
Individual Shares of the Fund may be
purchased and sold only on a national securities exchange through brokers.
Shares of the Fund are listed for trading on The Nasdaq Stock Market LLC and
because the Shares will trade at market prices rather than NAV, Shares may trade
at prices greater than NAV (at a premium), at NAV, or less than NAV (at a
discount).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary's website
for more information.
PRINCIPAL
INVESTMENT GRADE CORPORATE ACTIVE ETF
Objective: The Fund seeks to provide current
income and, as a secondary objective, capital appreciation.
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund ("Shares").
Investors may pay brokerage commissions on their purchases and sales of Shares,
which are not reflected in the table or the example below.
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
Management Fees |
0.26% |
Other Expenses |
—% |
Total Annual
Fund Operating Expenses (1) |
0.26% |
|
|
|
(1) |
The investment management
agreement (the “Management Agreement”) between the Fund and Principal
Global Investors, LLC (“PGI”) provides that, for the duration of the
Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan
(if or when such fees are imposed), brokerage commissions and other
expenses connected to the execution of portfolio transactions, interest
expense, taxes, acquired fund fees and expenses, litigation expenses and
other extraordinary expenses. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. The Example also assumes
that your investment has a 5% return each year and that the Fund’s operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal Investment Grade
Corporate Active ETF |
$27 |
$84 |
$146 |
$331 |
Portfolio
Turnover
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. During the most recent fiscal
year, the Fund's annualized portfolio turnover rate was 92.8 % of the average value of its
portfolio.
Principal
Investment Strategies
The Fund is an actively managed
exchange-traded fund (“ETF”) that seeks to achieve its investment objective by
investing, under normal circumstances, at least 80% of its net assets, plus any
borrowings for investment purposes, in investment grade corporate bonds and
other fixed income securities at the time of purchase. “Investment grade”
securities are rated BBB- or higher by S&P Global Ratings ("S&P Global")
or Baa3 or higher by Moody's Investors Service, Inc. ("Moody's") or, if unrated,
of comparable quality in the opinion of those selecting such investments. If the
security has been rated by only one of those agencies, that rating will
determine whether the security is investment grade. If securities
are rated differently by the rating agencies, the highest rating is
used.
The fixed income securities in which
the Fund invests include foreign securities,
corporate securities,
securities issued or guaranteed by the U.S. government or its agencies and
instrumentalities, and securities issued or
guaranteed by foreign governments payable in U.S. dollars. The Fund invests in other
investment companies, including exchange-traded funds that invest in fixed
income securities. The portfolio is not managed to a particular maturity. Under
normal circumstances, the Fund maintains an average portfolio duration that is
within +/- 10% of the duration of the Bloomberg Barclays U.S. Corporate
Investment Grade Bond Index, which as of June 30, 2019 was 7.64 years. The Fund
actively trades securities.
The Fund utilizes exchange-traded
and over-the-counter derivative strategies. A derivative is a financial
arrangement, the value of which is derived from, or based on, a traditional
security, asset, or market index. Specifically, the Fund invests in treasury
futures for hedging or to otherwise manage fixed income exposure, as well as
credit default swaps, including buying and selling on individual securities
and/or baskets of securities, to efficiently manage exposures to certain sectors
or individual issuers.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund are listed below in alphabetical order
and not in order of significance.
Counterparty
Risk. Counterparty risk
is the risk that the counterparty to a contract or other obligation will be
unable or unwilling to honor its obligations.
Derivatives
Risk. Derivatives may not move in the
direction anticipated by the portfolio manager. Transactions in derivatives may
increase volatility, cause the liquidation of portfolio positions when not
advantageous to do so and result in disproportionate losses that may be
substantially greater than a fund's initial investment.
|
|
• |
Credit
Default Swaps.
Credit default swaps involve
special risks in addition to those associated with swaps generally because
they are difficult to value, are highly susceptible to liquidity and
credit risk, and generally pay a return to the party that has paid the
premium only in the event of an actual default by the issuer of the
underlying obligation (as opposed to a credit downgrade or other
indication of financial difficulty). The protection “buyer” in a credit
default contract may be obligated to pay the protection “seller” an
up-front payment or a periodic stream of payments over the term of the
contract provided generally that no credit event on a reference obligation
has occurred. If a credit event occurs, the seller generally must pay the
buyer the “par value” (i.e., full notional value) of the swap in exchange
for an equal face amount of deliverable obligations of the reference
entity described in the swap, or the seller may be required to deliver the
related net cash amount, if the swap is cash settled. The Fund may be
either the buyer or seller in the transaction.
|
|
|
• |
Futures. These derivative instruments involve specific
risks, including: the imperfect correlation between the change in market
value of the instruments held by the fund and the price of the
instruments; possible lack of a liquid secondary market for an instrument
and the resulting inability to close it when desired; counterparty risk;
and if the fund has insufficient cash, it may have to sell securities from
its portfolio to meet any applicable daily variation margin
requirements.
|
Fixed-Income
Securities Risk.
Fixed-income securities
are subject to interest rate, credit quality, and liquidity risks. The market
value of fixed-income securities generally declines when interest rates rise,
and increased interest rates may adversely affect the liquidity of certain
fixed-income securities. Moreover, an issuer of fixed-income securities could
default on its payment obligations due to increased interest rates or for other
reasons.
Foreign
Securities Risk.
The risks of foreign
securities include loss of value as a result of: political or economic
instability; nationalization, expropriation or confiscatory taxation; settlement
delays; and limited government regulation (including less stringent reporting,
accounting, and disclosure standards than are required of U.S.
companies).
Hedging
Risk. A fund that implements a hedging
strategy using derivatives and/or securities could expose the fund to the risk
that can arise when a change in the value of a hedge does not match a change in
the value of the asset it hedges. In other words, the change in value of the
hedge could move in a direction that does not match the change in value of the
underlying asset, resulting in a risk of loss to the fund.
Investment
Company Securities Risk. A fund that invests in another
investment company (for example, another fund or ETF) is subject to the risks
associated with direct ownership of the securities in which such investment
company invests. Fund shareholders indirectly bear their proportionate share of
the expenses of each such investment company.
Market Trading
Risks. The Fund faces
numerous market trading risks, including the potential lack of an active market
for Fund shares, losses from trading in secondary markets, and disruption to the
activities of market makers, authorized participants, or other participants and
in the creation/redemption process of the Fund. ANY OF THESE FACTORS MAY LEAD TO
THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates, which means funds with
longer average portfolio durations may be more volatile than those with shorter
durations.
Redemption and
Large Transaction Risk. Ownership of the fund's shares may
be concentrated in one or a few large investors (such as funds of funds,
institutional investors, and asset allocation programs) that may redeem or
purchase shares in large quantities. These transactions may cause the fund to
sell securities to meet redemptions or to invest additional cash at times it
would not otherwise do so, which may result in increased transaction costs,
increased expenses, changes to expense ratios, and adverse effects to fund
performance. Such transactions may also accelerate the realization of taxable
income if sales of portfolio securities result in gains.
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S.
Government-Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Performance
No performance information is shown
because the Fund has not yet had a calendar year of performance. The Fund’s
performance is benchmarked against the Bloomberg Barclays U.S. Corporate
Investment Grade Bond Index. Performance information provides an indication of
the risks of investing in the Fund. Past performance (before and after taxes) is
not necessarily an indication of how the Fund will perform in the future. You
may get updated performance information by calling 1-800-787-1621 or online at
www.principaletfs.com.
Investment
Advisor and Portfolio Managers
Principal Global Investors,
LLC
|
|
• |
John R. Friedl (since 2018),
Portfolio Manager |
|
|
• |
Paul S. Kim (since 2018),
Portfolio Manager |
|
|
• |
Daniela Spassova (since 2018),
Portfolio Manager |
|
|
• |
Timothy R. Warrick (since
2018), Portfolio Manager |
Purchase and Sale
of Fund Shares
The Fund issues and redeems Shares
at net asset value (“NAV”) only with authorized participants ("APs") who have
entered into agreements with the Fund’s distributor and only in blocks of 50,000
Shares (each block of Shares is called a "Creation Unit"), or multiples thereof
("Creation Unit Aggregations"), in exchange for the deposit or delivery of a
basket of securities that the Fund specifies each day. Except when aggregated in
Creation Units, the Shares are not redeemable securities of the Fund. Typically,
the basket of assets will be made up of securities, but may include a cash
component. (See "Purchase and Redemption of Creation Units" in the Statement of
Additional Information for more information.)
Individual Shares of the Fund may be
purchased and sold only on a national securities exchange through brokers.
Shares of the Fund are listed for trading on NYSE Arca, Inc., and because the
Shares will trade at market prices rather than NAV, Shares may trade at prices
greater than NAV (at a premium), at NAV, or less than NAV (at a
discount).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary's website
for more information.
PRINCIPAL
MILLENNIALS INDEX ETF
|
|
Objective: |
The Fund seeks to provide
investment results that closely correspond, before expenses, to the
performance of the Nasdaq Global Millennial Opportunity Index (the
"Index"). |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund (“Shares”).
Investors may pay brokerage commissions on their purchases and sales of Shares,
which are not reflected in the table or the example below.
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
Management Fees |
0.45% |
Other Expenses |
—% |
Total Annual
Fund Operating Expenses (1) |
0.45% |
|
|
|
(1) |
The investment management
agreement (the “Management Agreement”) between the Fund and Principal
Global Investors, LLC (“PGI”) provides that, for the duration of the
Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan
(if or when such fees are imposed), brokerage commissions and other
expenses connected to the execution of portfolio transactions, interest
expense, taxes, acquired fund fees and expenses, litigation expenses and
other extraordinary expenses. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. The Example also assumes
that your investment has a 5% return each year and that the Fund’s operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal Millennials Index
ETF |
$46 |
$144 |
$252 |
$567 |
Portfolio
Turnover
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. During the most recent fiscal
year, the Fund's annualized portfolio turnover rate was 32.9 % of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the Fund
invests at least 80% of its net assets, plus any borrowings for investment
purposes, in equity securities of companies that compose the Index at the time
of purchase. The Index uses a quantitative model designed to identify equity
securities of companies in the Nasdaq Global Index (the "Parent Index") that are
impacted by the spending and lifestyle activities of the Millennial generation,
which refers to people born from 1980 to the mid-2000s. The Index may include
U.S. and foreign (including emerging market) securities. The Index may include
equity securities of different market capitalizations (small, medium, or large)
and styles (growth or value) and is weighted based upon capitalization and
exposure to Millennials. Market segments with the greatest Millennial exposure
are likely to include, without limitation, consumer goods (including fashion and
apparel), social media and e-commerce, and digital media and technology.
To be eligible for the Index, a
security must be a component of the Parent Index. However, an exchange-listed
security that is not a component of the Parent Index may be eligible if it
otherwise meets all of the eligibility criteria. Each security's exposure to
Millennials is determined using a proprietary, multi-step research process. Each
company is identified as having low, medium, or high exposure to Millennials
based on the materiality of the company's exposure to Millennial-related themes
and the potential role of Millennials in driving long-term growth. To be
eligible for the Index, a security must have high or medium exposure to
Millennials. "Medium exposure" means that Millennials-related products,
technologies, services and solutions are an important factor of the company's
business model, strategy and research and development, and are material to sales
and/or growth. "High exposure" means that Millennials-related products,
technologies, services and solutions are core to the company's business model,
strategy and research and development, and are material to sales and/or growth.
Securities of companies having high exposure to Millennials receive 70% of the
weight of the index, and securities of companies having medium exposure to
Millennials receive 30% of the weight of the index.
The Index is rebalanced annually.
Additionally, throughout the year securities that become ineligible for the
Index are removed and not replaced. The Fund will make corresponding changes to
its portfolio shortly after Index changes are made public. As of June 30, 2019,
the Index included 102 components, and the Parent Index included 8,910
components. More detailed information about the Index methodology is provided in
the prospectus under Fund Account Information.
The Fund employs a passive
investment approach designed to attempt to track the performance of the Index.
In seeking its objective, the Fund typically employs a "full replication"
strategy which involves investing in all the securities that make up the Index,
in the same approximate proportions as the Index. The Fund can, however, use a
“sampling” methodology to purchase a subset of the securities in the Index in an
effort to hold a portfolio of securities with generally the same risk and return
characteristics of the Index. The Fund can also invest in securities not
included in the Index that the advisor believes will help the fund track the
Index.
The Fund will not concentrate its
investments (invest more than 25% of its assets) in a particular industry except
to the extent the Index is so concentrated.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund are listed below in alphabetical order
and not in order of significance.
Consumer Goods
and Consumer Services Sectors Risk. The Fund invests in securities of
companies in the consumer services and consumers goods sectors to the extent the
Index is composed of such securities. Such companies are particularly subject to
risks related to performance of the overall global economy, interest rates,
competition, government regulation, and consumer confidence. Success depends
heavily on disposable income and consumer spending, and is also impacted by
consumer interest and marketing campaigns. Companies in these sectors may be
subject to severe competition, which may have an adverse impact on their
profitability. Changes in demographics and consumer tastes can affect the demand
for, and success of, consumer goods and
services in the
marketplace.
Emerging Markets
Risk. Investments in
emerging market countries may have more risk than those in developed market
countries because the emerging markets are less developed and more illiquid.
Emerging market countries can also be subject to increased social, economic,
regulatory, and political uncertainties and can be extremely
volatile.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s) (such as market capitalization or style) may underperform other
market segments or the equity markets as a whole.
|
|
• |
Growth
Stock Risk.
If growth companies do not
increase their earnings at a rate expected by investors, the market price
of the stock may decline significantly, even if earnings show an absolute
increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
|
|
|
• |
Small and
Medium Market Capitalization Companies Risk. Investments in small and medium sized companies
may involve greater risk and price volatility than investments in larger,
more mature companies.
|
|
|
• |
Value Stock
Risk. Value stocks may continue to
be undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that would
cause the stock price to increase may not occur as anticipated or at all.
Moreover, a stock that appears to be undervalued actually may be
appropriately priced at a low level and therefore would not be profitable
for the fund.
|
Foreign Currency
Risk. Risks of investing in securities
denominated in, or that trade in, foreign (non-U.S.) currencies include changes
in foreign exchange rates and foreign exchange restrictions.
Foreign
Securities Risk.
The risks of foreign
securities include loss of value as a result of: political or economic
instability; nationalization, expropriation or confiscatory taxation; settlement
delays; and limited government regulation (including less stringent reporting,
accounting, and disclosure standards than are required of U.S.
companies).
Index Fund
Risk. An index fund has operating and
other expenses while an index does not. As a result, over time, index funds tend
to underperform the index. The correlation between fund performance and index
performance may also be affected by the type of passive investment approach used
by a fund (sampling or replication), changes in securities markets, changes in
the composition of the index, and the timing of purchases and sales of fund
shares.
Industry
Concentration Risk. A
fund that concentrates investments in a particular industry or group of
industries has greater exposure than other funds to market, economic and other
factors affecting that industry or group of industries.
Information
Technology Sector Risk.
The Fund expects to
invest in securities of companies in the information technology sector to the
extent the Index is composed of such securities. Such companies may face
dramatic and often unpredictable changes in growth rates and are particularly
vulnerable to changes in technology product cycles, product obsolescence,
government regulation, and competition, both domestically and internationally.
Such companies are heavily dependent on patent and intellectual property rights,
the loss or impairment of which may adversely affect profitability.
Market Trading
Risks. The Fund faces
numerous market trading risks, including the potential lack of an active market
for Fund shares, losses from trading in secondary markets, and disruption to the
activities of market makers, authorized participants, or other participants and
in the creation/redemption process of the Fund. ANY OF THESE FACTORS MAY LEAD TO
THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV.
Redemption and
Large Transaction Risk. Ownership of the fund's shares may
be concentrated in one or a few large investors (such as funds of funds,
institutional investors, and asset allocation programs) that may redeem or
purchase shares in large quantities. These transactions may cause the fund to
sell securities to meet redemptions or to invest additional cash at times it
would not otherwise do so, which may result in increased transaction costs,
increased expenses, changes to expense ratios, and adverse effects to fund
performance. Such transactions may also accelerate the realization of taxable
income if sales of portfolio securities result in gains.
Performance
The following information provides
some indication of the risks of investing in the Fund. Past performance (before
and after taxes) is not necessarily an indication of how the Fund will perform
in the future. You may get updated performance information by calling
1-800-787-1621 or online at www.principaletfs.com.
The bar chart shows the investment
returns of the Fund’s shares for each full calendar year of operations for 10
years (or, if shorter, the life of the Fund). The table shows for the last one,
five, and ten calendar year periods (or, if shorter, the life of the Fund), how
the Fund’s average annual total returns compare with those of one or more broad
measures of market performance.
Life of Fund returns are measured
from the date the Fund's shares were first sold (August 19, 2016).
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q4
'17 |
10.26% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'18 |
(18.27)% |
(1)
The year-to-date return as of
September 30, 2019 is 20.68% .
|
|
|
|
Average
Annual Total Returns (Based on NAV) |
For the
periods ended December 31, 2018 |
1 Year |
Life of
Fund |
Return
Before Taxes |
(7.90)% |
11.05% |
Return After
Taxes on Distributions |
(8.05)% |
10.82% |
Return After
Taxes on Distributions and Sale of Fund Shares |
(4.55)% |
8.55% |
Nasdaq Global Millennial
Opportunity Index |
(7.49)% |
11.65% |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts.
Investment
Advisor and Portfolio Managers
Principal Global Investors,
LLC
|
|
• |
Paul S. Kim (since 2016),
Portfolio Manager |
|
|
• |
Mark R. Nebelung (since 2016),
Portfolio Manager |
|
|
• |
Jeffrey A. Schwarte (since
2016), Portfolio Manager |
Purchase and Sale
of Fund Shares
The Fund issues and redeems Shares
at net asset value (“NAV”) only with authorized participants ("APs") who have
entered into agreements with the Fund’s distributor and only in blocks of 50,000
Shares (each block of Shares is called a "Creation Unit"), or multiples thereof
("Creation Unit Aggregations"), in exchange for the deposit or delivery of a
basket of securities that the Fund specifies each day. Except when aggregated in
Creation Units, the Shares are not redeemable securities of the Fund. Typically,
the basket of assets will be made up of securities, but may include a cash
component. (See "Purchase and Redemption of Creation Units" in the Statement of
Additional Information for more information.)
Individual Shares of the Fund may be
purchased and sold only on a national securities exchange through brokers.
Shares of the Fund are listed for trading on The Nasdaq Stock Market LLC and
because the Shares will trade at market prices rather than NAV, Shares may trade
at prices greater than NAV (at a premium), at NAV, or less than NAV (at a
discount).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary's website
for more information.
PRINCIPAL PRICE
SETTERS INDEX ETF
|
|
Objective: |
The Fund seeks to provide
investment results that closely correspond, before expenses, to the
performance of the Nasdaq US Price Setters Index (the
"Index"). |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund (“Shares”).
Investors may pay brokerage commissions on their purchases and sales of Shares,
which are not reflected in the table or the example below.
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
Management Fees (1) |
0.29% |
Other Expenses |
—% |
Total Annual
Fund Operating Expenses (2) |
0.29% |
|
|
|
(1) |
Fees have been restated to
reflect current fees. |
(2) |
The investment
management agreement (the “Management Agreement”) between the Fund and
Principal Global Investors, LLC (“PGI”) provides that, for the duration of the
Management Agreement, PGI will
pay all operating expenses of the Fund, except for the Management Fee,
payments made under each Series 12b-1 plan (if or when such fees are
imposed), brokerage commissions and other expenses connected to the
execution of portfolio transactions, interest expense, taxes, acquired
fund fees and expenses, litigation expenses and other extraordinary
expenses. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. The Example also assumes
that your investment has a 5% return each year and that the Fund’s operating
expenses remain the same. The calculation of costs takes into account any
applicable contractual fee waivers and/or expense reimbursements for the period
noted in the table above. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal Price Setters Index
ETF |
$30 |
$93 |
$163 |
$368 |
Portfolio
Turnover
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. During the most recent fiscal
year, the Fund's annualized portfolio turnover rate was 40.4 % of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the Fund
invests at least 80% of its net assets, plus any borrowings for investment
purposes, in equity securities of companies that compose the Index at the time
of purchase. The Index uses a quantitative model designed to identify equity
securities of mid- to large-capitalization companies in the Nasdaq US Large Mid
Cap Index (the "Parent Index") that exhibit high degrees of pricing power.
"Pricing power" refers to the extent to which a company can raise the prices of
its products without reducing the demand for them.
To be eligible for the Index, a
security must be a component of the Parent Index and must be a top 550 name by
market capitalization. Securities are ranked based upon eleven factors that
include calculations based on earnings per share ("EPS") growth, operating
margin, operating margin growth, return volatility, sales growth, return on
equity, and earning quality. The average of the 11 factor scores is taken to
create one score used to rank the securities. The top 150 securities by final
rank are selected. The Index employs a modified equal dollar weighting
methodology with those in the higher ranking groups receiving relatively more
weight.
The Index is rebalanced annually.
Additionally, throughout the year securities that become ineligible for the
Index are removed and not replaced. The Fund will make corresponding changes to
its portfolio shortly after Index changes are made public. As of June 30, 2019,
the Index included 149 components, and the Parent Index included 967 components.
More detailed information about the Index methodology is provided in the
prospectus under Fund Account Information.
The Fund employs a passive
investment approach designed to attempt to track the performance of the Index.
In seeking its objective, the Fund typically employs a "full replication"
strategy which involves investing in all the securities that make up the Index,
in the same approximate proportions as the Index. The Fund can, however, use a
“sampling” methodology to purchase a subset of the securities in the Index in an
effort to hold a portfolio of securities with generally the same risk and return
characteristics of the Index. The Fund can also purchase securities not included
in the Index that the advisor believes will help the fund track the Index.
The Fund will not concentrate its
investments (invest more than 25% of its assets) in a particular industry except
to the extent the Index is so concentrated.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund are listed below in alphabetical order
and not in order of significance.
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
|
|
• |
Growth
Stock Risk. If growth companies do
not increase their earnings at a rate expected by investors, the market
price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend
yield that can lessen price declines in market downturns.
|
|
|
• |
Medium
Market Capitalization Companies. Investments in medium sized companies may
involve greater risk and price volatility than investments in larger, more
mature companies.
|
|
|
• |
Value Stock
Risk. Value stocks may continue to
be undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that would
cause the stock price to increase may not occur as anticipated or at all.
Moreover, a stock that appears to be undervalued actually may be
appropriately priced at a low level and therefore would not be profitable
for the fund.
|
Industry
Concentration Risk. A
fund that concentrates investments in a particular industry or group of
industries has greater exposure than other funds to market, economic and other
factors affecting that industry or group of industries.
Index Fund
Risk. An index fund has operating and
other expenses while an index does not. As a result, over time, index funds tend
to underperform the index. The correlation between fund performance and index
performance may also be affected by the type of passive investment approach used
by a fund (sampling or replication), changes in securities markets, changes in
the composition of the index, and the timing of purchases and sales of fund
shares.
Market Trading
Risks. The Fund faces
numerous market trading risks, including the potential lack of an active market
for Fund shares, losses from trading in secondary markets, and disruption to the
activities of market makers, authorized participants, or other participants and
in the creation/redemption process of the Fund. ANY OF THESE FACTORS MAY LEAD TO
THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV.
Redemption and
Large Transaction Risk. Ownership of the fund's shares may
be concentrated in one or a few large investors (such as funds of funds,
institutional investors, and asset allocation programs) that may redeem or
purchase shares in large quantities. These transactions may cause the fund to
sell securities to meet redemptions or to invest additional cash at times it
would not otherwise do so, which may result in increased transaction costs,
increased expenses, changes to expense ratios, and adverse effects to fund
performance. Such transactions may also accelerate the realization of taxable
income if sales of portfolio securities result in gains.
Performance
The following information provides
some indication of the risks of investing in the Fund. Past performance (before
and after taxes) is not necessarily an indication of how the Fund will perform
in the future. You may get updated performance information by calling
1-800-787-1621 or online at www.principaletfs.com.
The bar chart shows the investment
returns of the Fund’s shares for each full calendar year of operations for 10
years (or, if shorter, the life of the Fund). The table shows for the last one,
five, and ten calendar year periods (or, if shorter, the life of the Fund), how
the Fund’s average annual total returns compare with those of one or more broad
measures of market performance.
Life of Fund returns are measured
from the date the Fund's shares were first sold (March 21, 2016).
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q4
'17 |
7.05% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'18 |
(10.52)% |
(1)
The year-to-date return as of
September 30, 2019 is 23.68% .
|
|
|
|
Average
Annual Total Returns (Based on NAV) |
For the
periods ended December 31, 2018 |
1 Year |
Life of
Fund |
Return
Before Taxes |
(1.44)% |
9.73% |
Return After
Taxes on Distributions |
(1.73)% |
9.38% |
Return After
Taxes on Distributions and Sale of Fund Shares |
(0.63)% |
7.53% |
Nasdaq US Price Setters
Index |
(1.17)% |
10.14% |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts.
Investment
Advisor and Portfolio Managers
Principal Global Investors,
LLC
|
|
• |
Paul S. Kim (since 2016),
Portfolio Manager |
|
|
• |
Mark R. Nebelung (since 2016),
Portfolio Manager |
|
|
• |
Jeffrey A. Schwarte (since
2016), Portfolio Manager |
Purchase and Sale
of Fund Shares
The Fund issues and redeems Shares
at net asset value (“NAV”) only with authorized participants ("APs") who have
entered into agreements with the Fund’s distributor and only in blocks of 50,000
Shares (each block of Shares is called a "Creation Unit"), or multiples thereof
("Creation Unit Aggregations"), in exchange for the deposit or delivery of a
basket of securities that the Fund specifies each day. Except when aggregated in
Creation Units, the Shares are not redeemable securities of the Fund. Typically,
the basket of assets will be made up of securities, but may include a cash
component. (See "Purchase and Redemption of Creation Units" in the Statement of
Additional Information for more information.)
Individual Shares of the Fund may be
purchased and sold only on a national securities exchange through brokers.
Shares of the Fund are listed for trading on The Nasdaq Stock Market LLC and
because the Shares will trade at market prices rather than NAV, Shares may trade
at prices greater than NAV (at a premium), at NAV, or less than NAV (at a
discount).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary's website
for more information.
PRINCIPAL
SHAREHOLDER YIELD INDEX ETF
|
|
Objective: |
The Fund seeks to provide
investment results that closely correspond, before expenses, to the
performance of the Nasdaq US Shareholder Yield Index (the
"Index"). |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund (“Shares”).
Investors may pay brokerage commissions on their purchases and sales of Shares,
which are not reflected in the table or the example below.
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
Management Fees (1) |
0.29% |
Other Expenses |
—% |
Total Annual
Fund Operating Expenses (2) |
0.29% |
|
|
|
(1) |
Fees have been restated to
reflect current fees. |
(2) |
The investment
management agreement (the “Management Agreement”) between the Fund and
Principal Global Investors, LLC (“PGI”) provides that, for the duration of the
Management Agreement, PGI will
pay all operating expenses of the Fund, except for the Management Fee,
payments made under each Series 12b-1 plan (if or when such fees are
imposed), brokerage commissions and other expenses connected to the
execution of portfolio transactions, interest expense, taxes, acquired
fund fees and expenses, litigation expenses and other extraordinary
expenses. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. The Example also assumes
that your investment has a 5% return each year and that the Fund’s operating
expenses remain the same. The calculation of costs takes into account any
applicable contractual fee waivers and/or expense reimbursements for the period
noted in the table above. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal Shareholder Yield
Index ETF |
$30 |
$93 |
$163 |
$368 |
Portfolio
Turnover
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. During the most recent fiscal
year, the Fund's annualized portfolio turnover rate was 49.2 % of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the Fund
invests at least 80% of its net assets, plus any borrowings for investment
purposes, in equity securities of companies that compose the Index at the time
of purchase. The Index uses a quantitative model designed to identify equity
securities (including value stock) of mid- to large-capitalization companies in
the Nasdaq US Large Mid Cap Index (the "Parent Index") that exhibit high degrees
of sustainable, shareholder yield. "Shareholder yield" refers to the collective
financial impact on a company's shareholders from the return of free cash flow
through cash dividends, stock repurchases, and debt reduction.
To be eligible for the Index, a
security must be a component of the Parent Index and the security must have paid
a regular dividend in the prior year. Securities are ranked based upon nine
factors that include calculations based on dividend yield, buyback yield,
dividend payout per share, free cash flow, price, Sharpe ratio, EBITDA, debt,
dividend yield historical valuation, and dividend growth. Securities that rank
in the top 20% are included in the Index. The Index employs a modified equal
dollar weighting methodology with those in the higher ranking groups receiving
relatively more weight.
The Index is rebalanced annually.
Additionally, throughout the year securities that become ineligible for the
Index are removed and not replaced. The Fund will make corresponding changes to
its portfolio shortly after Index changes are made public. As of June 30, 2019,
the Index included 136 components, and the Parent Index included 967 components.
More detailed information about the Index methodology is provided in the
prospectus under Fund Account Information.
The Fund employs a passive
investment approach designed to attempt to track the performance of the Index.
In seeking its objective, the Fund typically employs a "full replication"
strategy which involves investing in all the securities that make up the Index,
in the same approximate proportions as the Index. The Fund can, however, use a
“sampling” methodology to purchase a subset of the securities in the Index in an
effort to hold a portfolio of securities with generally the same risk and return
characteristics of the Index. The Fund can also purchase securities not included
in the Index that the advisor believes will help the fund track the Index.
The Fund will not concentrate its
investments (invest more than 25% of its assets) in a particular industry except
to the extent the Index is so concentrated.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund are listed below in alphabetical order
and not in order of significance.
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
|
|
• |
Growth
Stock Risk. If growth companies do
not increase their earnings at a rate expected by investors, the market
price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend
yield that can lessen price declines in market downturns.
|
|
|
• |
Medium
Market Capitalization Companies. Investments in medium sized companies may
involve greater risk and price volatility than investments in larger, more
mature companies.
|
|
|
• |
Value Stock
Risk. Value stocks may continue to
be undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that would
cause the stock price to increase may not occur as anticipated or at all.
Moreover, a stock that appears to be undervalued actually may be
appropriately priced at a low level and therefore would not be profitable
for the fund.
|
Index Fund
Risk. An index fund has operating and
other expenses while an index does not. As a result, over time, index funds tend
to underperform the index. The correlation between fund performance and index
performance may also be affected by the type of passive investment approach used
by a fund (sampling or replication), changes in securities markets, changes in
the composition of the index, and the timing of purchases and sales of fund
shares.
Industry
Concentration Risk. A
fund that concentrates investments in a particular industry or group of
industries has greater exposure than other funds to market, economic and other
factors affecting that industry or group of industries.
Market Trading
Risks. The Fund faces
numerous market trading risks, including the potential lack of an active market
for Fund shares, losses from trading in secondary markets, and disruption to the
activities of market makers, authorized participants, or other participants and
in the creation/redemption process of the Fund. ANY OF THESE FACTORS MAY LEAD TO
THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV.
Redemption and
Large Transaction Risk. Ownership of the fund's shares may
be concentrated in one or a few large investors (such as funds of funds,
institutional investors, and asset allocation programs) that may redeem or
purchase shares in large quantities. These transactions may cause the fund to
sell securities to meet redemptions or to invest additional cash at times it
would not otherwise do so, which may result in increased transaction costs,
increased expenses, changes to expense ratios, and adverse effects to fund
performance. Such transactions may also accelerate the realization of taxable
income if sales of portfolio securities result in gains.
Performance
The following information provides
some indication of the risks of investing in the Fund. Past performance (before
and after taxes) is not necessarily an indication of how the Fund will perform
in the future. You may get updated performance information by calling
1-800-787-1621 or online at www.principaletfs.com.
The bar chart shows the investment
returns of the Fund’s shares for each full calendar year of operations for 10
years (or, if shorter, the life of the Fund). The table shows for the last one,
five, and ten calendar year periods (or, if shorter, the life of the Fund), how
the Fund’s average annual total returns compare with those of one or more broad
measures of market performance.
Life of Fund returns are measured
from the date the Fund's shares were first sold (March 21, 2016).
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q4
'17 |
7.88% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'18 |
(16.48)% |
(1)
The year-to-date return as of
September 30, 2019 is 16.99% .
|
|
|
|
Average
Annual Total Returns (Based on NAV) |
For the
periods ended December 31, 2018 |
1 Year |
Life of
Fund |
Return
Before Taxes |
(12.51)% |
6.11% |
Return After
Taxes on Distributions |
(12.94)% |
5.58% |
Return After
Taxes on Distributions and Sale of Fund Shares |
(7.03)% |
4.72% |
Nasdaq US Shareholder Yield
Index |
(12.29)% |
6.50% |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts.
Investment
Advisor and Portfolio Managers
Principal Global Investors,
LLC
|
|
• |
Paul S. Kim (since 2016),
Portfolio Manager |
|
|
• |
Mark R. Nebelung (since 2016),
Portfolio Manager |
|
|
• |
Jeffrey A. Schwarte (since
2016), Portfolio Manager |
Purchase and Sale
of Fund Shares
The Fund issues and redeems Shares
at net asset value (“NAV”) only with authorized participants ("APs") who have
entered into agreements with the Fund’s distributor and only in blocks of 50,000
Shares (each block of Shares is called a "Creation Unit"), or multiples thereof
("Creation Unit Aggregations"), in exchange for the deposit or delivery of a
basket of securities that the Fund specifies each day. Except when aggregated in
Creation Units, the Shares are not redeemable securities of the Fund. Typically,
the basket of assets will be made up of securities, but may include a cash
component. (See "Purchase and Redemption of Creation Units" in the Statement of
Additional Information for more information.)
Individual Shares of the Fund may be
purchased and sold only on a national securities exchange through brokers.
Shares of the Fund are listed for trading on The Nasdaq Stock Market LLC and
because the Shares will trade at market prices rather than NAV, Shares may trade
at prices greater than NAV (at a premium), at NAV, or less than NAV (at a
discount).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary's website
for more information.
PRINCIPAL
SPECTRUM PREFERRED SECURITIES ACTIVE ETF
Objective: The Fund seeks to provide current
income.
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund ("Shares").
Investors may pay brokerage commissions on their purchases and sales of Shares,
which are not reflected in the table or the example below.
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
Management Fees |
0.55% |
Other Expenses |
—% |
Total Annual
Fund Operating Expenses (1) |
0.55% |
|
|
|
|
(1) |
The investment management
agreement (the “Management Agreement”) between the Fund and Principal
Global Investors, LLC (“PGI”) provides that, for the duration of the
Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan
(if or when such fees are imposed), brokerage commissions and other
expenses connected to the execution of portfolio transactions, interest
expense, taxes, acquired fund fees and expenses, litigation expenses and
other extraordinary expenses. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal Spectrum Preferred
Securities Active ETF |
$56 |
$176 |
$307 |
$689 |
Portfolio
Turnover
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. During the most recent fiscal
year, the Fund's annualized portfolio turnover rate was 27.6 % of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the Fund
invests at least 80% of its net assets, plus any borrowings for investment
purposes, in preferred securities at the time of purchase. Examples of preferred
securities include preferred stock, certain depositary receipts, and various
types of junior subordinated debt (such debt generally includes the contractual
ability to defer payment of interest without accelerating an immediate default
event). In particular, the Fund focuses on preferred securities known as “$1,000
par preferred securities” which are issued in large, institutional lot sizes,
typically by U.S. and non-U.S. financial services companies (i.e., banking,
insurance and commercial finance companies) and other corporations. Preferred
securities generally pay fixed and floating rate distributions and are junior to
all forms of the company's senior debt, but may have "preference" over common
stock in the payment of distributions and the liquidation of a company's assets.
The Fund may invest its assets in below investment grade preferred securities
(sometimes called “high yield” or "junk") which are rated at the time of
purchase Ba1 or lower by Moody's Investors Service, Inc. (“Moody’s”) and BB+ or
lower by Standard & Poor’s Rating Service (“S&P”) (if a security is
rated differently by the rating agencies, the highest rating is used; if
the security has been rated by only one of those agencies, that rating will
determine whether the security is below investment grade; If the security has
not been rated by either of those agencies, the Sub-Advisor will determine
whether the security is of a quality comparable to those rated below investment
grade).
The Fund concentrates its
investments (invests more than 25% of its net assets) in securities in one or
more industries (i.e., banking, insurance and commercial finance) within the
financial services sector.
During the fiscal year ended June
30, 2019, the average ratings of the Fund’s fixed-income assets, based on market
value at each month-end, were as follows (all ratings are by Moody’s):
|
|
|
|
|
0.00% in securities rated Aaa
|
40.98% in securities rated
Baa |
0.00% in securities rated
Caa |
0.00% in securities rated
D |
0.00% in securities rated
Aa |
45.93% in securities rated
Ba |
0.00% in securities rated
Ca |
0.00% in securities not
rated |
13.09% in securities rated
A |
0.00% in securities rated
B |
0.00% in securities rated
C |
|
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund are listed below in alphabetical order
and not in order of significance.
Fixed-Income
Securities Risk.
Fixed-income securities
are subject to interest rate, credit quality, and liquidity risks. The market
value of fixed-income securities generally declines when interest rates rise,
and increased interest rates may adversely affect the liquidity of certain
fixed-income securities. Moreover, an issuer of fixed-income securities could
default on its payment obligations due to increased interest rates or for other
reasons.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
High Yield
Securities Risk. High
yield fixed-income securities (commonly referred to as "junk bonds") are subject
to greater credit quality risk than higher rated fixed-income securities and
should be considered speculative.
Industry
Concentration Risk. A fund that concentrates investments
in a particular industry or group of industries has greater exposure than other
funds to market, economic and other factors affecting that industry or group of
industries.
|
|
• |
Financial
Services. A fund concentrating in
financial services companies may be more susceptible to adverse economic
or regulatory occurrences affecting financial services companies.
Financial companies may be adversely affected in certain market cycles,
including periods of rising interest rates, which may restrict the
availability and increase the cost of capital, and declining economic
conditions, which may cause credit losses due to financial difficulties of
borrowers. Because many types of financial companies are especially
vulnerable to these economic cycles, the Fund’s investments in these
companies may lose significant value during such periods. |
Liquidity Risk.
A Fund is exposed to
liquidity risk when trading volume, lack of a market maker, or legal
restrictions impair the Fund's ability to sell particular securities or close
derivative positions at an advantageous price. Funds with principal investment
strategies that involve certain fixed-income securities, securities of companies
with smaller market capitalizations, foreign securities, derivatives, high yield
bonds and bank loans or securities with substantial market and/or credit risk
tend to have the greatest exposure to liquidity risk.
Market Trading
Risks. The Fund faces
numerous market trading risks, including the potential lack of an active market
for Fund shares, losses from trading in secondary markets, and disruption to the
activities of market makers, authorized participants, or other participants and
in the creation/redemption process of the Fund. ANY OF THESE FACTORS MAY LEAD TO
THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates, which means funds with
longer average portfolio durations may be more volatile than those with shorter
durations.
Preferred
Securities Risk. Because preferred securities have a
lower priority claim on assets or earnings than senior bonds and other debt
instruments in a company's capital structure, they are subject to greater credit
and liquidation risk than more senior debt instruments. In addition, preferred
securities are subject to other risks, such as limited or no voting rights,
deferring or skipping distributions, interest rate risk, and redeeming the
security prior to any stated maturity date.
Redemption and
Large Transaction Risk. Ownership of the fund's shares may
be concentrated in one or a few large investors (such as funds of funds,
institutional investors, and asset allocation programs) that may redeem or
purchase shares in large quantities. These transactions may cause the fund to
sell securities to meet redemptions or to invest additional cash at times it
would not otherwise do so, which may result in increased transaction costs,
increased expenses, changes to expense ratios, and adverse effects to fund
performance. Such transactions may also accelerate the realization of taxable
income if sales of portfolio securities result in gains.
Performance
The following information provides
some indication of the risks of investing in the Fund. Past performance (before
and after taxes) is not necessarily an indication of how the Fund will perform
in the future. You may get updated performance information by calling
1-800-787-1621 or online at www.principaletfs.com.
The bar chart shows the investment
returns of the Fund’s shares for each full calendar year of operations for 10
years (or, if shorter, the life of the Fund). The table shows for the last one,
five, and ten calendar year periods (or, if shorter, the life of the Fund), how
the Fund’s average annual total returns compare with those of one or more broad
measures of market performance.
Life of Fund returns are measured
from the date the Fund's shares were first sold (July 10, 2017).
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q3
'18 |
1.44% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'18 |
(3.83)% |
(1)
The year-to-date return as of
September 30, 2019 is 14.68% .
|
|
|
|
Average
Annual Total Returns (Based on NAV) |
For the
periods ended December 31, 2018 |
1 Year |
Life of
Fund |
Return
Before Taxes |
(5.62)% |
(2.52)% |
Return After
Taxes on Distributions |
(7.17)% |
(4.18)% |
Return After
Taxes on Distributions and Sale of Fund Shares |
(2.85)% |
(2.34)% |
ICE BofA Merrill Lynch U.S.
Investment Grade Institutional Capital Securities Index |
(4.52)% |
(1.61)% |
ICE BofA Merrill Lynch U.S.
High Yield Institutional Capital Securities Index |
(6.67)% |
(1.50)% |
Preferred Securities Active ETF
Blended Index |
(5.13)% |
(1.87)% |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts.
Performance of a blended index shows
how the Fund’s performance compares to a blend of indices with similar
investment objectives. Performance of the components of the blended index are
also shown. The weightings of the Preferred Securities Active ETF Blended Index
are as follows: 65% ICE BofA Merrill Lynch U.S. Investment Grade Institutional
Capital Securities Index and 35% ICE BofA Merrill Lynch U.S. High Yield
Institutional Capital Securities Index. The blended index returns reflect the
allocation described in the preceding sentence.
Investment
Advisor and Portfolio Managers
Principal Global Investors,
LLC
|
|
• |
Paul S. Kim (since 2017),
Portfolio Manager |
|
|
• |
Daniela Spassova (since 2017),
Portfolio Manager |
Sub-Advisor and
Portfolio Managers
Spectrum Asset Management,
Inc.
|
|
• |
Roberto Giangregorio (since
2017), Portfolio Manager |
|
|
• |
L. Phillip Jacoby, IV (since
2017), Chief Investment Officer and Portfolio
Manager |
|
|
• |
Manu Krishnan (since 2017),
Portfolio Manager |
|
|
• |
Mark A. Lieb (since 2017),
President and Chief Executive Officer |
Purchase and Sale
of Fund Shares
The Fund issues and redeems Shares
at net asset value (“NAV”) only with authorized participants ("APs") who have
entered into agreements with the Fund’s distributor and only in blocks of 50,000
Shares (each block of Shares is called a "Creation Unit"), or multiples thereof
("Creation Unit Aggregations"), in exchange for the deposit or delivery of a
basket of securities that the Fund specifies each day. Except when aggregated in
Creation Units, the Shares are not redeemable securities of the Fund. Typically,
the basket of assets will be made up of securities, but may include a cash
component. (See "Purchase and Redemption of Creation Units" in the Statement of
Additional Information for more information.)
Individual Shares of the Fund may be
purchased and sold only on a national securities exchange through brokers.
Shares of the Fund are listed for trading on Cboe BZX Exchange, Inc., and
because the Shares will trade at market prices rather than NAV, Shares may trade
at prices greater than NAV (at a premium), at NAV, or less than NAV (at a
discount).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary's website
for more information.
PRINCIPAL
SUSTAINABLE MOMENTUM INDEX ETF
|
|
Objective: |
The Fund seeks to provide
investment results that closely correspond, before expenses, to the
performance of the Nasdaq US Sustainable Momentum Index (the
"Index"). |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund (“Shares”).
Investors may pay brokerage commissions on their purchases and sales of Shares,
which are not reflected in the table or the example below.
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
Management Fees |
0.29% |
Other Expenses |
—% |
Total Annual
Fund Operating Expenses (1) |
0.29% |
|
|
|
(1) |
The investment management
agreement (the “Management Agreement”) between the Fund and Principal
Global Investors, LLC (“PGI”) provides that, for the duration of the
Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan
(if or when such fees are imposed), brokerage commissions and other
expenses connected to the execution of portfolio transactions, interest
expense, taxes, acquired fund fees and expenses, litigation expenses and
other extraordinary expenses. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal Sustainable Momentum
Index ETF |
$30 |
$93 |
$163 |
$368 |
Portfolio
Turnover
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. During the most recent fiscal
year, the Fund's annualized portfolio turnover rate was 102.6 % of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the Fund
invests at least 80% of its net assets, plus any borrowings for investment
purposes, in equity securities of companies that compose the Index at the time
of purchase. The Index uses a quantitative model designed to identify equity
securities (including growth and value stocks) of companies in the Nasdaq US
Large Mid Cap Index (the “Parent Index”) that exhibit sustainable price
momentum, based on historical stock prices over multiple periods and taking
multiple market environments into consideration. The Fund actively trades
portfolio securities.
To be eligible for the Index, a
security must be a component of the Parent Index, which is composed of equity
securities of U.S. issuers with medium and large market capitalizations. Each
security is assigned Sustainable Momentum (SUMO) Score based on intermediate
factors (3, 4, 5, 6, 7, 8, 9, 10, 11 and 12 month risk-adjusted returns) and
long-term factors (36, 48, and 60 month risk-adjusted returns), with volatility
adjustments used to determine a composite score. Securities with SUMO scores
that rank in the top 15% are included in the Index, in addition to securities
already in the Index that rank in the top 35%. Once selected, the securities are
weighted, generally giving those in the higher ranking groups relatively more
weight. Weighting is also determined in part on whether the Index is in a "high
volatility regime" (where the ratio of the 1 month to 12 month standard
deviation of the daily returns of the Parent Index exceeds the trailing seven
year average of this ratio by a threshold amount).
The Index is rebalanced annually.
Additionally, throughout the year securities that become ineligible for the
Index are removed and not replaced. Market volatility is monitored monthly; if
the Index is determined to be in a high volatility regime, there is a special
rebalance. The Fund will make corresponding changes to its portfolio shortly
after Index changes are made public. As of June 30, 2019, the Underlying Index
included 137 components, and the Parent Index included 967 components. More
detailed information about the Index methodology is provided in the prospectus
under Fund Account Information.
The Fund employs a passive
investment approach designed to attempt to track the performance of the Index.
In seeking its objective, the Fund typically employs a "full replication"
strategy which involves investing in all the securities that make up the Index,
in the same approximate proportions as the Index. The Fund can, however, use a
“sampling” methodology to purchase a subset of the securities in the Index in an
effort to hold a portfolio of securities with generally the same risk and return
characteristics of the Index. The Fund can also purchase securities not included
in the Index that the advisor believes will help the fund track the Index.
The Fund will not concentrate its
investments (invest more than 25% of its assets) in a particular industry except
to the extent the Index is so concentrated.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund are listed below in alphabetical order
and not in order of significance.
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
|
|
• |
Growth
Stock Risk.
If growth companies do not
increase their earnings at a rate expected by investors, the market price
of the stock may decline significantly, even if earnings show an absolute
increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
|
|
|
• |
Medium
Market Capitalization Companies. Investments in medium sized companies may
involve greater risk and price volatility than investments in larger, more
mature companies.
|
|
|
• |
Value Stock
Risk.
Value stocks may continue to be
undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that would
cause the stock price to increase may not occur as anticipated or at all.
Moreover, a stock that appears to be undervalued actually may be
appropriately priced at a low level and therefore would not be profitable
for the fund.
|
Index Fund
Risk. An index fund has operating and
other expenses while an index does not. As a result, over time, index funds tend
to underperform the index. The correlation between fund performance and index
performance may also be affected by the type of passive investment approach used
by a fund (sampling or replication), changes in securities markets, changes in
the composition of the index, and the timing of purchases and sales of fund
shares.
Industry
Concentration Risk. A
fund that concentrates investments in a particular industry or group of
industries has greater exposure than other funds to market, economic and other
factors affecting that industry or group of industries.
Market Trading
Risks. The Fund faces
numerous market trading risks, including the potential lack of an active market
for Fund shares, losses from trading in secondary markets, and disruption to the
activities of market makers, authorized participants, or other participants and
in the creation/redemption process of the Fund. ANY OF THESE FACTORS MAY LEAD TO
THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV.
Momentum Style
Risk. Stocks that
previously exhibited high momentum characteristics may not experience positive
momentum or may experience more volatility than the market as a whole. In
addition, there may be periods when momentum style is out of favor, during which
the investment performance of a Fund that uses momentum-based strategies may
suffer.
Portfolio
Turnover (Active Trading) Risk. High portfolio turnover (more than
100%) caused by actively trading portfolio securities may result in accelerating
the realization of taxable gains and losses, lower fund performance and
increased brokerage costs.
Redemption and
Large Transaction Risk. Ownership of the fund's shares may
be concentrated in one or a few large investors (such as funds of funds,
institutional investors, and asset allocation programs) that may redeem or
purchase shares in large quantities. These transactions may cause the fund to
sell securities to meet redemptions or to invest additional cash at times it
would not otherwise do so, which may result in increased transaction costs,
increased expenses, changes to expense ratios, and adverse effects to fund
performance. Such transactions may also accelerate the realization of taxable
income if sales of portfolio securities result in gains.
Performance
The following information provides
some indication of the risks of investing in the Fund. Past performance (before
and after taxes) is not necessarily an indication of how the Fund will perform
in the future. You may get updated performance information by calling
1-800-787-1621 or online at www.principaletfs.com.
The bar chart shows the investment
returns of the Fund’s shares for each full calendar year of operations for 10
years (or, if shorter, the life of the Fund). The table shows for the last one,
five, and ten calendar year periods (or, if shorter, the life of the Fund), how
the Fund’s average annual total returns compare with those of one or more broad
measures of market performance.
Life of Fund returns are measured
from the date the Fund's shares were first sold (October 18, 2017).
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q3
'18 |
7.86% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'18 |
(18.58)% |
(1)
The year-to-date return as of
September 30, 2019 is 15.63% .
|
|
|
|
Average
Annual Total Returns (Based on NAV) |
For the
periods ended December 31, 2018 |
1 Year |
Life of
Fund |
Return
Before Taxes |
(5.44)% |
(0.92)% |
Return After
Taxes on Distributions |
(5.60)% |
(1.12)% |
Return After
Taxes on Distributions and Sale of Fund Shares |
(3.08)% |
(0.68)% |
Nasdaq US Sustainable Momentum
Index |
(5.12)% |
(0.58)% |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts.
Investment
Advisor and Portfolio Managers
Principal Global Investors,
LLC
|
|
• |
Paul S. Kim (since 2017),
Portfolio Manager |
|
|
• |
Mark R. Nebelung (since 2017),
Portfolio Manager |
|
|
• |
Jeffrey A. Schwarte (since
2017), Portfolio Manager |
Purchase and Sale
of Fund Shares
The Fund issues and redeems Shares
at net asset value (“NAV”) only with authorized participants ("APs") who have
entered into agreements with the Fund’s distributor and only in blocks of 50,000
Shares (each block of Shares is called a "Creation Unit"), or multiples thereof
("Creation Unit Aggregations"), in exchange for the deposit or delivery of a
basket of securities that the Fund specifies each day. Except when aggregated in
Creation Units, the Shares are not redeemable securities of the Fund. Typically,
the basket of assets will be made up of securities, but may include a cash
component. (See "Purchase and Redemption of Creation Units" in the Statement of
Additional Information for more information.)
Individual Shares of the Fund may be
purchased and sold only on a national securities exchange through brokers.
Shares of the Fund are listed for trading on The Nasdaq Stock Market LLC and
because the Shares will trade at market prices rather than NAV, Shares may trade
at prices greater than NAV (at a premium), at NAV, or less than NAV (at a
discount).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary's website
for more information.
PRINCIPAL
ULTRA-SHORT ACTIVE INCOME ETF
Objective: The Fund seeks to provide current
income.
Fees and Expenses
of the Fund:
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund ("Shares").
Investors may pay brokerage commissions on their purchases and sales of Shares,
which are not reflected in the table or the example below.
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
Management Fees |
0.18% |
Other Expenses |
—% |
Total Annual
Fund Operating Expenses (1) |
0.18% |
|
|
|
|
|
|
(1) |
The investment management
agreement (the “Management Agreement”) between the Fund and Principal
Global Investors, LLC (“PGI”) provides that, for the duration of the
Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan
(if or when such fees are imposed), brokerage commissions and other
expenses connected to the execution of portfolio transactions, interest
expense, taxes, acquired fund fees and expenses, litigation expenses and
other extraordinary expenses. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. The Example also assumes
that your investment has a 5% return each year and that the Fund’s operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal Ultra-Short Active
Income ETF |
$18 |
$58 |
$101 |
$230 |
Portfolio
Turnover
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. From April 8, 2019, the date
operations commenced, through June 30, 2019, the Fund's annualized portfolio
turnover rate was 0.0 % of the average value of its
portfolio.
Principal
Investment Strategies
The Fund is an actively managed
exchange-traded fund (“ETF”) that seeks to achieve its investment objective by
investing, under normal circumstances, at least 80% of its net assets, plus any
borrowings for investment purposes, in investment-grade bonds and other debt
securities. "Investment grade” securities are rated at the time of purchase BBB-
or higher by S&P Global Ratings ("S&P Global") or Baa3 or higher by
Moody's Investors Service, Inc. ("Moody's") or, if unrated, of comparable
quality in the opinion of those selecting such investments. If the security has
been rated by only one of those agencies, that rating will determine whether the
security is investment grade.
The Fund invests in fixed- and
floating-rate securities. The Fund invests in foreign securities, corporate
securities, securities issued by the U.S. and foreign governments and their
agencies and instrumentalities, asset-backed securities (securitized products),
and commercial paper. The Fund concentrates (invests more than 25% of its net
assets) its investments in one or more industries (i.e., banking, insurance and
commercial finance) within the financial services sector.
Under normal circumstances, the Fund
maintains an average effective maturity of three years or less and an average
portfolio duration of one year or less. The Fund is not a money market fund and
does not seek to maintain a stable net asset value of $1.00 per share. The Fund
actively trades securities.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund are listed below in alphabetical order
and not in order of significance.
Commercial Paper
Risk. The value of the
Fund’s investment in commercial paper, which is generally unsecured, is
susceptible to changes in interest rates and the issuer’s financial condition or
credit quality. Commercial paper is usually repaid at maturity by the
issuer from the proceeds of the issuance of new commercial paper. As a
result, investments in commercial paper are subject to the risk that the issuer
cannot issue enough new commercial paper to satisfy its outstanding obligations.
In addition, under certain circumstances commercial paper may become
illiquid or may suffer from reduced liquidity.
Fixed-Income
Securities Risk.
Fixed-income securities
are subject to interest rate, credit quality, and liquidity risks. The market
value of fixed-income securities generally declines when interest rates rise,
and increased interest rates may adversely affect the liquidity of certain
fixed-income securities. Moreover, an issuer of fixed-income securities could
default on its payment obligations due to increased interest rates or for other
reasons.
Floating Interest
Rate Risk.
Floating interest rates vary with and are periodically adjusted to reflect
changes in a generally recognized base interest rate such as LIBOR (London
Interbank Offered Rate) or the prime rate. Securities with floating or variable
interest rates can be less sensitive to interest rate changes than securities
with fixed interest rates, but may decline in value if their coupon rates do not
reset as high, or as quickly, as comparable market interest rates, and generally
carry lower yields than fixed notes of the same maturity. Although floating rate
securities are less sensitive to interest rate risk than fixed-rate securities,
they are subject to credit risk and default risk, which could impair their
value.
Foreign
Securities Risk.
The risks of foreign
securities include loss of value as a result of: political or economic
instability; nationalization, expropriation or confiscatory taxation; settlement
delays; and limited government regulation (including less stringent reporting,
accounting, and disclosure standards than are required of U.S.
companies).
Industry
Concentration Risk.
A fund that
concentrates investments in a particular industry or group of industries has
greater exposure than other funds to market, economic and other factors
affecting that industry or group of industries.
|
|
• |
Financial
Services.
A fund concentrating in financial
services companies may be more susceptible to adverse economic or
regulatory occurrences affecting financial services companies. Financial
companies may be adversely affected in certain market cycles, including
periods of rising interest rates, which may restrict the availability and
increase the cost of capital, and declining economic conditions, which may
cause credit losses due to financial difficulties of borrowers. Because
many types of financial companies are especially vulnerable to these
economic cycles, the Fund’s investments in these companies may lose
significant value during such periods. |
Market Trading
Risks. The Fund faces
numerous market trading risks, including the potential lack of an active market
for Fund shares, losses from trading in secondary markets, and disruption to the
activities of market makers, authorized participants, or other participants and
in the creation/redemption process of the Fund. ANY OF THESE FACTORS MAY LEAD TO
THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates, which means funds with
longer average portfolio durations may be more volatile than those with shorter
durations.
Redemption and
Large Transaction Risk. Ownership of the fund's shares may
be concentrated in one or a few large investors (such as funds of funds,
institutional investors, and asset allocation programs) that may redeem or
purchase shares in large quantities. These transactions may cause the fund to
sell securities to meet redemptions or to invest additional cash at times it
would not otherwise do so, which may result in increased transaction costs,
increased expenses, changes to expense ratios, and adverse effects to fund
performance. Such transactions may also accelerate the realization of taxable
income if sales of portfolio securities result in gains.
Securitized
Products Risk.
Investments in
securitized products are subject to risks similar to traditional fixed income
securities, such as credit, interest rate, liquidity, prepayment, extension, and
default risk, as well as additional risks associated with the nature of the
assets and the servicing of those assets. Unscheduled prepayments on securitized
products may have to be reinvested at lower rates. A reduction in prepayments
may increase the effective maturities of these securities, exposing them to the
risk of decline in market value over time (extension risk).
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S.
Government-Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Performance
No performance information is shown
because the Fund has not yet had a calendar year of performance. The Fund’s
performance is benchmarked against the Bloomberg Barclays U.S. 1-3 Month
Treasury Bill Index. Performance information provides an indication of the risks
of investing in the Fund. Past performance (before and after taxes) is not
necessarily an indication of how the Fund will perform in the future. You may
get updated performance information by calling 1-800-787-1621 or online at
www.principaletfs.com.
Investment
Advisor and Portfolio Managers
Principal Global Investors,
LLC
|
|
• |
John R. Friedl (since 2019),
Portfolio Manager |
|
|
• |
Paul S. Kim (since 2019),
Portfolio Manager |
|
|
• |
Scott J. Peterson (since
2019), Portfolio Manager |
|
|
• |
Daniela Spassova (since 2019),
Portfolio Manager |
Purchase and Sale
of Fund Shares
The Fund issues and redeems Shares
at net asset value (“NAV”) only with authorized participants ("APs") who have
entered into agreements with the Fund’s distributor and only in blocks of 50,000
Shares (each block of Shares is called a "Creation Unit"), or multiples thereof
("Creation Unit Aggregations"), in exchange for the deposit or delivery of a
basket of securities that the Fund specifies each day. Except when aggregated in
Creation Units, the Shares are not redeemable securities of the Fund. Typically,
the basket of assets will be made up of securities, but may include a cash
component. (See "Purchase and Redemption of Creation Units" in the Statement of
Additional Information for more information.)
Individual Shares of the Fund may be
purchased and sold only on a national securities exchange through brokers.
Shares of the Fund are expected to be listed for trading on NYSE Arca, Inc., and
because the Shares will trade at market prices rather than NAV, Shares may trade
at prices greater than NAV (at a premium), at NAV, or less than NAV (at a
discount).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary's website
for more information.
PRINCIPAL U.S.
LARGE-CAP MULTI-FACTOR CORE INDEX ETF
|
|
Objective: |
The Fund seeks to provide
investment results that closely correspond, before expenses, to the
performance of the Nasdaq US Large Cap Select Leaders Core Index (the
"Index"). |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund (“Shares”).
Investors may pay brokerage commissions on their purchases and sales of Shares,
which are not reflected in the table or the example below.
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
Management Fees |
0.15% |
Other Expenses |
—% |
Total Annual
Fund Operating Expenses (1) |
0.15% |
|
|
|
|
|
|
(1) |
The investment management
agreement (the “Management Agreement”) between the Fund and Principal
Global Investors, LLC (“PGI”) provides that, for the duration of the
Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan
(if or when such fees are imposed), brokerage commissions and other
expenses connected to the execution of portfolio transactions, interest
expense, taxes, acquired fund fees and expenses, litigation expenses and
other extraordinary expenses. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. The Example also assumes
that your investment has a 5% return each year and that the Fund’s operating
expenses remain the same. The calculation of costs takes into account
contractual fee waivers and/or expense reimbursements for the period noted in
the table above. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal U.S. Large-Cap
Multi-Factor Core Index ETF |
$15 |
$48 |
$85 |
$192 |
Portfolio
Turnover
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. This is a new fund and does
not yet have a portfolio turnover rate to disclose.
Principal
Investment Strategies
Under normal circumstances, the Fund
invests at least 80% of its net assets, plus any borrowings for investment
purposes, in equity securities of U.S. companies with large market
capitalizations that compose the Index at the time of purchase. The Index uses a
quantitative model designed to identify equity securities of companies in the
Nasdaq US Large Cap Index (the "Parent Index") that exhibit potential for high
degrees of sustainable shareholder value, growth and strong
momentum.
The Parent Index is composed of
equity securities of U.S. issuers with large market capitalizations. For this
Fund, companies with large market capitalizations are those within the market
capitalization range of the companies in the Parent Index, which as of June 30,
2019, was between approximately $2.4 billion and $944.4 billion. The Index
includes securities in the top 50% of the Parent Index by market capitalization,
or (if not in the top 50% by market cap) the top 33% by rank (discussed below).
To determine the rankings of securities in the bottom 50% by market cap, an
industry-neutral approach is used (each industry maintains similar weight as the
initial universe of stocks).
Securities are ranked according to
three factors:
|
|
• |
The Shareholder Yield (Value)
Factor ranks securities based on the collective financial impact on a
company's shareholders from the return of free cash flow through cash
dividends, stock repurchases, and debt reduction. This factor is designed
to identify securities with low prices relative to their fundamental
value. |
|
|
• |
The Pricing Power (Quality
Growth) Factor ranks securities based on consistent sales growth, earnings
quality and growth, and profitability, while taking price volatility into
account. |
|
|
• |
The Momentum Factor ranks
securities by evaluating price momentum over multiple horizons to
determine sustainability. |
The Index uses modified market-cap
weighting to give greater weight to securities that rank higher.
The Index is rebalanced
semi-annually. Additionally, throughout the year securities that become
ineligible for the Index are removed and not replaced. The Fund will make
corresponding changes to its portfolio shortly after the Index changes are made
public. As of June 30, 2019, the Index included 169 components, and the Parent
Index included 443 components. More detailed information about the Index
methodology is provided in the prospectus under Fund Account
Information.
The Fund employs a passive
investment approach designed to attempt to track the performance of the Index.
In seeking its objective, the Fund typically employs a "full replication"
strategy which involves investing in all the securities that make up the Index,
in the same approximate proportions as the Index. The Fund can, however, use a
“sampling” methodology to purchase a subset of the securities in the Index in an
effort to hold a portfolio of securities with generally the same risk and return
characteristics of the Index. The Fund can also purchase securities not included
in the Index that the advisor believes will help the fund track the
Index.
The Fund will not concentrate its
investments (invest more than 25% of its assets) in a particular industry except
to the extent the Index is so concentrated.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund are listed below in alphabetical order
and not in order of significance.
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
|
|
• |
Growth
Stock Risk.
If growth companies do not
increase their earnings at a rate expected by investors, the market price
of the stock may decline significantly, even if earnings show an absolute
increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
|
|
|
• |
Value Stock
Risk.
Value stocks may continue to be
undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that would
cause the stock price to increase may not occur as anticipated or at all.
Moreover, a stock that appears to be undervalued actually may be
appropriately priced at a low level and therefore would not be profitable
for the fund.
|
Index Fund
Risk. An index fund has operating and
other expenses while an index does not. As a result, over time, index funds tend
to underperform the index. The correlation between fund performance and index
performance may also be affected by the type of passive investment approach used
by a fund (sampling or replication), changes in securities markets, changes in
the composition of the index, and the timing of purchases and sales of fund
shares.
Industry
Concentration Risk.
A fund that
concentrates investments in a particular industry or group of industries has
greater exposure than other funds to market, economic and other factors
affecting that industry or group of industries.
Market Trading
Risks. The Fund faces
numerous market trading risks, including the potential lack of an active market
for Fund shares, losses from trading in secondary markets, and disruption to the
activities of market makers, authorized participants, or other participants and
in the creation/redemption process of the Fund. ANY OF THESE FACTORS MAY LEAD TO
THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV.
Momentum Style
Risk. Stocks that
previously exhibited high momentum characteristics may not experience positive
momentum or may experience more volatility than the market as a whole. In
addition, there may be periods when momentum style is out of favor, during which
the investment performance of a Fund that uses momentum-based strategies may
suffer.
Redemption and
Large Transaction Risk. Ownership of the fund's shares may
be concentrated in one or a few large investors (such as funds of funds,
institutional investors, and asset allocation programs) that may redeem or
purchase shares in large quantities. These transactions may cause the fund to
sell securities to meet redemptions or to invest additional cash at times it
would not otherwise do so, which may result in increased transaction costs,
increased expenses, changes to expense ratios, and adverse effects to fund
performance. Such transactions may also accelerate the realization of taxable
income if sales of portfolio securities result in gains.
Performance
No performance information is shown
because the Fund has not yet had a calendar year of performance. The Fund’s
performance is benchmarked against the Nasdaq US Large Cap Select Leaders Core
Index. Performance information provides an indication of the risks of investing
in the Fund. Past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future. You may get updated
performance information by calling 1-800-787-1621 or online at
www.principaletfs.com.
Investment
Advisor and Portfolio Managers
Principal Global Investors,
LLC
|
|
• |
Paul S. Kim, Portfolio Manager
(since 2019) |
|
|
• |
Mark R. Nebelung, Portfolio
Manager (since 2019) |
|
|
• |
Jeffrey A. Schwarte, Portfolio
Manager (since 2019) |
Purchase and Sale
of Fund Shares
The Fund issues and redeems Shares
at net asset value (“NAV”) only with authorized participants who have entered
into agreements with the Fund’s distributor and only in blocks of 50,000 Shares
(each block of Shares is called a "Creation Unit"), or multiples thereof
("Creation Unit Aggregations"), in exchange for the deposit or delivery of a
basket of securities that the Fund specifies each day. Except when aggregated in
Creation Units, the Shares are not redeemable securities of the Fund. Typically,
the basket of assets will be made up of securities, but may include a cash
component. (See "Purchase and Redemption of Creation Units" in the Statement of
Additional Information for more information.)
Individual Shares of the Fund may be
purchased and sold only on a national securities exchange through brokers.
Shares of the Fund are listed for trading on The Nasdaq Stock Market LLC and
because the Shares will trade at market prices rather than NAV, Shares may trade
at prices greater than NAV (at a premium), at NAV, or less than NAV (at a
discount).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary's website
for more information.
PRINCIPAL U.S.
MEGA-CAP MULTI-FACTOR INDEX ETF
|
|
Objective: |
The Fund seeks to provide
investment results that closely correspond, before expenses, to the
performance of the Nasdaq US Mega Cap Select Leaders Index (the
"Index"). |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund (“Shares”).
Investors may pay brokerage commissions on their purchases and sales of Shares,
which are not reflected in the table or the example below.
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
Management Fees |
0.15% |
Other Expenses |
—% |
Total Annual
Fund Operating Expenses (1) |
0.15% |
Fee Waiver and/or Expense
Reimbursement (2) |
(0.03)% |
Total Annual
Fund Operating Expenses After Fee Waiver and/or Expense
Reimbursement |
0.12% |
|
|
|
(1) |
The investment management
agreement (the “Management Agreement”) between the Fund and Principal
Global Investors, LLC (“PGI”) provides that, for the duration of the
Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan
(if or when such fees are imposed), brokerage commissions and other
expenses connected to the execution of portfolio transactions, interest
expense, taxes, acquired fund fees and expenses, litigation expenses and
other extraordinary expenses. |
(2) |
Principal Global Investors, LLC
("PGI") has contractually agreed to reduce total annual fund operating
expenses for the Fund by waiving a portion of its management fee, or
reimbursing the Fund, to the extent that total expenses exceed 0.12%
(excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses)
expressed as a percent of average net assets on an annualized basis. It is
expected that the expense limit will continue through the period ending
October 31, 2020; however, Principal Exchange-Traded Funds and PGI, the
parties to the agreement, may mutually agree to terminate the expense
limit prior to the end of the
period. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. The Example also assumes
that your investment has a 5% return each year and that the Fund’s operating
expenses remain the same. The calculation of costs takes into account
contractual fee waivers and/or expense reimbursements for the period noted in
the table above. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal U.S. Mega-Cap
Multi-Factor Index ETF |
$12 |
$45 |
$82 |
$189 |
Portfolio
Turnover
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. During the most recent fiscal
year, the Fund's annualized portfolio turnover rate was 27.0 % of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the Fund
invests at least 80% of its net assets, plus any borrowings for investment
purposes, in equity securities of companies that compose the Index at the time
of purchase. The Index uses a quantitative model designed to identify equity
securities of companies in the Nasdaq US 500 Large Cap Index (the "Parent
Index") that have the largest market capitalizations, with higher weights given
to less volatile securities.
The Parent Index is composed of
equity securities of U.S. issuers with large market capitalizations. To be
eligible for the Index, a security must be in the top 50th percentile of the
Parent Index by aggregate company market capitalization. As of June 30, 2019,
the market capitalization range of the companies in the Parent Index was between
approximately $2.1 billion and $944.4 billion.
The Index employs a modified
equal-dollar weighting methodology. With respect to securities of companies in
the top 10% of aggregate market capitalization, companies with the largest
market capitalizations receive relatively more weight. Securities of the
remaining companies are equally weighted and volatility adjusted, which gives
higher weight to securities that are more liquid and less volatile.
The Index is rebalanced
semi-annually. Additionally, throughout the year securities that become
ineligible for the Index are removed and not replaced. The Fund will make
corresponding changes to its portfolio shortly after the Index changes are made
public. As of June 30, 2019, the Index included 48 components, and the Parent
Index included 498 components. More detailed information about the Index
methodology is provided in the prospectus under Fund Account
Information.
The Fund employs a passive
investment approach designed to attempt to track the performance of the Index.
In seeking its objective, the Fund typically employs a "full replication"
strategy which involves investing in all the securities that make up the Index,
in the same approximate proportions as the Index. The Fund can, however, use a
“sampling” methodology to purchase a subset of the securities in the Index in an
effort to hold a portfolio of securities with generally the same risk and return
characteristics of the Index. The Fund can also purchase securities not included
in the Index that the advisor believes will help the fund track the Index.
The Fund will not concentrate its
investments (invest more than 25% of its assets) in a particular industry except
to the extent the Index is so concentrated.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund are listed below in alphabetical order
and not in order of significance.
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
|
|
• |
Growth
Stock Risk. If growth companies do
not increase their earnings at a rate expected by investors, the market
price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend
yield that can lessen price declines in market downturns.
|
|
|
• |
Value Stock
Risk. Value stocks may continue to
be undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that would
cause the stock price to increase may not occur as anticipated or at all.
Moreover, a stock that appears to be undervalued actually may be
appropriately priced at a low level and therefore would not be profitable
for the fund.
|
Index Fund
Risk. An index fund has operating and
other expenses while an index does not. As a result, over time, index funds tend
to underperform the index. The correlation between fund performance and index
performance may also be affected by the type of passive investment approach used
by a fund (sampling or replication), changes in securities markets, changes in
the composition of the index, and the timing of purchases and sales of fund
shares.
Industry
Concentration Risk. A
fund that concentrates investments in a particular industry or group of
industries has greater exposure than other funds to market, economic and other
factors affecting that industry or group of industries.
Market Trading
Risks. The Fund faces
numerous market trading risks, including the potential lack of an active market
for Fund shares, losses from trading in secondary markets, and disruption to the
activities of market makers, authorized participants, or other participants and
in the creation/redemption process of the Fund. ANY OF THESE FACTORS MAY LEAD TO
THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV.
Redemption and
Large Transaction Risk. Ownership of the fund's shares may
be concentrated in one or a few large investors (such as funds of funds,
institutional investors, and asset allocation programs) that may redeem or
purchase shares in large quantities. These transactions may cause the fund to
sell securities to meet redemptions or to invest additional cash at times it
would not otherwise do so, which may result in increased transaction costs,
increased expenses, changes to expense ratios, and adverse effects to fund
performance. Such transactions may also accelerate the realization of taxable
income if sales of portfolio securities result in gains.
Performance
The following information provides
some indication of the risks of investing in the Fund. Past performance (before
and after taxes) is not necessarily an indication of how the Fund will perform
in the future. You may get updated performance information by calling
1-800-787-1621 or online at www.principaletfs.com.
The bar chart shows the investment
returns of the Fund’s shares for each full calendar year of operations for 10
years (or, if shorter, the life of the Fund). The table shows for the last one,
five, and ten calendar year periods (or, if shorter, the life of the Fund), how
the Fund’s average annual total returns compare with those of one or more broad
measures of market performance.
Life of Fund returns are measured
from the date the Fund's shares were first sold (October 11, 2017).
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q3
'18 |
9.40% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'18 |
(10.20)% |
(1)
The year-to-date return as of
September 30, 2019 is 18.14% .
|
|
|
|
Average
Annual Total Returns (Based on NAV) |
For the
periods ended December 31, 2018 |
1 Year |
Life of
Fund |
Return
Before Taxes |
(1.78)% |
2.36% |
Return After
Taxes on Distributions |
(2.29)% |
1.87% |
Return After
Taxes on Distributions and Sale of Fund Shares |
(0.67)% |
1.80% |
Nasdaq US Mega Cap Select
Leaders Index |
(1.63)% |
2.53% |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts.
Investment
Advisor and Portfolio Managers
Principal Global Investors,
LLC
|
|
• |
Paul S. Kim (since 2017),
Portfolio Manager |
|
|
• |
Mark R. Nebelung (since 2017),
Portfolio Manager |
|
|
• |
Jeffrey A. Schwarte (since
2017), Portfolio Manager |
Purchase and Sale
of Fund Shares
The Fund issues and redeems Shares
at net asset value (“NAV”) only with authorized participants who have entered
into agreements with the Fund’s distributor and only in blocks of 50,000 Shares
(each block of Shares is called a "Creation Unit"), or multiples thereof
("Creation Unit Aggregations"), in exchange for the deposit or delivery of a
basket of securities that the Fund specifies each day. Except when aggregated in
Creation Units, the Shares are not redeemable securities of the Fund. Typically,
the basket of assets will be made up of securities, but may include a cash
component. (See "Purchase and Redemption of Creation Units" in the Statement of
Additional Information for more information.)
Individual Shares of the Fund may be
purchased and sold only on a national securities exchange through brokers.
Shares of the Fund are listed for trading on The Nasdaq Stock Market LLC and
because the Shares will trade at market prices rather than NAV, Shares may trade
at prices greater than NAV (at a premium), at NAV, or less than NAV (at a
discount).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary's website
for more information.
PRINCIPAL U.S.
SMALL-CAP MULTI-FACTOR INDEX ETF
|
|
Objective: |
The Fund seeks to provide
investment results that closely correspond, before expenses, to the
performance of the Nasdaq US Small Cap Select Leaders Index (the
"Index"). |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund (“Shares”).
Investors may pay brokerage commissions on their purchases and sales of Shares,
which are not reflected in the table or the example below.
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
Management Fees |
0.38% |
Other Expenses |
—% |
Total Annual
Fund Operating Expenses (1) |
0.38% |
|
|
|
(1) |
The investment management
agreement (the “Management Agreement”) between the Fund and Principal
Global Investors, LLC (“PGI”) provides that, for the duration of the
Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan
(if or when such fees are imposed), brokerage commissions and other
expenses connected to the execution of portfolio transactions, interest
expense, taxes, acquired fund fees and expenses, litigation expenses and
other extraordinary expenses. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. The Example also assumes
that your investment has a 5% return each year and that the Fund’s operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal U.S. Small-Cap
Multi-Factor Index ETF |
$39 |
$122 |
$213 |
$480 |
Portfolio
Turnover
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. During the most recent fiscal
year, the Fund's annualized portfolio turnover rate was 81.9 % of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the Fund
invests at least 80% of its net assets, plus any borrowings for investment
purposes, in equity securities of companies that compose the Index at the time
of purchase. The Index uses a quantitative model designed to identify equity
securities (including growth and value stock) of small-capitalization companies
in the Nasdaq US Small Cap Index (the "Parent Index") that exhibit potential for
high degrees of sustainable shareholder yield, pricing power and strong
momentum, while adjusting for liquidity and quality. As of June 30,
2019, the market capitalization range of the companies comprising the Parent
Index was between approximately $17.7 million and $9.0 billion.
To be eligible for the Index, a
security must: be a component of the Parent Index; be in the top 90th percentile
of the Nasdaq US Benchmark Index in terms of 3-month Average Daily Dollar Volume
and have a minimum 3-month trading history, among other factors. One security
per issuer is permitted.
Each security is ranked according to
three factors:
|
|
• |
The Shareholder Yield (value
factor) ranks securities based on the collective financial impact on a
company's shareholders from the return of free cash flow through cash
dividends, stock repurchases, and debt reduction. This factor is designed
to identify securities with low prices relative to their fundamental
value. |
|
|
• |
The Price Setters (growth
factor) ranks securities based on pricing power, which is the extent to
which a company can raise the prices of its products without reducing the
demand for them. |
|
|
• |
The Momentum Factor ranks
securities based on recent performance relative to their
peers. |
Each security has a Shareholder
Yield, Price Setters, and Momentum rank that is based on that security's
Industry Classification Benchmark ("ICB") within the Index. The ranks are then
averaged to determine a rank for each security within each ICB. The ranks are
then averaged to determine eligibility for inclusion in the Index. Securities
that rank in the top 20% are included in the Index, in addition to securities
already in the Index that rank in the top 50%. Securities are weighted by their
liquidity-volatility score, in an effort to give greater weight to securities
that are more liquid and less volatile. Once an initial weight is determined, a
final weight initially caps each security's weight at 0.7%.
The Index is rebalanced
semi-annually. Additionally, throughout the year securities that become
ineligible for the Index are removed and not replaced. The Fund will make
corresponding changes to its portfolio shortly after Index changes are made
public. As of June 30, 2019, the Index included 453 components, and the Parent
Index included 1,867 components. More detailed information about the Index
methodology is provided in the prospectus under Fund Account
Information.
The Fund employs a passive
investment approach designed to attempt to track the performance of the Index.
In seeking its objective, the Fund typically employs a "full replication"
strategy which involves investing in all the securities that make up the Index,
in the same approximate proportions as the Index. The Fund can, however, use a
“sampling” methodology to purchase a subset of the securities in the Index in an
effort to hold a portfolio of securities with generally the same risk and return
characteristics of the Index. The Fund can also invest in securities not
included in the Index that the advisor believes will help the fund track the
Index.
The Fund will not concentrate
(invest more than 25% of its assets) its investments in a particular industry
except to the extent the Index is so concentrated.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund are listed below in alphabetical order
and not in order of significance.
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
|
|
• |
Growth
Stock Risk. If growth companies do
not increase their earnings at a rate expected by investors, the market
price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend
yield that can lessen price declines in market downturns.
|
|
|
• |
Small
Market Capitalization Companies. Investments in smaller
companies may involve greater risk and price volatility than investments
in larger, more mature companies. |
|
|
• |
Value Stock
Risk. Value stocks may continue to
be undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that would
cause the stock price to increase may not occur as anticipated or at all.
Moreover, a stock that appears to be undervalued actually may be
appropriately priced at a low level and therefore would not be profitable
for the fund.
|
Index Fund
Risk. An index fund has operating and
other expenses while an index does not. As a result, over time, index funds tend
to underperform the index. The correlation between fund performance and index
performance may also be affected by the type of passive investment approach used
by a fund (sampling or replication), changes in securities markets, changes in
the composition of the index, and the timing of purchases and sales of fund
shares.
Industry
Concentration Risk. A
fund that concentrates investments in a particular industry or group of
industries has greater exposure than other funds to market, economic and other
factors affecting that industry or group of industries.
Market Trading
Risks. The Fund faces
numerous market trading risks, including the potential lack of an active market
for Fund shares, losses from trading in secondary markets, and disruption to the
activities of market makers, authorized participants, or other participants and
in the creation/redemption process of the Fund. ANY OF THESE FACTORS MAY LEAD TO
THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV.
Momentum Style
Risk. Stocks that
previously exhibited high momentum characteristics may not experience positive
momentum or may experience more volatility than the market as a whole. In
addition, there may be periods when momentum style is out of favor, during which
the investment performance of a Fund that uses momentum-based strategies may
suffer.
Redemption and
Large Transaction Risk. Ownership of the fund's shares may
be concentrated in one or a few large investors (such as funds of funds,
institutional investors, and asset allocation programs) that may redeem or
purchase shares in large quantities. These transactions may cause the fund to
sell securities to meet redemptions or to invest additional cash at times it
would not otherwise do so, which may result in increased transaction costs,
increased expenses, changes to expense ratios, and adverse effects to fund
performance. Such transactions may also accelerate the realization of taxable
income if sales of portfolio securities result in gains.
Performance
The following information provides
some indication of the risks of investing in the Fund. Past performance (before
and after taxes) is not necessarily an indication of how the Fund will perform
in the future. You may get updated performance information by calling
1-800-787-1621 or online at www.principaletfs.com.
The bar chart shows the investment
returns of the Fund’s shares for each full calendar year of operations for 10
years (or, if shorter, the life of the Fund). The table shows for the last one,
five, and ten calendar year periods (or, if shorter, the life of the Fund), how
the Fund’s average annual total returns compare with those of one or more broad
measures of market performance.
Life of Fund returns are measured
from the date the Fund's shares were first sold (September 21, 2016).
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'18 |
7.83% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'18 |
(20.28)% |
(1)
The year-to-date return as of
September 30, 2019 is 10.91% .
|
|
|
|
Average
Annual Total Returns (Based on NAV) |
For the
periods ended December 31, 2018 |
1 Year |
Life of
Fund |
Return
Before Taxes |
(9.23)% |
5.92% |
Return After
Taxes on Distributions |
(9.49)% |
5.64% |
Return After
Taxes on Distributions and Sale of Fund Shares |
(5.25)% |
4.56% |
Nasdaq US Small Cap Select
Leaders Index |
(8.89)% |
6.37% |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts.
Investment
Advisor and Portfolio Managers
Principal Global Investors,
LLC
|
|
• |
Paul S. Kim (since 2016),
Portfolio Manager |
|
|
• |
Mark R. Nebelung (since 2016),
Portfolio Manager |
|
|
• |
Jeffrey A. Schwarte (since
2016), Portfolio Manager |
Purchase and Sale
of Fund Shares
The Fund issues and redeems Shares
at net asset value (“NAV”) only with authorized participants ("APs") who have
entered into agreements with the Fund’s distributor and only in blocks of 50,000
Shares (each block of Shares is called a "Creation Unit"), or multiples thereof
("Creation Unit Aggregations"), in exchange for the deposit or delivery of a
basket of securities that the Fund specifies each day. Except when aggregated in
Creation Units, the Shares are not redeemable securities of the Fund. Typically,
the basket of assets will be made up of securities, but may include a cash
component. (See "Purchase and Redemption of Creation Units" in the Statement of
Additional Information for more information.)
Individual Shares of the Fund may be
purchased and sold only on a national securities exchange through brokers.
Shares of the Fund are listed for trading on The Nasdaq Stock Market LLC and
because the Shares will trade at market prices rather than NAV, Shares may trade
at prices greater than NAV (at a premium), at NAV, or less than NAV (at a
discount).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary's website
for more information.
PRINCIPAL U.S.
SMALL-MIDCAP MULTI-FACTOR CORE INDEX ETF
|
|
Objective: |
The Fund seeks to provide
investment results that closely correspond, before expenses, to the
performance of the Nasdaq US Small Mid Cap Select Leaders Core Index (the
"Index"). |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund (“Shares”).
Investors may pay brokerage commissions on their purchases and sales of Shares,
which are not reflected in the table or the example below.
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
Management Fees |
0.20% |
Other Expenses |
—% |
Total Annual
Fund Operating Expenses (1) |
0.20% |
|
|
|
|
|
|
(1) |
The investment management
agreement (the “Management Agreement”) between the Fund and Principal
Global Investors, LLC (“PGI”) provides that, for the duration of the
Management Agreement, PGI will pay all operating expenses of the Fund,
except for the Management Fee, payments made under each Series 12b-1 plan
(if or when such fees are imposed), brokerage commissions and other
expenses connected to the execution of portfolio transactions, interest
expense, taxes, acquired fund fees and expenses, litigation expenses and
other extraordinary expenses. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. The Example also assumes
that your investment has a 5% return each year and that the Fund’s operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Principal U.S. Small-MidCap
Multi-Factor Core Index ETF |
$20 |
$64 |
$113 |
$255 |
Portfolio
Turnover
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. This is a new fund and does
not yet have a portfolio turnover rate to disclose.
Principal
Investment Strategies
Under normal circumstances, the Fund
invests at least 80% of its net assets, plus any borrowings for investment
purposes, in equity securities of U.S. companies with small- to medium-market
capitalizations that compose the Index at the time of purchase. The Index uses a
quantitative model designed to identify equity securities of companies in the
Nasdaq US Small Cap Index and Nasdaq US Mid Cap Index (the "Parent Indexes")
that exhibit potential for high degrees of sustainable shareholder value, growth
and strong momentum.
The Parent Indexes are composed of
equity securities of issuers with small- to medium-market capitalizations. For
this Fund, companies with small- to medium-market capitalizations are those
within the market
capitalization range of the companies comprising the Parent Indexes
collectively, which as of June 30, 2019, was between approximately $17.7 million
and $32.5 billion.
The Index includes securities that
are in the top 90% of the Parent Indexes by three month average daily dollar
trading volume, and
the top 20% of the final rank
in the current valuation (or top 50% if included in the Index in the prior
period).
Securities are ranked according to
three factors:
|
|
• |
The Value Factor ranks
securities based on the collective financial impact on a company's
shareholders from the return of free cash flow through cash dividends,
stock repurchases, and debt reduction. This factor is designed to identify
securities with low prices relative to their fundamental value.
|
|
|
• |
The Quality Growth Factor
ranks securities based on consistent sales growth, earnings quality and
growth, and profitability, while taking price volatility into
account. |
|
|
• |
The Momentum Factor ranks
securities by evaluating price momentum over multiple horizons to
determine sustainability. |
The portfolio is constructed using
an industry-neutral approach (each industry maintains similar weight as the
initial universe of stocks).
Securities are weighted by their
liquidity-volatility score, in an effort to give greater weight to securities
that are more liquid and less volatile.
The Index is rebalanced
semi-annually. Additionally, throughout the year securities that become
ineligible for the Index are removed and not replaced. The Fund will make
corresponding changes to its portfolio shortly after Index changes are made
public. As of June 30, 2019, the Index included 592 components, and the Parent
Indexes collectively included 2,391 components. More detailed information about
the Index methodology is provided in the prospectus under Fund Account
Information.
The Fund employs a passive
investment approach designed to attempt to track the performance of the Index.
In seeking its objective, the Fund typically employs a "full replication"
strategy which involves investing in all the securities that make up the Index,
in the same approximate proportions as the Index. The Fund can, however, use a
“sampling” methodology to purchase a subset of the securities in the Index in an
effort to hold a portfolio of securities with generally the same risk and return
characteristics of the Index. The Fund can also invest in securities not
included in the Index that the advisor believes will help the fund track the
Index.
The Fund will not concentrate
(invest more than 25% of its assets) its investments in a particular industry
except to the extent the Index is so concentrated.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund are listed below in alphabetical order
and not in order of significance.
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
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• |
Growth
Stock Risk. If growth companies do
not increase their earnings at a rate expected by investors, the market
price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend
yield that can lessen price declines in market downturns.
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• |
Small and
Medium Market Capitalization Companies Risk. Investments in small and medium sized companies
may involve greater risk and price volatility than investments in larger,
more mature companies.
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• |
Value Stock
Risk. Value stocks may continue to
be undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that would
cause the stock price to increase may not occur as anticipated or at all.
Moreover, a stock that appears to be undervalued actually may be
appropriately priced at a low level and therefore would not be profitable
for the fund.
|
Index Fund
Risk. An index fund has operating and
other expenses while an index does not. As a result, over time, index funds tend
to underperform the index. The correlation between fund performance and index
performance may also be affected by the type of passive investment approach used
by a fund (sampling or replication), changes in securities markets, changes in
the composition of the index, and the timing of purchases and sales of fund
shares.
Industry
Concentration Risk.
A fund that
concentrates investments in a particular industry or group of industries has
greater exposure than other funds to market, economic and other factors
affecting that industry or group of industries.
Market Trading
Risks. The Fund faces
numerous market trading risks, including the potential lack of an active market
for Fund shares, losses from trading in secondary markets, and disruption to the
activities of market makers, authorized participants, or other participants and
in the creation/redemption process of the Fund. ANY OF THESE FACTORS MAY LEAD TO
THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV.
Momentum Style
Risk. Stocks that
previously exhibited high momentum characteristics may not experience positive
momentum or may experience more volatility than the market as a whole. In
addition, there may be periods when momentum style is out of favor, during which
the investment performance of a Fund that uses momentum-based strategies may
suffer.
Redemption and
Large Transaction Risk. Ownership of the fund's shares may
be concentrated in one or a few large investors (such as funds of funds,
institutional investors, and asset allocation programs) that may redeem or
purchase shares in large quantities. These transactions may cause the fund to
sell securities to meet redemptions or to invest additional cash at times it
would not otherwise do so, which may result in increased transaction costs,
increased expenses, changes to expense ratios, and adverse effects to fund
performance. Such transactions may also accelerate the realization of taxable
income if sales of portfolio securities result in gains.
Performance
No performance information is shown
because the Fund has not yet had a calendar year of performance. The Fund’s
performance is benchmarked against the Nasdaq US Small Mid Cap Select Leaders
Core Index. Performance information provides an indication of the risks of
investing in the Fund. Past performance (before and after taxes) is not
necessarily an indication of how the Fund will perform in the future. You may
get updated performance information by calling 1-800-787-1621 or online at
www.principaletfs.com.
Investment
Advisor and Portfolio Managers
Principal Global Investors,
LLC
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• |
Paul S. Kim, Portfolio Manager
(since 2019) |
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|
• |
Mark R. Nebelung, Portfolio
Manager (since 2019) |
|
|
• |
Jeffrey A. Schwarte, Portfolio
Manager (since 2019) |
Purchase and Sale
of Fund Shares
The Fund issues and redeems Shares
at net asset value (“NAV”) only with authorized participants ("APs") who have
entered into agreements with the Fund’s distributor and only in blocks of 50,000
Shares (each block of Shares is called a "Creation Unit"), or multiples thereof
("Creation Unit Aggregations"), in exchange for the deposit or delivery of a
basket of securities that the Fund specifies each day. Except when aggregated in
Creation Units, the Shares are not redeemable securities of the Fund. Typically,
the basket of assets will be made up of securities, but may include a cash
component. (See "Purchase and Redemption of Creation Units" in the Statement of
Additional Information for more information.)
Individual Shares of the Fund may be
purchased and sold only on a national securities exchange through brokers.
Shares of the Fund are listed for trading on The Nasdaq Stock Market LLC and
because the Shares will trade at market prices rather than NAV, Shares may trade
at prices greater than NAV (at a premium), at NAV, or less than NAV (at a
discount).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary's website
for more information.
ADDITIONAL
INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Each Fund’s investment objective is
described in the summary section for each Fund. The summary section also
describes each Fund’s principal investment strategies, including the types of
securities in which each Fund invests, and the principal risks of investing in
each Fund. The principal investment strategies are not the only investment
strategies available to each Fund, but they are the ones each Fund primarily
uses to achieve its investment objective.
Except for Fundamental Restrictions
described in the Fund’s Statement of Additional Information (“SAI”), the Board
of Trustees may change any Fund's objective or investment strategies without a
shareholder vote if it determines such a change is in the best interests of the
Fund. If there is a material change to a Fund's investment objective or
investment strategies, you should consider whether the Fund remains an
appropriate investment for you. There is no guarantee that a Fund will meet its
objective.
Each Fund is designed to be a
portion of an investor's portfolio. No Fund is intended to be a complete
investment program. Investors should consider the risks of a Fund before making
an investment; it is possible to lose money by investing in a Fund.
Holdings
Disclosure
On each business day, before
commencement of trading on the exchange, each Fund will disclose on
www.principaletfs.com the identities and quantities of the Fund’s portfolio
holdings that will form the basis for the Fund’s calculation of the Fund’s net
asset value at the end of the business day.
Active Management
The performance of a fund that is
actively managed will reflect in part the ability of those managing the
investments of the fund to make investment decisions that are suited to
achieving the fund's investment objective. Actively-managed funds may invest
differently from the benchmark against which the fund's performance is compared.
When making decisions about whether to buy or sell equity securities,
considerations may include, among other things, a company’s strength in
fundamentals, its potential for earnings growth over time, its ability to
navigate certain macroeconomic environments, the current price of its securities
relative to their perceived worth and relative to others in its industry, and
analysis from computer models. When making decisions about whether to buy or
sell fixed-income investments, considerations may include, among other things,
the strength of certain sectors of the fixed-income market relative to others,
interest rates, a range of economic, political and financial factors, the
balance between supply and demand for certain asset classes, the credit quality
of individual issuers, the fundamental strengths of corporate issuers, and other
general market conditions.
Models, which may assist portfolio
managers and analysts in formulating their securities trading and allocation
decisions by providing investment and risk management insights, may also expose
a fund to risks. Models may be predictive in nature, which models depend heavily
on the accuracy and reliability of historical data that is supplied by others
and may be incorrect or incorrectly input. The fund bears the risk that the
quantitative models used will not be successful in identifying trends or in
determining the size and direction of investment positions that will enable the
fund to achieve its investment objective. In addition, “model prices” will often
differ substantially from market prices, especially for instruments with complex
characteristics, such as derivative instruments.
An active fund's investment
performance depends upon the successful allocation of the fund's assets among
asset classes, geographical regions, industry sectors, and specific issuers and
investments. There is no guarantee that these allocation techniques and
decisions will produce the desired results. It is possible to lose money on an
investment in a fund as a result of these allocation decisions. If a fund's
investment strategies do not perform as expected, the fund could underperform
other funds with similar investment objectives or lose money. Moreover, buying
and selling securities to adjust the fund’s asset allocation may increase
portfolio turnover and generate transaction costs.
Investment advisors with large
assets under management in a Fund, or in other funds that have the same strategy
as a Fund, may have difficulty fully investing such Fund’s assets according to
its investment objective due to potential liquidity constraints and high
transaction costs. Typically, small-cap, mid-cap and emerging market equity
funds are more susceptible to such a risk. A Fund may add additional investment
advisors or close the Fund to new investors to address such risks.
Cash
Management
Funds may have uninvested cash
balances pending investment in other securities, pending payment of redemptions,
or in other circumstances where liquidity is necessary or desirable. A Fund may
hold uninvested cash; invest it in cash equivalents such as money market funds,
including the Principal Funds, Inc. Government Money Market Fund; lend it to
other Funds pursuant to the Funds' interfund lending facility; and/or invest in
other instruments that those managing the Fund’s assets deem appropriate for
cash management purposes. Generally, these types of investments offer less
potential for gains than other types of securities. To attempt to provide
returns similar to its benchmark, a Fund may invest uninvested cash in stock
index futures contracts or exchange-traded funds ("ETFs"), including Principal
Exchange-Traded Funds ETFs. In selecting such investments, the Advisor may have
conflicts of interest due to economic or other incentives to make or retain an
investment in certain affiliated funds instead of in other investments that may
be appropriate for the Fund.
Passive
Management (Index Funds)
Index funds use a passive, or
indexing, investment approach. The Funds that are pure index funds do not
attempt to manage market volatility, use defensive strategies or reduce the
effect of any long-term periods of poor stock or bond performance. Some index
funds may attempt to fully replicate their relevant target index by investing
primarily in the securities held by the index in approximately the same
proportion of the weightings in the index. However, because of the difficulty of
executing some relatively small securities trades, some index funds may use a
"sampling" approach and may not be invested in the less heavily weighted
securities held by the index. Some index funds may invest in index futures,
swaps, and/or exchange traded funds on a daily basis in an effort to minimize
tracking error relative to the benchmark.
It is unlikely that an index fund's
performance will perfectly correlate with the performance of the fund's relevant
index. An index fund's ability to match the performance of its index may be
affected by many factors, such as fund expenses, the timing of cash flows into
and out of the fund, changes in securities markets, and changes in the
composition of the index.
More detailed information about each
Fund's index methodology is provided in the prospectus under Fund Account
Information.
Liquidity
The Funds have established a
liquidity risk management program as required by the SEC’s Liquidity Rule. Under
the program, PGI assesses, manages, and periodically reviews each Fund’s
liquidity risk, which is the risk that a Fund could not meet requests to redeem
shares issued by the Fund without significant dilution of the remaining
investors’ interests in the Fund. As part of the program, PGI classifies each
investment as a “highly liquid investment,” “moderately liquid investment,”
“less liquid investment” or “illiquid investment.” The liquidity of a Fund’s
portfolio investments is determined based on relevant market, trading and
investment-specific considerations under the program. To the extent that an
investment is deemed to be an illiquid investment or a less liquid investment, a
Fund can expect to be exposed to greater liquidity risk.
Certain fund holdings may be deemed
to be less liquid or illiquid because they cannot be readily sold without
significantly impacting the value of the holdings. A fund is exposed to
liquidity risk when trading volume, lack of a market maker, or legal
restrictions impair its ability to sell particular securities or close
derivative positions at an advantageous price. Funds with principal investment
strategies that involve securities of companies with smaller market
capitalizations, foreign securities, derivatives, high yield bonds and bank
loans or securities with substantial market and/or credit risk tend to have the
greatest exposure to liquidity risk.
Liquidity risk also refers to the
risk of unusually high redemption requests, redemption requests by certain large
shareholders such as institutional investors or asset allocators, or other
unusual market conditions that may make it difficult for a fund to sell
investments within the allowable time period to meet redemptions. Meeting such
redemption requests could require a fund to sell securities at reduced prices or
under unfavorable conditions, which would reduce the value of the
fund.
Additional liquidity risks that
apply to ETFs are described under "Market Trading Risks" below.
Market Volatility
and Securities Issuers
The value of a Fund's portfolio
securities may decrease in response to overall stock or bond market movements.
Markets tend to move in cycles, with periods of rising prices and periods of
falling prices. Stocks tend to go up and down in value more than bonds. If a
Fund's investments are concentrated in certain sectors, its performance could be
worse than the overall market. The value of an individual security or particular
type of security can be more volatile than the market as a whole and can perform
differently from the value of the market as a whole. The value of a security may
decline for reasons directly related to the issuer, such as management
performance, financial leverage and reduced demand for the issuer’s goods or
services. It is possible to lose money when investing in a Fund.
Securities
Lending
To generate additional income, a
Fund may lend its portfolio securities to broker-dealers and other institutional
borrowers to the extent permitted under the 1940 Act or the rules, regulations
or interpretations thereunder. A Fund that lends its securities will continue to
receive amounts equal to the interest or dividend payments generated by the
loaned securities. In addition to receiving these amounts, the Fund generates
income on the loaned securities by receiving a fee from the borrower, and by
earning interest on the collateral received from the borrower. A negotiated
portion of the income is paid to a securities or lending agent (e.g., a bank or
trust company) who arranged the loan. During the term of the loan, the Fund’s
investment performance will reflect changes in the value of the loaned
securities.
A borrower’s obligations under a
securities loan is secured continuously by collateral posted by the borrower and
held by the custodian in an amount at least equal to the market value of the
loaned securities. Generally, cash collateral that a Fund receives from
securities lending activities will be invested in money market funds, which may
include the Principal Funds, Inc. Government Money Market Fund, which is managed
by PGI and for which PGI receives a management fee.
Securities lending involves exposure
to certain risks, including the risk of losses resulting from problems in the
settlement and accounting process, the risk of a mismatch between the return on
cash collateral reinvestments and the fees each Fund has agreed to pay a
borrower, and credit, legal, counterparty and market risk. A Fund’s
participation in a securities lending transaction may affect the amount, timing,
and character of distributions derived from such transaction to shareholders.
Qualified dividend income does not include “payments in lieu of dividends,”
which the Funds anticipate they will receive in securities lending
transactions.
Temporary
Defensive Measures
From time to time, as part of its
investment strategy, a Fund may invest without limit in cash and cash
equivalents for temporary defensive purposes in response to adverse market,
economic, or political conditions. For this purpose, cash equivalents include:
bank notes, bank certificates of deposit, bankers' acceptances, repurchase
agreements, commercial paper, and commercial paper master notes, which are
floating rate debt instruments without a fixed maturity. In addition, each Fund
may purchase U.S. government securities, preferred stocks, and debt securities,
whether or not convertible into or carrying rights for common stock. There is no
limit on the extent to which a Fund may take temporary defensive measures. In
taking such measures, a Fund may lose the benefit of upswings and may limit its
ability to meet, or fail to achieve, its investment objective.
Trading
Issues
Although the shares of the Funds are
expected to be listed on the exchange identified in the fund summary for each
Fund, there can be no assurance that an active trading market for such shares
will develop or be maintained. Trading in Shares on the exchange may be halted
due to market conditions or for reasons that, in the view of the exchange, make
trading in Shares inadvisable. In addition, trading in Shares on the exchange is
subject to trading halts caused by extraordinary market volatility pursuant to
the exchange's "circuit breaker" rules. There can be no assurance that the
requirements of the exchange necessary to maintain the listing of a Fund will
continue to be met or will remain unchanged.
Strategy and Risk
Table
The following table lists each Fund
and identifies whether the strategies and risks discussed in this section
(listed in alphabetical order) are principal, non-principal (meaning they are
relevant to a Fund but to a lesser degree than those designated as principal),
or not applicable for each Fund. The SAI contains additional information about
investment strategies and their related risks.
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INVESTMENT
STRATEGIES AND RISKS |
Principal
Active Global Dividend Income ETF |
Principal
Active Income ETF |
Principal
Contrarian Value Index ETF |
Principal
Healthcare Innovators Index ETF |
Bank Loans (also known as
Senior Floating Rate interests) |
Not Applicable |
Non-Principal |
Not Applicable |
Not
Applicable |
Contingent Convertible
Securities |
Not Applicable |
Non-Principal |
Not Applicable |
Not
Applicable |
Convertible
Securities |
Not Applicable |
Principal |
Not Applicable |
Not
Applicable |
Counterparty
Risk |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Derivatives |
Not Applicable |
Non-Principal |
Not Applicable |
Not
Applicable |
Emerging
Markets |
Principal |
Non-Principal |
Not Applicable |
Not
Applicable |
Equity
Securities |
Principal |
Principal |
Principal |
Principal |
|
Principal |
Non-Principal |
Principal |
Principal |
• Small and Medium
Market Capitalization Companies |
Principal |
Principal |
Principal |
Principal |
|
Principal |
Principal |
Principal |
Principal |
Fixed-Income
Securities |
Not Applicable |
Principal |
Not Applicable |
Not
Applicable |
Foreign
Currency |
Principal |
Principal |
Not Applicable |
Non-Principal |
Foreign
Securities |
Principal |
Principal |
Not Applicable |
Non-Principal |
Hedging |
Not Applicable |
Non-Principal |
Not Applicable |
Not
Applicable |
High Yield
Securities |
Not Applicable |
Principal |
Not Applicable |
Not
Applicable |
Industry
Concentration |
Not Applicable |
Not Applicable |
Principal (1) |
Principal (1) |
Investment Company
Securities |
Non-Principal |
Non-Principal |
Not Applicable |
Not
Applicable |
Leverage |
Not Applicable |
Non-Principal |
Not Applicable |
Not
Applicable |
Market Trading
Risks |
Principal |
Principal |
Principal |
Principal |
Master Limited Partnerships
(MLPs) |
Non-Principal |
Principal |
Not Applicable |
Not
Applicable |
Momentum Style |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Portfolio
Duration |
Not Applicable |
Principal |
Not Applicable |
Not
Applicable |
Portfolio Turnover (Active
Trading) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Preferred
Securities |
Non-Principal |
Principal |
Not Applicable |
Not
Applicable |
Real Estate Investment Trusts
(REITs) |
Principal |
Principal |
Non-Principal |
Non-Principal |
Real Estate
Securities |
Principal |
Principal |
Non-Principal |
Non-Principal |
Redemption and Large
Transaction Risk |
Principal |
Principal |
Principal |
Principal |
Securitized
Products |
Not Applicable |
Principal |
Not Applicable |
Not
Applicable |
U.S. Government and U.S.
Government-Sponsored Securities |
Not Applicable |
Principal |
Not Applicable |
Not
Applicable |
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(1) |
An index Fund using a
replication strategy may concentrate (invest more than 25% of its assets)
its investments in a particular industry only to the extent the relevant
index is so concentrated. |
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INVESTMENT
STRATEGIES AND RISKS |
Principal
International Multi-Factor Core Index ETF |
Principal
Investment Grade Corporate Active ETF |
Principal
Millennials
Index ETF |
Principal
Price
Setters
Index
ETF |
Bank Loans (also known as
Senior Floating Rate interests) |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Contingent Convertible
Securities |
Not Applicable |
Non-Principal |
Not Applicable |
Not
Applicable |
Convertible
Securities |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Counterparty
Risk |
Not Applicable |
Principal |
Not Applicable |
Not Applicable
|
Derivatives |
Not Applicable |
Principal |
Not Applicable |
Not
Applicable |
Emerging
Markets |
Not Applicable |
Non-Principal |
Principal |
Not
Applicable |
Equity
Securities |
Principal |
Not Applicable |
Principal |
Principal |
|
Principal |
Not Applicable |
Principal |
Principal |
• Small and Medium
Market Capitalization Companies |
Principal |
Not Applicable |
Principal |
Principal |
|
Principal |
Not Applicable |
Principal |
Principal |
Fixed-Income
Securities |
Not Applicable |
Principal |
Not Applicable |
Not
Applicable |
Foreign
Currency |
Principal |
Not Applicable |
Principal |
Not
Applicable |
Foreign
Securities |
Principal |
Principal |
Principal |
Not
Applicable |
Hedging |
Not Applicable |
Principal |
Not Applicable |
Not
Applicable |
High Yield
Securities |
Not Applicable |
Non-Principal |
Not Applicable |
Not
Applicable |
Industry
Concentration |
Principal(1) |
Not Applicable |
Principal (1) |
Principal (1) |
Investment Company
Securities |
Not Applicable |
Principal |
Not Applicable |
Not
Applicable |
Leverage |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Market Trading
Risks |
Principal |
Principal |
Principal |
Principal |
Master Limited Partnerships
(MLPs) |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Momentum Style |
Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Portfolio
Duration |
Not Applicable |
Principal |
Not Applicable |
Not
Applicable |
Portfolio Turnover (Active
Trading) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Preferred
Securities |
Not Applicable |
Non-Principal |
Not Applicable |
Not
Applicable |
Real Estate Investment Trusts
(REITs) |
Non-Principal |
Not Applicable |
Non-Principal |
Non-Principal |
Real Estate
Securities |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Redemption and Large
Transaction Risk |
Principal |
Principal |
Principal |
Principal |
Securitized
Products |
Not Applicable |
Non-Principal |
Not Applicable |
Not
Applicable |
U.S. Government and U.S.
Government-Sponsored Securities |
Not Applicable |
Principal |
Not Applicable |
Not Applicable
|
|
|
(1) |
An index Fund using a
replication strategy may concentrate (invest more than 25% of its assets)
its investments in a particular industry only to the extent the relevant
index is so concentrated. |
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INVESTMENT
STRATEGIES AND RISKS |
Principal
Shareholder
Yield
Index
ETF |
Principal
Spectrum Preferred Securities Active ETF |
Principal
Sustainable Momentum Index ETF |
Principal
Ultra-Short
Active Income ETF |
Bank Loans (also known as
Senior Floating Rate interests) |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Contingent Convertible
Securities |
Not Applicable |
Not Applicable |
Not Applicable |
Non-Principal |
Convertible
Securities |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Counterparty
Risk |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Derivatives |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Emerging
Markets |
Not Applicable |
Not Applicable |
Not Applicable |
Non-Principal |
Equity
Securities |
Principal |
Not Applicable |
Principal |
Not
Applicable |
|
Principal |
Not Applicable |
Principal |
Not
Applicable |
• Small and Medium
Market Capitalization Companies |
Principal |
Not Applicable |
Principal |
Not
Applicable |
|
Principal |
Not Applicable |
Principal |
Not
Applicable |
Fixed-Income
Securities |
Not Applicable |
Principal |
Not Applicable |
Principal |
Foreign
Currency |
Not Applicable |
Not Applicable |
Not Applicable |
Non-Principal |
Foreign
Securities |
Not Applicable |
Principal |
Not Applicable |
Principal |
Hedging |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
High Yield
Securities |
Not Applicable |
Principal |
Not Applicable |
Not
Applicable |
Industry
Concentration |
Principal (1) |
Principal |
Principal (1) |
Principal |
Investment Company
Securities |
Not Applicable |
Not Applicable |
Not Applicable |
Non-Principal |
Leverage |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Market Trading
Risks |
Principal |
Principal |
Principal |
Principal |
Master Limited Partnerships
(MLPs) |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Momentum Style |
Not Applicable |
Not Applicable |
Principal |
Not
Applicable |
Portfolio
Duration |
Not Applicable |
Principal |
Not Applicable |
Principal |
Portfolio Turnover (Active
Trading) |
Non-Principal |
Non-Principal |
Principal |
Non-Principal |
Preferred
Securities |
Not Applicable |
Principal |
Not Applicable |
Non-Principal |
Real Estate Investment Trusts
(REITs) |
Non-Principal |
Non-Principal |
Non-Principal |
Not
Applicable |
Real Estate
Securities |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Redemption and Large
Transaction Risk |
Principal |
Principal |
Principal |
Principal |
Securitized
Products |
Not Applicable |
Not Applicable |
Not Applicable |
Principal |
U.S. Government and U.S.
Government-Sponsored Securities |
Not Applicable |
Non-Principal |
Not Applicable |
Principal |
|
|
(1) |
An index Fund using a
replication strategy may concentrate (invest more than 25% of its assets)
its investments in a particular industry only to the extent the relevant
index is so concentrated. |
|
|
|
|
|
|
INVESTMENT
STRATEGIES AND RISKS |
Principal
U.S. Large-Cap
Multi-Factor
Core
Index
ETF |
Principal
U.S. Mega-Cap
Multi-Factor
Index ETF |
Principal
U.S.
Small-Cap
Multi-Factor
Index
ETF |
Principal
U.S. Small-MidCap Multi-Factor Core Index ETF |
Bank Loans (also known as
Senior Floating Rate interests) |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Contingent Convertible
Securities |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Convertible
Securities |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Counterparty
Risk |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Derivatives |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Emerging
Markets |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Equity
Securities |
Principal |
Principal |
Principal |
Principal |
|
Principal |
Principal |
Principal |
Principal |
• Small and Medium
Market Capitalization Companies |
Not Applicable |
Not Applicable |
Principal |
Principal |
|
Principal |
Principal |
Principal |
Principal |
Fixed-Income
Securities |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Foreign
Currency |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Foreign
Securities |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Hedging |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
High Yield
Securities |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Industry
Concentration |
Principal(1) |
Principal (1) |
Principal (1) |
Principal(1) |
Investment Company
Securities |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Leverage |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Market Trading
Risks |
Principal |
Principal |
Principal |
Principal |
Master Limited Partnerships
(MLPs) |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Momentum Style |
Principal |
Not Applicable |
Not Applicable |
Principal |
Portfolio
Duration |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Portfolio Turnover (Active
Trading) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Preferred
Securities |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Real Estate Investment Trusts
(REITs) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Real Estate
Securities |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Redemption and Large
Transaction Risk |
Principal |
Principal |
Principal |
Principal |
Securitized
Products |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
U.S. Government and U.S.
Government-Sponsored Securities |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
|
|
(1) |
An index Fund using a
replication strategy may concentrate (invest more than 25% of its assets)
its investments in a particular industry only to the extent the relevant
index is so concentrated. |
Bank Loans (also
known as Senior Floating Rate Interests)
Bank loans typically hold the most
senior position in the capital structure of a business entity (the "Borrower"),
are secured by specific collateral, and have a claim on the Borrower's assets
and/or stock that is senior to that held by the Borrower's unsecured
subordinated debtholders and stockholders. The proceeds of bank loans primarily
are used to finance leveraged buyouts, recapitalizations, mergers, acquisitions,
stock repurchases, dividends, and, to a lesser extent, to finance internal
growth and for other corporate purposes. Bank loans are typically structured and
administered by a financial institution that acts as the agent of the lenders
participating in the bank loan. Most bank loans that will be purchased by a fund
are rated below-investment-grade (sometimes called “junk”) or will be comparable
if unrated, which means they are more likely to default than investment-grade
loans. A default could lead to non-payment of income which would result in a
reduction of income to the fund, and there can be no assurance that the
liquidation of any collateral would satisfy the Borrower's obligation in the
event of non-payment of scheduled interest or principal payments, or that such
collateral could be readily liquidated. Most bank loans are not traded on any
national securities exchange. Bank loans generally have less liquidity than
investment-grade bonds and there may be less public information available about
them. Bank loan interests may not be considered "securities," and purchasers
therefore may not be entitled to rely on the anti-fraud protections of the
federal securities laws.
The primary and secondary market for
bank loans may be subject to irregular trading activity, wide bid/ask spreads
and extended trade settlement periods, which may cause a fund to be unable to
realize full value and thus cause a material decline in a fund's net asset
value. Because transactions in bank loans may be subject to extended settlement
periods, a fund may not receive proceeds from the sale of a bank loan for a
period of time after the sale. As a result, sale proceeds may not be available
to make additional investments or to meet a fund's redemption obligations for a
period of time after the sale of the bank loans, which could lead to a fund
having to sell other investments, borrow to meet obligations, or borrow to
remain fully invested while awaiting settlement.
Bank loans pay interest at rates
which are periodically reset by reference to a base lending rate plus a spread.
These base lending rates are generally the prime rate offered by a designated
U.S. bank or the London InterBank Offered Rate (LIBOR) or the prime rate offered
by one or more major U.S. banks.
Bank loans generally are subject to
mandatory and/or optional prepayment. Because of these prepayment conditions and
because there may be significant economic incentives for the borrower to repay,
prepayments may occur.
Contingent
Convertible Securities ("CoCos")
Contingent convertible securities
(“CoCos”) are hybrid debt securities intended to either convert into equity or
have their principal written down upon the occurrence of certain “triggers.” The
triggers are generally linked to regulatory capital thresholds or regulatory
actions calling into question the issuing banking institution’s continued
viability as a going-concern, if the conversion trigger were not exercised.
CoCos’ unique equity conversion or principal write-down features are tailored to
the issuing banking institution and its regulatory requirements. Some additional
risks associated with CoCos include, but are not limited to, the
following:
|
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• |
The occurrence of a conversion
event is inherently unpredictable and depends on many factors, some of
which will be outside the issuer’s control. Because of the uncertainty
regarding whether a conversion event will occur, it may be difficult to
predict when, if at all, a CoCo will be converted to equity, and a fund
may suffer losses as a result. |
|
|
• |
CoCos may have no stated
maturity and fully discretionary coupons. This means coupon (i.e.,
interest) payments can be canceled at the banking institution’s discretion
or at the request of the relevant regulatory authority in order to help
the bank absorb losses, without causing a
default. |
|
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• |
CoCos are usually issued in
the form of subordinated debt instruments to provide the appropriate
regulatory capital treatment. If an issuer liquidates, dissolves or
winds-up before a conversion to equity has occurred, the rights and claims
of the holders of the CoCos (such as a fund) against the issuer generally
rank junior to the claims of holders of unsubordinated obligations of the
issuer. In addition, if the CoCos are converted into the issuer’s
underlying equity securities after a conversion event (i.e., a “trigger”),
each holder will be further subordinated. |
|
|
• |
The value of CoCos is
unpredictable and is influenced by many factors including, without
limitation: the creditworthiness of the issuer and/or fluctuations in such
issuer’s applicable capital ratios; supply and demand for CoCos; general
market conditions and available liquidity; and economic, financial and
political events that affect the issuer, its particular market or the
financial markets in general. Moreover, the performance of CoCos may be
correlated with one another and as a result negative information of one
issuer may cause decline in the value of CoCos of many other issuers.
|
Due to these features, CoCos may
have substantially greater risk than other securities in times of financial
stress. If the trigger level is breached, the issuer’s decision to write down,
write off or convert a CoCo may result in the fund's complete loss on an
investment in CoCos with no chance of recovery even if the issuer remains in
existence.
Convertible
Securities
Convertible securities are usually
fixed-income securities that a fund has the right to exchange for equity
securities at a specified conversion price. Convertible securities include
corporate bonds, notes or preferred stocks of U.S. or foreign issuers.
Convertible securities allow a Fund to realize additional returns if the market
price of the equity securities exceeds the conversion price. For example, a Fund
may hold fixed-income securities that are convertible into shares of common
stock at a conversion price of $10 per share. If the market value of the shares
of common stock reached $12, the Fund could realize an additional $2 per share
by converting its fixed-income securities.
Convertible securities have lower
yields than comparable fixed-income securities. In addition, at the time a
convertible security is issued the conversion price exceeds the market value of
the underlying equity securities. Thus, convertible securities may provide lower
returns than non-convertible fixed-income securities or equity securities
depending upon changes in the price of the underlying equity securities.
However, convertible securities permit a Fund to realize some of the potential
appreciation of the underlying equity securities with less risk of losing its
initial investment.
Depending on the features of the
convertible security, a fund will treat a convertible security as a fixed-income
security, equity security, or preferred security for purposes of investment
policies and limitations because of the unique characteristics of convertible
securities. Funds that invest in convertible securities may invest in
convertible securities that are below investment grade (sometimes referred to as
"junk"). Many convertible securities are relatively illiquid.
Counterparty
Risk
Counterparty risk is the risk that
the counterparty to a contract or other obligation will be unable or unwilling
to honor its obligations. If a counterparty fails to meet its contractual
obligations, goes bankrupt, or otherwise experiences a business interruption, a
fund could miss investment opportunities or otherwise hold investments it would
prefer to sell, resulting in losses for the fund. In addition, a fund may suffer
losses if a counterparty fails to comply with applicable laws or other
requirements. Counterparty risk is pronounced during unusually adverse market
conditions and is particularly acute in environments in which financial services
firms are exposed to systemic risks.
Derivatives
Generally, a derivative is a
financial arrangement, the value of which is derived from, or based on, a
traditional security, asset, or market index. A fund may invest in certain
derivative strategies to earn income, manage or adjust the risk profile of the
fund, replace more direct investments, or obtain exposure to certain markets. A
fund may enter into forward commitment agreements, which call for the fund to
purchase or sell a security on a future date at a fixed price. A fund may also
enter into contracts to sell its investments either on demand or at a specific
interval.
The risks associated with derivative
investments include:
|
|
• |
increased volatility of a fund
and/or the failure of the investment to mitigate volatility as
intended; |
|
|
• |
the inability of those
managing investments of the fund to predict correctly the direction of
securities prices, interest rates, currency exchange rates, asset values,
and other economic factors; |
|
|
• |
losses caused by unanticipated
market movements, which may be substantially greater than a fund's initial
investment and are potentially unlimited; |
|
|
• |
the possibility that there may
be no liquid secondary market which may make it difficult or impossible to
close out a position when desired; |
|
|
• |
the possibility that the
counterparty may fail to perform its obligations;
and |
|
|
• |
the inability to close out
certain hedged positions to avoid adverse tax
consequences. |
There are many different types of
derivatives and many different ways to use them. The specific derivatives that
are principal strategies of each Fund are listed in its Fund
Summary.
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|
• |
Commodity index-linked notes
are derivative debt instruments issued by U.S. and foreign banks,
brokerage firms, insurance companies and other corporations with principal
and/or coupon payments linked to the performance of commodity indices.
Commodities are assets that have tangible properties, such as oil, coal,
natural gas, agricultural products, industrial metals, livestock and
precious metals. These notes expose a fund to movements in commodity
prices. They are also subject to credit, counterparty, and interest rate
risk. Commodity index-linked notes are often leveraged, increasing the
volatility of each note's market value relative to changes in the
underlying commodity index. At the maturity of the note, a fund may
receive more or less principal than it originally invested. A fund may
also receive interest payments on the note that are less than the stated
coupon interest payments. |
|
|
• |
Credit Default Swap Agreements
may be entered into by a fund as a "buyer" or "seller" of credit
protection. Credit default swap agreements involve special risks because
they may be difficult to value, are highly susceptible to liquidity and
credit risk, and generally pay a return to the party that has paid the
premium only in the event of an actual default by the issuer of the
underlying obligation (as opposed to a credit downgrade or other
indication of financial difficulty). Credit default swaps can increase
credit risk because a fund has exposure to both the issuer of the
referenced obligation and the counterparty to the credit default
swap. |
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|
• |
Foreign Currency Contracts
(such as foreign currency options and foreign currency forward and swap
agreements) may be used by funds to increase exposure to a foreign
currency or to shift exposure to foreign currency fluctuations from one
country to another. A forward currency contract involves a privately
negotiated obligation to purchase or sell a specific currency at a future
date at a price set in the contract. For currency contracts, there is also
a risk of government action through exchange controls that would restrict
the ability of a fund to deliver or receive
currency. |
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• |
Forwards, futures contracts
and options thereon (including commodities futures); options (including
put or call options); and swap agreements and over-the-counter swap
agreements (e.g., interest rate swaps, total return swaps and credit
default swaps) may be used by funds for hedging purposes in order to try
to mitigate or protect against potential losses due to changing interest
rates, securities prices, asset values, currency exchange rates, and other
market conditions; non-hedging purposes to seek to increase the fund’s
income or otherwise enhance return; and as a low-cost method of gaining
exposure to a particular market without investing directly in those
securities or assets. These derivative investments are subject to special
risk considerations, particularly the imperfect correlation between the
change in market value of the instruments held by a fund and the price of
the derivative instrument. If a fund has insufficient cash, it may have to
sell securities from its portfolio to meet daily variation margin
requirements, even when it may be disadvantageous to do so. Options and
Swap Agreements also involve counterparty risk. With respect to options,
there may be difference in trading hours for the options markets and the
markets for the underlying securities (rate movements can take place in
the underlying markets that cannot be reflected in the options markets)
and an insufficient liquid secondary market for particular
options. |
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|
• |
Certain derivative securities
are described more accurately as index/structured securities, which are
derivative securities whose value or performance is linked to other equity
securities (such as depositary receipts), currencies, interest rates,
indices, or other financial indicators (reference
indices). |
Emerging Markets
The Fund considers a security to be
tied economically to an emerging market country (an “emerging market security”)
if the issuer of the security has its principal place of business or principal
office in an emerging market country, has its principal securities trading
market in an emerging market country, or derives a majority of its revenue
from emerging market countries.
Usually, the term "emerging market
country" (also called a "developing country") means any country that is
considered to be an emerging market by the international financial community
(including the MSCI Emerging Markets Index or Bloomberg Barclays Emerging
Markets USD Aggregate Bond Index). Emerging markets generally exclude the U.S.,
Canada, Japan, Australia, New Zealand, Hong Kong, and Singapore and most nations
located in Western Europe.
Investments in companies in emerging
(also called "developing") market countries are subject to higher risks than
investments in companies in more developed countries. These risks
include:
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|
• |
increased social, political,
and economic instability; |
|
|
• |
a smaller market for these
securities and low or nonexistent trading volume that results in a lack of
liquidity and greater price volatility; |
|
|
• |
lack of publicly available
information, including reports of payments of dividends or interest on
outstanding securities; |
|
|
• |
foreign government policies
that may restrict opportunities, including restrictions on investment in
issuers or industries deemed sensitive to national
interests; |
|
|
• |
relatively new capital market
structure or market-oriented economy; |
|
|
• |
the possibility that recent
favorable economic developments may be slowed or reversed by unanticipated
political or social events in these
countries; |
|
|
• |
restrictions that may make it
difficult or impossible for the Fund to vote proxies, exercise shareholder
rights, pursue legal remedies, and obtain judgments in foreign courts;
and |
|
|
• |
possible losses through the
holding of securities in domestic and foreign custodial banks and
depositories. |
In addition, many developing
countries have experienced substantial and, in some periods, extremely high
rates of inflation for many years. Inflation and rapid fluctuations in inflation
rates have had and may continue to have negative effects on the economies,
currencies, interest rates, and securities markets of those
countries.
Repatriation of investment income,
capital, and proceeds of sales by foreign investors may require governmental
registration and/or approval in some developing countries. The Fund could be
adversely affected by delays in or a refusal to grant any required governmental
registration or approval for repatriation.
Further, the economies of developing
countries generally are heavily dependent upon international trade and,
accordingly, have been and may continue to be adversely affected by trade
barriers, exchange controls, managed adjustments in relative currency values and
other protectionist measures imposed or negotiated by the countries with which
they trade.
Equity Securities
Equity securities include common
stocks, some convertible securities, preferred stock, depositary receipts,
rights (an offering of common stock to investors who currently own shares which
entitle them to buy subsequent issues at a discount from the offering price),
and warrants (the right to purchase securities from the issuer at a specified
price, normally higher than the current market price). Common stocks, the most
familiar type, represent an equity (ownership) interest in a corporation. The
value of a company's stock may fall as a result of factors directly relating to
that company, such as decisions made by its management or lower demand for the
company's products or services. A stock's value may also fall because of factors
affecting not just the company, but also companies in the same industry or in a
number of different industries, such as increases in production costs. The value
of a company's stock may also be affected by changes in financial markets that
are relatively unrelated to the company or its industry, such as changes in
interest rates or currency exchange rates. In addition, a company's stock
generally pays dividends only after the company invests in its own business and
makes required payments to holders of its bonds and other debt. For this reason,
the value of a company's stock will usually react more strongly than its bonds
and other debt to actual or perceived changes in the company's financial
condition or prospects.
Some funds focus their investments
on certain market capitalization ranges. Market capitalization is defined as
total current market value of a company's outstanding equity securities. The
market capitalization of companies in each fund’s portfolios and their related
indexes will change over time, and, except to the extent consistent with its
principal investment strategies (for example, for an index fund that uses a
replication strategy), a fund will not automatically sell a security just
because it falls outside of the market capitalization range of its index(es).
Growth
Stock
The prices of growth stocks may be
based largely on expectations of future earnings, and their prices can decline
rapidly and significantly in reaction to negative news about such factors as
earnings, revenues, the economy, political developments, or other news. Growth
stocks may underperform value stocks and stocks in other broad style categories
(and the stock market as a whole) over any period of time and may shift in and
out of favor with investors generally, sometimes rapidly, depending on changes
in market, economic, and other factors. As a result, a fund that holds
substantial investments in growth stocks may underperform other funds that
invest more broadly or favor different investment styles. Because growth
companies typically reinvest their earnings, growth stocks typically do not pay
dividends at levels associated with other types of stocks, if at
all.
Small
and Medium Market Capitalization Companies
Investments in companies with
smaller market capitalizations may involve greater risks and price volatility
(wide, rapid fluctuations) than investments in larger, more mature companies.
Small company stocks may decline in price as large company stocks rise, or rise
in price while larger company stocks decline. The net asset value of a fund that
invests a substantial portion of its assets in small company stocks may
therefore be more volatile than the shares of a fund that invests solely in
larger company stocks. Small companies may be less significant within their
industries and may be at a competitive disadvantage relative to their larger
competitors. Smaller companies may be less mature than larger companies. At this
earlier stage of development, the companies may have limited product lines,
reduced market liquidity for their shares, limited financial resources, or less
depth in management than larger or more established companies. While smaller
companies may be subject to these additional risks, they may also realize more
substantial growth than larger or more established companies.
Unseasoned issuers are companies
with a record of less than three years continuous operation, including the
operation of predecessors and parents. Many unseasoned issuers also may be small
companies and involve the risks and price volatility associated with smaller
companies. Unseasoned issuers by their nature have only a limited operating
history that can be used for evaluating the company's growth prospects. As a
result, these securities may place a greater emphasis on current or planned
product lines and the reputation and experience of the company's management and
less emphasis on fundamental valuation factors than would be the case for more
mature growth companies.
Value
Stock
Value stocks present the risk that
they may decline in price or never reach their expected full market value
because the market fails to recognize the stock's intrinsic worth. Value stocks
may underperform growth stocks and stocks in other broad style categories (and
the stock market as a whole) over any period of time and may shift in and out of
favor with investors generally, sometimes rapidly, depending on changes in
market, economic, and other factors. As a result, a fund that holds substantial
investments in value stocks may underperform other funds that invest more
broadly or favor different investment styles.
Fixed-Income
Securities
Fixed-income securities include
bonds and other debt instruments that are used by issuers to borrow money from
investors. Examples include corporate bonds, convertible bonds, asset-backed
securities, residential and commercial mortgage-backed securities, agency
securities (such as debt instruments issued by U.S. government-sponsored
entities and other federally-related entities), inverse floaters, covered
securities, sinking fund securities, equipment trust certificates, sovereign
bonds, pay-in-kind securities (which pay investors in the form of additional
securities rather than cash), and step coupon securities (which pay interest at
predetermined rates that increase or decrease over time).
Fixed-income securities are
sensitive to changes in interest rates. In general, fixed-income security prices
rise when interest rates fall and fall when interest rates rise. An increase in
interest rates from the current, historically low interest rate environment may
lead to heightened volatility and redemptions alongside reduced liquidity and
dealer market-making capacity in fixed income markets. If interest rates fall,
issuers of callable bonds may call (repay) securities with high interest rates
before their maturity dates; this is known as call risk. In this case, the Fund
would likely reinvest the proceeds from these securities at lower interest
rates, resulting in a decline in the Fund's income. Floating rate securities
generally are less sensitive to interest rate changes but may decline in value
if their interest rates do not rise as much, or as quickly, as interest rates in
general. Conversely, floating rate securities will not generally increase in
value if interest rates decline.
Fixed-income securities are also
affected by the credit quality of the issuer. Investment grade debt securities
are medium and high quality securities. Some bonds, such as lower grade or
"junk" bonds, may have speculative characteristics and may be particularly
sensitive to economic conditions and the financial condition of the issuers.
Credit risk refers to the possibility that the issuer of the security will not
be able to make principal and interest payments when due.
Funds may invest in fixed-income
securities of companies with small- or medium-sized market capitalizations.
Investments in companies with smaller market capitalizations may involve greater
risks, price volatility (wide, rapid fluctuations), and less liquidity than
investments in larger, more mature companies.
Foreign
Currency
Certain of a Fund's investments will
be denominated in foreign currencies or traded in securities markets in which
settlements are made in foreign currencies. Any income on such investments is
generally paid to a fund in foreign currencies. In addition, funds may engage in
foreign currency transactions for both hedging and investment purposes, as well
as to increase exposure to a foreign currency or to shift exposure to foreign
currency fluctuations from one country to another.
The value of foreign currencies
relative to the U.S. dollar varies continually, causing changes in the dollar
value of a fund’s portfolio investments (even if the local market price of the
investments is unchanged) and changes in the dollar value of a fund’s income
available for distribution to its shareholders. The effect of changes in the
dollar value of a foreign currency on the dollar value of a fund’s assets and on
the net investment income available for distribution may be favorable or
unfavorable. Transactions in non-U.S. currencies are also subject to many of the
risks of investing in foreign (non-U.S.) securities; for example, changes in
foreign economies and political climates are more likely to affect a fund that
has foreign currency exposure than a fund that invests exclusively in U.S.
companies and currency. There also may be less government supervision of foreign
markets, resulting in non-uniform accounting practices and less publicly
available information. Transactions in foreign currencies, foreign currency
denominated debt and certain foreign currency options, futures contracts and
forward contracts (and similar instruments) may give rise to ordinary income or
loss to the extent such income or loss results from fluctuations in the value of
the foreign currency concerned.
A fund may incur costs in connection
with conversions between various currencies. In addition, a fund may be required
to liquidate portfolio assets, or may incur increased currency conversion costs,
to compensate for a decline in the dollar value of a foreign currency occurring
between the time when a fund declares and pays a dividend, or between the time
when a fund accrues and pays an operating expense in U.S. dollars. To protect
against a change in the foreign currency exchange rate between the date on which
a fund contracts to purchase or sell a security and the settlement date for the
purchase or sale, to gain exposure to one or more foreign currencies or to "lock
in" the equivalent of a dividend or interest payment in another currency, a fund
might purchase or sell a foreign currency on a spot (i.e., cash) basis at the prevailing spot
rate.
Currency hedging involves some of
the same general risks and considerations as other transactions with similar
instruments (i.e., derivative instruments) and
hedging. Currency transactions are also subject to additional risks. Because
currency control is of great importance to the issuing governments and
influences economic planning and policy, purchases and sales of currency and
related instruments can be adversely affected by government exchange controls,
limitations or restrictions on repatriation of currency, and manipulations or
exchange restrictions imposed by governments. These forms of governmental
actions can result in losses to a fund if it is unable to deliver or receive
currency or monies in settlement of obligations. They could also cause hedges
the fund has entered into to be rendered useless, resulting in full currency
exposure as well as incurring transaction costs. Settlement of a currency
forward contract for the purchase of most currencies must occur at a bank based
in the issuing nation. The ability to establish and close out positions on
trading options on currency futures contracts is subject to the maintenance of a
liquid market that may not always be available.
Foreign
Securities
The Fund considers a security to be
tied economically to countries outside the U.S. (a “foreign security”) if the
issuer of the security has its principal place of business or principal office
outside the U.S., has its principal securities trading market outside the U.S.,
or derives a majority of its revenue from outside the U.S.
Foreign companies may not be subject
to the same uniform accounting, auditing, and financial reporting practices as
are required of U.S. companies. In addition, there may be less publicly
available information about a foreign company than about a U.S. company.
Securities of many foreign companies are less liquid and more volatile than
securities of comparable U.S. companies. Commissions on foreign securities
exchanges may be generally higher than those on U.S. exchanges.
Foreign markets also have different
clearance and settlement procedures than those in U.S. markets. In certain
markets, there have been times when settlements have been unable to keep pace
with the volume of securities transactions, making it difficult to conduct these
transactions. Delays in settlement could result in temporary periods when a
portion of Fund assets is not invested and earning no return. If the Fund is
unable to make intended security purchases due to settlement problems, the Fund
may miss attractive investment opportunities. In addition, the Fund may incur a
loss as a result of a decline in the value of its portfolio if it is unable to
sell a security.
With respect to certain foreign
countries, there is the possibility of nationalization, expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments that could affect the Fund's investments in those countries. In
addition, the Fund may also suffer losses due to differing accounting practices
and treatments. Investments in foreign securities are subject to laws of the
foreign country that may limit the amount and types of foreign investments.
Changes of governments or of economic or monetary policies, in the U.S. or
abroad, changes in dealings between nations, currency convertibility or exchange
rates could result in investment losses for the Fund.
Foreign securities are often traded
with less frequency and volume, and therefore may have greater price volatility
than is the case with many U.S. securities. Brokerage commissions, custodial
services, and other costs relating to investment in foreign countries are
generally more expensive than in the U.S. Though the Fund intends to acquire the
securities of foreign issuers where there are public trading markets, economic
or political turmoil in a country in which the Fund has a significant portion of
its assets or deterioration of the relationship between the U.S. and a foreign
country may reduce the liquidity of the Fund's portfolio, and the Fund may have
difficulty meeting a large number of redemption requests. Furthermore, there may
be difficulties in obtaining or enforcing judgments against foreign
issuers.
A fund may invest in a foreign
company by purchasing depositary receipts. Depositary receipts are certificates
of ownership of shares in a foreign-based issuer held by a bank or other
financial institution. They are alternatives to purchasing the underlying
security but are subject to the foreign securities risks to which they relate.
If a fund's portfolio is
over-weighted in a certain geographic region, any negative development affecting
that region will have a greater impact on the fund than a fund that is not
over-weighted in that region.
Hedging
Hedging is a strategy that can be
used to limit or offset investment risk. The success of a Fund’s hedging
strategy will be subject to the ability of those managing the Fund's investments
to correctly assess the degree of correlation between the performance of the
instruments used in the hedging strategy and the performance of the investments
in the portfolio being hedged. Since the characteristics of many securities
change as markets change or time passes, the success of the Fund’s hedging
strategy will also be subject to the ability of those managing the Fund's
investments to continually recalculate, readjust, and execute hedges in an
efficient and timely manner. For a variety of reasons, those managing the Fund's
investments may not seek to establish a perfect correlation between such hedging
instruments and the portfolio holdings being hedged. Such imperfect correlation
may prevent the Fund from achieving the intended hedge or expose the Fund to
risk of loss. In addition, it is not possible to hedge fully or perfectly
against any risk, and hedging entails its own costs.
High Yield
Securities
Below investment grade bonds, which
are rated at the time of purchase Ba1 or lower by Moody's Investors Service,
Inc. ("Moody's") or BB+ or lower by S&P Global Ratings ("S&P Global")
(if the bond has been rated by only one of those agencies, that rating will
determine if the bond is below investment grade; if the bond has not been rated
by either of those agencies, those managing the Fund's investments will
determine whether the bond is of a quality comparable to those rated below
investment grade), are sometimes referred to as high yield or "junk bonds" and
are considered speculative. Such securities could be in default at the time of
purchase.
Investment in high yield bonds
involves special risks in addition to the risks associated with investment in
highly rated debt securities. High yield bonds may be regarded as predominantly
speculative with respect to the issuer's continuing ability to meet principal
and interest payments. Moreover, under certain circumstances, such securities
may be less liquid than higher rated debt securities.
Analysis of the creditworthiness of
issuers of high yield securities may be more complex than for issuers of higher
quality debt securities. The ability of the Fund to achieve its investment
objective may, to the extent of its investment in high yield bonds, be more
dependent on such credit analysis than would be the case if the Fund were
investing in higher quality bonds.
High yield bonds may be more
susceptible to real or perceived adverse economic and competitive industry
conditions than higher-grade bonds. The prices of high yield bonds have been
found to be less sensitive to interest rate changes than more highly rated
investments, but more sensitive to adverse economic downturns or individual
corporate developments. If the issuer of high yield bonds defaults, the Fund may
incur additional expenses to seek recovery. To the extent that such high yield
issuers undergo a corporate restructuring, such high yield securities may become
exchanged for or converted into reorganized equity of the underlying issuer.
High yield bonds often include complex legal covenants that impose various
degrees of restriction on the issuer’s ability to take certain actions, such as
distribute cash to equity holders, incur additional indebtedness, and dispose of
assets. To the extent that a bond indenture or loan agreement does not contain
sufficiently protective covenants or otherwise permits the issuer to take
certain actions to the detriment of the holder of the fixed-income security, the
underlying value of such fixed-income security may decline.
The secondary market on which high
yield bonds are traded may be less liquid than the market for higher-grade
bonds. Less liquidity in the secondary trading market could adversely affect the
price at which the Fund could sell a high yield bond and could adversely affect
and cause large fluctuations in the daily price of the Fund's shares. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of high yield bonds, especially
in a thinly traded market.
The use of credit ratings for
evaluating high yield bonds also involves certain risks. For example, credit
ratings evaluate the safety of principal and interest payments, not the market
value risk of high yield bonds. Also, credit rating agencies may fail to change
credit ratings in a timely manner to reflect subsequent events. If a credit
rating agency changes the rating of a portfolio security held by the Fund, the
Fund may retain the security if those managing the Fund's investments think it
is in the best interest of shareholders.
Industry
Concentration
A fund that concentrates its
investments (invests more than 25% of its net assets) in a particular industry
(or group of industries) is more exposed to the overall condition of the
particular industry than a fund that invests in a wider variety of industries. A
particular industry could be affected by economic, business, supply-and-demand,
political, or regulatory factors. Companies within the same industry could react
similarly to such factors. As a result, a fund’s concentration in a particular
industry would increase the possibility that the fund’s performance will be
affected by such factors.
Investment
Company Securities
Securities of other investment
companies, including shares of closed-end investment companies, unit investment
trusts, various exchange-traded funds ("ETFs"), and other open-end investment
companies, represent interests in professionally managed portfolios that may
invest in a variety of instruments. Certain types of investment companies, such
as closed-end investment companies, issue a fixed number of shares that trade on
a stock exchange or over-the-counter at a premium or a discount to their net
asset value. Others are continuously offered at net asset value, but may also be
traded in the secondary market. ETFs are often structured to perform in a
similar fashion to a broad-based securities index. Investing in ETFs involves
generally the same risks as investing directly in the underlying instruments.
Investing in ETFs involves the risk that they will not perform in exactly the
same fashion, or in response to the same factors, as the index or underlying
instruments. Shares of ETFs may trade at prices other than NAV.
A fund that invests in another
investment company is subject to the risks associated with direct ownership of
the securities in which such investment company invests. Fund shareholders
indirectly bear their proportionate share of the expenses of each such
investment company, including its advisory and administrative fees. The Fund
would also continue to pay its own advisory fees and other expenses.
Consequently, the Fund and its shareholders would, in effect, absorb two levels
of fees with respect to investments in other investment companies.
A fund may invest in affiliated
underlying funds, and those who manage such fund's investments and their
affiliates may earn different fees from different underlying funds and may have
an incentive to allocate more fund assets to underlying funds from which they
receive higher fees.
Leverage
If a fund makes investments in
futures contracts, forward contracts, swaps and other derivative instruments,
these instruments provide the economic effect of financial leverage by creating
additional investment exposure, as well as the potential for greater loss. If a
fund uses leverage through activities such as borrowing, entering into short
sales, purchasing securities on margin or on a “when-issued” basis or purchasing
derivative instruments in an effort to increase its returns, the fund has the
risk of magnified capital losses that occur when losses affect an asset base,
enlarged by borrowings or the creation of liabilities, that exceeds the net
assets of the fund. The net asset value of a fund employing leverage will be
more volatile and sensitive to market movements. Leverage may involve the
creation of a liability that requires the fund to pay interest. Leveraging may
cause a fund to liquidate portfolio positions to satisfy its obligations or to
meet segregation requirements when it may not be advantageous to do so. To the
extent that a fund is not able to close out a leveraged position because of
market illiquidity, a fund’s liquidity may be impaired to the extent that it has
a substantial portion of liquid assets segregated or earmarked to cover
obligations.
Market Trading
Risks
The net asset value ("NAV") of the
Shares generally will fluctuate with changes in the market value of each Fund's
holdings. The market prices of the Shares generally will fluctuate in accordance
with changes in NAV, as well as the relative supply of and demand for Shares on
the respective exchanges, PGI cannot predict whether the Shares will trade
below, at or above their NAV. Price differences may be due largely to the fact
that supply and demand forces at work in the secondary trading market for the
Shares will be related, but not identical, to the forces influencing the prices
of the securities held by the Fund (individually or in the aggregate) at any
time.
Only authorized participants ("APs")
may engage in creation or redemption transactions directly with each Fund. (See
"Purchase and Sale of Fund Shares-Generally.") The Fund has a limited number of
institutions that may act as APs, none of which are or will be obligated to
engage in creation or redemption transactions. To the extent that these
institutions exit the business or are unable or unwilling to proceed with
creation and/or redemption orders with respect to the Fund, and no other AP is
able or willing to step forward to create or redeem Creation Units, Fund shares
may trade at a discount to NAV and possibly face trading halts and/or delisting.
Such disruptions to creations and redemptions or the existence of extreme market
volatility may result in trading prices that differ significantly from
NAV.
With respect to funds that invest in
foreign securities, since foreign exchanges may be open on days when such a fund
does not price its shares, the value of the fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the fund’s Shares, and
may result in trading prices that differ significantly from NAV. Additionally,
such funds may be subject to heightened risks since APs may be required to post
collateral with such investments, which only certain APs are able to do.
Moreover, to the extent that an AP is unable or unwilling to trade on an agency
basis for foreign securities, there could be a diminished trading market for ETF
shares, and shares may trade at a discount to NAV.
If a shareholder purchases at a time
when the market price is at a premium to the NAV or sells at a time when the
market price is at a discount to the NAV, the shareholder may sustain losses.
Given that Shares can be created and redeemed only in Creation Units at NAV, PGI
believes that large discounts and premiums should not be sustained over the long
term.
Master Limited
Partnerships (MLPs)
An MLP that invests in a particular
industry (e.g., oil and gas) will be harmed by detrimental economic events
within that industry. For example, the business of certain MLPs is affected by
supply and demand for energy commodities because such MLPs derive revenue and
income based upon the volume of the underlying commodity produced, transported,
processed, distributed, and/or marketed. Many MLPs are also subject to various
federal, state and local environmental laws and health and safety laws as well
as laws and regulations specific to their particular activities.
MLPs tend to pay relatively higher
distributions than other types of companies. The amount of cash that an MLP can
distribute to its partners will depend on the amount of cash it generates from
operations, which will vary from quarter to quarter depending on factors
affecting the market generally and on factors affecting the particular business
lines of the MLP. Available cash will also depend on the MLPs' level of
operating costs (including incentive distributions to the general partner),
level of capital expenditures, debt service requirements, acquisition costs (if
any), fluctuations in working capital needs and other factors.
Certain benefits derived from
investment in MLPs depend largely on the MLPs being treated as partnerships for
federal income tax purposes. As a partnership, an MLP has no federal income tax
liability at the entity level. MLPs taxed as partnerships file a partnership tax
return for U.S. federal, state, and local income tax purposes and communicate
the Fund's allocable share of the MLP's income, gains, losses, deductions, and
expenses via a "Schedule K-1." Each year, the Fund will send you an annual tax
statement (Form 1099) to assist you in completing your tax returns. In some
circumstances the Fund may need to send you a corrected Form 1099, which could
require you to amend your tax returns. For example, if the Fund keeps MLP
investments until the basis (generally the price paid for the units, as adjusted
downwards with each distribution and allocation of deductions and losses, and
upwards with each allocation of taxable income and gain) is zero, subsequent
distributions will be taxable to the Fund at ordinary income rates and
shareholders may receive a corrected Form 1099.
If, because of a change in current
law or a change in an MLP's business, an MLP is treated as a corporation for
federal income tax purposes, the MLP would be obligated to pay federal income
tax on its income at the corporate tax rate. If an MLP is classified as a
corporation for federal income tax purposes, the amount of cash available for
distribution would be reduced and the distributions received might be taxed
entirely as dividend income.
Momentum
Style
Investing in or having exposure to
securities with positive momentum entails investing in securities that have had
above-average recent returns. These securities may be more volatile than a
broad cross-section of securities. Returns on securities that have
previously exhibited momentum may be less than returns on other styles of
investing or the overall stock market. Momentum can turn quickly and cause
significant variation from other types of investments, and stocks that
previously exhibited high momentum may not experience continued positive
momentum. In addition, there may be periods when the momentum style is out
of favor, and during which the investment performance of the Fund using a
momentum strategy may suffer.
Portfolio
Duration
Average duration is a mathematical
calculation of the average life of a bond (or for a bond fund, the average life
of the fund's underlying bonds, weighted by the percentage of the fund's assets
that each represents) that serves as a useful measure of its price risk.
Duration is an estimate of how much the value of the bonds held by a fund will
fluctuate in response to a change in interest rates. For example, if a fund has
an average duration of 4 years and interest rates rise by 1%, the value of the
bonds held by the fund will decline by approximately 4%, and if the interest
rates decline by 1%, the value of the bonds held by the fund will increase by
approximately 4%. Longer term bonds and zero coupon bonds are generally more
sensitive to interest rate changes. Duration, which measures price sensitivity
to interest rate changes, is not necessarily equal to average
maturity.
Portfolio
Turnover (Active Trading)
"Portfolio Turnover" is the term
used in the industry for measuring the amount of trading that occurs in a fund's
portfolio during the year. For example, a 100% turnover rate means that on
average every security in the portfolio has been replaced once during the year.
Funds with high turnover rates (more than 100%) are considered actively traded
and often have higher transaction costs (which are paid by the Fund) that may
lower the Fund's performance. High portfolio turnover can result in a lower
capital gain distribution due to higher transaction costs added to the basis of
the assets or can result in lower ordinary income distributions to shareholders
when the transaction costs cannot be added to the basis of assets. Both events
reduce fund performance.
Please consider all the factors when
you compare the turnover rates of different funds. You should also be aware that
the "total return" line in the Financial Highlights section reflects portfolio
turnover costs.
Preferred
Securities
Preferred securities include
preferred stock and various types of junior subordinated debt and trust
preferred securities. Preferred securities may pay fixed rate or adjustable rate
distributions and generally have a payment "preference" over common stock, but
are junior to the issuer's senior debt in a liquidation of the issuer’s assets.
Preference would mean that a company must pay on its preferred securities before
paying on its common stock, and that any claims of the preferred security holder
would typically be ahead of common stockholders' claims on assets in a corporate
liquidation.
Holders of preferred securities
usually have no right to vote for corporate directors or on other matters. The
market value of preferred securities is sensitive to changes in interest rates
as they are typically fixed income securities; the fixed-income payments are
expected to be the primary source of long-term investment return. While some
preferred securities are issued with a final maturity date, others are perpetual
in nature. In certain instances, a final maturity date may be extended and/or
the final payment of principal may be deferred at the issuer’s option for a
specified time without triggering an event of default for the issuer. In
addition, an issuer of preferred securities may have the right to redeem the
securities before their stated maturity date. For instance, for certain types of
preferred securities, a redemption may be triggered by a change in federal
income tax or securities laws. As with call provisions, a redemption by the
issuer may reduce the return of the security held by the fund. Preferred
securities may be subject to provisions that allow an issuer, under certain
circumstances to skip (indefinitely) or defer (possibly up to 10 years)
distributions. If a fund owns a preferred security that is deferring its
distribution, the fund may be required to report income for tax purposes while
it is not receiving any income.
Preferred securities are typically
issued by corporations, generally in the form of interest or dividend bearing
instruments, or by an affiliated business trust of a corporation, generally in
the form of beneficial interests in subordinated debentures or similarly
structured securities. The preferred securities market is generally divided into
the $25 par “retail” and the $1,000 par “institutional” segments. The $25 par
segment includes securities that are listed on the New York Stock Exchange
(exchange traded), which trade and are quoted with accrued dividend or interest
income, and which are often callable at par value five years after their
original issuance date. The institutional segment includes $1,000 par value
securities that are not exchange-listed (over the counter), which trade and are
quoted on a “clean” price, i.e., without accrued dividend or interest income,
and which often have a minimum of 10 years of call protection from the date of
their original issuance. Preferred securities can also be issued by real estate
investment trusts and involve risks similar to those associated with investing
in real estate investment trust companies.
Real Estate
Investment Trusts ("REITs")
REITs involve certain unique risks
in addition to the risks associated with investing in the real estate industry
in general (such as possible declines in the value of real estate, lack of
availability of mortgage funds, or extended vacancies of property). REITs are
characterized as: equity REITs, which primarily own property and generate
revenue from rental income; mortgage REITs, which invest in real estate
mortgages; and hybrid REITs, which combine the characteristics of both equity
and mortgage REITs. Equity REITs may be affected by changes in the value of the
underlying property owned by the REITs, while mortgage REITs may be affected by
the quality of any credit extended. REITs are dependent upon management skills,
are not diversified, and are subject to heavy cash flow dependency, risks of
default by borrowers, and self-liquidation. A fund that invests in a REIT is
subject to the REIT’s expenses, including management fees, and will remain
subject to the fund's advisory fees with respect to the assets so invested.
REITs are also subject to the possibilities of failing to qualify for the
special tax treatment accorded REITs under the Internal Revenue Code, and
failing to maintain their exemptions from registration under the 1940
Act.
Regular REIT dividends received by a
Fund from a REIT will not qualify for the corporate dividends-received deduction
and generally will not constitute qualified dividend income for U.S. income tax
purposes. Any distribution of income attributable to regular REIT dividends from
a Fund’s investment in a REIT will not qualify for the deduction that would be
available to a non-corporate shareholder were the shareholder to own such REIT
directly.
Investment in REITs also involves
risks similar to those associated with investing in small market capitalization
companies. REITs may have limited financial resources, may trade less frequently
and in a limited volume, and may be subject to more abrupt or erratic price
movements than larger company securities.
Real Estate
Securities
Investing in securities of companies
in the real estate industry subjects a fund to the special risks associated with
the real estate market and the real estate industry in general. Generally,
companies in the real estate industry are considered to be those that have
principal activity involving the development, ownership, construction,
management or sale of real estate; have significant real estate holdings, such
as hospitality companies, healthcare facilities, supermarkets, mining, lumber
and/or paper companies; and/or provide products or services related to the real
estate industry, such as financial institutions that make and/or service
mortgage loans and manufacturers or distributors of building supplies.
Securities of companies in the real estate industry are sensitive to factors
such as loss to casualty or condemnation, changes in real estate values,
property taxes, interest rates, cash flow of underlying real estate assets,
occupancy rates, government regulations affecting zoning, land use and rents,
and the management skill and creditworthiness of the issuer. Companies in the
real estate industry may also be subject to liabilities under environmental and
hazardous waste laws.
Redemption and
Large Transaction Risk
Ownership of a fund's shares may be
concentrated in one or a few large investors (such as funds of funds,
institutional investors, and asset allocation programs) that may redeem or
purchase shares in large quantities. These transactions may cause a fund to sell
securities to meet redemptions or to invest additional cash at times it would
not otherwise do so, which may result in increased transaction costs, increased
expenses, changes to expense ratios, and adverse effects to fund performance.
Such transactions may also accelerate the realization of taxable income if sales
of portfolio securities result in gains.
As an example, as of June 30, 2019,
Principal Funds, Inc. ("PFI") and Principal Variable Contracts Funds, Inc.
("PVC") funds of funds owned the following percentages, in the aggregate, of the
outstanding shares of the underlying funds listed below. Principal Global
Investors, LLC ("PGI") is the advisor to the PFI and PVC funds of funds and is
committed to minimizing the potential impact of redemption and large transaction
risk on underlying funds to the extent consistent with pursuing the investment
objectives of the funds of funds that it manages. However, PGI may face
conflicts of interest in fulfilling its responsibilities to all such funds.
|
|
|
Fund |
Total
Percentage
of
Outstanding
Shares
Owned |
Principal Active Global
Dividend Income ETF |
99.42% |
Principal Active Income
ETF |
84.74% |
Principal Healthcare Innovators
Index ETF |
0.79% |
Principal Investment Grade
Corporate Active ETF |
98.91% |
Principal Millennials Index
ETF |
3.08% |
Principal Price Setters Index
ETF |
1.04% |
Principal Shareholder Yield
Index ETF |
4.51% |
Principal Sustainable Momentum
Index ETF |
7.59% |
Principal U.S. Mega-Cap
Multi-Factor Index ETF |
93.87% |
Principal U.S. Small-Cap
Multi-Factor Index ETF |
95.95% |
Purchases and redemptions of
creation units primarily with cash rather through in kind delivery of portfolio
securities may cause the ETF to incur certain costs, such as brokerage costs or
taxable gains or losses that it might not have incurred if it had made
redemption in kind. These costs could be imposed on the ETF and thus decrease
its NAV to the extent that the costs are not offset by a transaction fee payable
by an authorized participant.
Securitized
Products
Securitized products are fixed
income instruments that represent interests in underlying pools of collateral or
assets. The value of the securitized product is derived from the performance,
value, and cash flows of the underlying asset(s). A fund’s investments in
securitized products are subject to risks similar to traditional fixed income
securities, such as credit, interest rate, liquidity, prepayment, extension, and
default risk, as well as additional risks associated with the nature of the
assets and the servicing of those assets. Prepayment risk may make it difficult
to calculate the average life of a fund’s investment in securitized products.
Securitized products are generally issued as pass-through certificates, which
represent the right to receive principal and interest payments collected on the
underlying pool of assets, which are passed through to the security holder.
Therefore, repayment depends on the cash flows generated by the underlying pool
of assets. The securities may be rated as investment-grade or
below-investment-grade.
The specific securitized products
that are principal strategies of each Fund are listed in its Fund
Summary.
|
|
• |
Mortgage-backed
securities (“MBS”) represent an interest in a pool of underlying mortgage
loans secured by real property. MBS are sensitive to changes in interest
rates, but may respond to these changes differently from other fixed
income securities due to the possibility of prepayment of the underlying
mortgage loans. If interest rates fall and the underlying loans are
prepaid faster than expected, the fund may have to reinvest the prepaid
principal in lower yielding securities, thus reducing the fund’s income.
Conversely, rising interest rates tend to discourage refinancings and the
underlying loans may be prepaid more slowly than expected, reducing a
fund’s potential to reinvest the principal in higher yielding securities
and extending the duration of the underlying loans. In addition, when
market conditions result in an increase in default rates on the underlying
loans and the foreclosure values of the underlying real estate is less
than the outstanding amount due on the underlying loan, collection of the
full amount of accrued interest and principal on these investments may be
doubtful. The risk of such defaults is generally higher in the case of
underlying mortgage pools that include sub-prime mortgages (mortgages
granted to borrowers whose credit histories would not support conventional
mortgages). |
|
|
• |
Commercial
mortgage-backed securities (“CMBS”) represent an interest in a pool of
underlying commercial mortgage loans secured by real property such as
retail, office, hotel, multi-family, and industrial properties. Certain
CMBS are issued in several classes with different levels of yield and
credit protection, and the CMBS class in which a fund invests usually
influences the interest rate, credit, and prepayment
risks. |
|
|
• |
Asset-backed
securities (“ABS”) are backed by non-mortgage assets such as company
receivables, truck and auto loans, student loans, leases and credit card
receivables. ABS entail credit risk. They also may present a risk that, in
the event of default, the liquidation value of the underlying assets may
be inadequate to pay any unpaid interest or principal.
|
U.S. Government
and U.S. Government-Sponsored Securities
U.S. Government securities, such as
Treasury bills, notes and bonds and mortgage-backed securities guaranteed by the
Government National Mortgage Association ("Ginnie Mae"), are supported by the
full faith and credit of the United States; others are supported by the right of
the issuer to borrow from the U.S. Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; and still others are supported only by the credit of the issuing
agency, instrumentality, or enterprise.
Although U.S. Government-sponsored
enterprises such as the Federal Home Loan Mortgage Corporation ("Freddie Mac")
and the Federal National Mortgage Association ("Fannie Mae") may be chartered or
sponsored by Congress, they are not funded by Congressional appropriations, and
their securities are not issued by the U.S. Treasury nor supported by the full
faith and credit of the U.S. Government.
There is no assurance that the U.S.
Government would provide financial support to its agencies and instrumentalities
if not required to do so. In addition, certain governmental entities have been
subject to regulatory scrutiny regarding their accounting policies and practices
and other concerns that may result in legislation, changes in regulatory
oversight and/or other consequences that could adversely affect the credit
quality, availability, or investment character of securities issued by these
entities. The value and liquidity of U.S. Government securities may be affected
adversely by changes in the ratings of those securities.
PORTFOLIO
HOLDINGS INFORMATION
A description of each Fund's
policies and procedures with respect to disclosure of the Fund's portfolio
securities is available in the SAI.
MANAGEMENT OF THE
FUNDS
Effective
December 31, 2019, delete references to Charles D. Averill.
The Manager and
Advisor
Principal Global Investors, LLC
(“PGI”), an indirect subsidiary of Principal Financial Group, Inc.
(“Principal®”), serves as the manager and
advisor for the Fund. Through the Management Agreement with the Fund, PGI
provides investment advisory services and certain corporate administrative
services for the Fund.
|
|
Advisor: |
Principal
Global Investors, LLC ("PGI"), 711 High Street, Des Moines,
IA 50392, is part of a diversified global asset management organization
which utilizes a multi-boutique strategy of specialized investment groups
and affiliates to provide institutional investors and individuals with
diverse investment capabilities, including fixed income, equities, real
estate, currency, asset allocation and stable value. PGI also has asset
management offices of affiliate advisors in non-U.S. locations including
London, Singapore, Tokyo, Hong Kong and Sydney. PGI has been an investment
advisor since 1998. |
|
|
Funds: |
In fulfilling its investment
advisory responsibilities, PGI provides the day-to-day discretionary
investment services (directly making decisions to purchase or sell
securities) for each Fund. For the Principal Spectrum Preferred Securities
Active ETF, PGI provides such services with respect to implementing the
Fund in a manner which seeks to avoid detrimental effect on the Fund’s
next day Creation Unit, while other services are provided by the
sub-advisor, as described below. For the Principal Active Global Dividend
Income and Principal Active Income ETFs, some of these discretionary
investment services are provided by "Edge Asset Management", a specialized
boutique of PGI. |
Portfolio
Managers
As reflected in the Fund Summaries,
the day-to-day portfolio management for each Fund is shared by multiple
portfolio managers. Except as described below, the portfolio managers operate as
a team, sharing authority and responsibility for research and the day-to-day
management of the Fund's portfolio with no limitation on the authority of one
portfolio manager in relation to another.
For the Funds for which Paul S. Kim
and/or Daniela Spassova are listed as portfolio managers, Mr. Kim and/or Ms.
Spassova are responsible for implementation of the Fund in a manner which seeks
to avoid detrimental effect on the Fund’s next day Creation Unit; the other
portfolio managers are responsible for the ongoing management of each Fund’s
asset allocation and implementation into specific securities. Within each of the
foregoing groups of portfolio managers, the portfolio managers operate as a
team, sharing authority and responsibility for research and the day-to-day
management of the Fund's portfolio with no limitation on the authority of one
portfolio manager in relation to another.
Each Fund summary identifies the
portfolio managers of the Fund. Additional information about the portfolio
managers follows. References to Principal® include the entire Principal
organization. The SAI provides additional information about each portfolio
manager’s compensation, other accounts the portfolio managers manage, and each
portfolio manager’s ownership of securities in the Fund.
Charles D.
Averill has been with
Principal® since 1990. He earned a bachelor’s
degree in Economics from Reed College and an M.A. in Economics from Princeton
University. Mr. Averill has earned the right to use the Chartered Financial
Analyst designation.
Daniel R.
Coleman has been with
Principal® since 2001 and has held various
investment management roles on the equity team, including Portfolio Manager and
some senior management roles. He earned a bachelor's degree in Finance from the
University of Washington and an M.B.A. from New York University.
John R.
Friedl has been with
Principal® since 1998. He earned a B.A. in
Communications and History from the University of Washington and a master's
degree in Finance from Seattle University. Mr. Friedl has earned the right to
use the Chartered Financial Analyst designation.
Todd A.
Jablonski has been with
Principal® since 2010. He earned a bachelor’s
degree in Economics from the University of Virginia and an M.B.A. with an
emphasis in Quantitative Finance from New York University's Stern School of
Business. Mr. Jablonski has earned the right to use the Chartered Financial
Analyst designation.
Paul S. Kim
has been with
Principal® since 2015. Previously, he was a
senior vice president at PIMCO from 2009 to 2015. He earned a bachelor’s degree
in Economics from Dartmouth College and an M.B.A. in Finance from The Wharton
School at the University of Pennsylvania. Mr. Kim has earned the right to use
the Chartered Financial Analyst designation.
Mark R. Nebelung
has been with
Principal® since 1997. He earned his
bachelor's degree in Actuarial Science and Statistics from the University of
Waterloo, Canada. He has earned the right to use the Chartered Financial Analyst
designation.
Scott J.
Peterson has been with
Principal® since 2002. He earned a bachelor’s
degree in Mathematics from Brigham Young University and an M.B.A. from New York
University’s Stern School of Business. Mr. Peterson has earned the right to use
the Chartered Financial Analyst designation.
Cliff
Remily has been with
Principal®
since 2015.
Previously, he was an executive vice president at PIMCO from 2011 to 2014. He
earned a bachelor's degree in Business Administration from the University of
Washington and an M.B.A. from the University of Southern California. Mr. Remily
has earned the right to use the Chartered Financial Analyst designation.
Jeffrey A.
Schwarte has been with
Principal® since 1993. He earned a bachelor’s
degree in Accounting from the University of Northern Iowa. Mr. Schwarte has
earned the right to use the Chartered Financial Analyst
designation.
Daniela Spassova
has been with
Principal® since 1999. She earned an M.B.A.
from the University of Iowa and a Master of Arts from Sofia University. Ms.
Spassova has earned the right to use the Chartered Financial Analyst
designation.
Gregory L. Tornga
has been with
Principal®
since 2011. He
earned a bachelor’s degree from the University of Michigan and an M.B.A. from
the Argyros School of Business at Chapman University. Mr. Tornga has earned the
right to use the Chartered Financial Analyst designation.
Timothy R.
Warrick has been with
Principal® since 1990. He earned a bachelor’s
degree in Accounting and Economics from Simpson College and an M.B.A. in Finance
from Drake University. Mr. Warrick has earned the right to use the Chartered
Financial Analyst designation.
The
Sub-Advisor
PGI has signed a contract with a
Sub-Advisor. Under the sub-advisory agreement, the Sub-Advisor agrees to assume
the obligations of PGI to provide investment advisory services to the portion of
the assets of the Fund allocated to it by PGI. For these services, PGI pays the
Sub-Advisor a fee.
PGI or the Sub-Advisor provides the
Trustees of the Fund with a recommended investment program. The program must be
consistent with the Fund's investment objective and policies. Within the scope
of the approved investment program, the Sub-Advisor advises the Fund on its
investment policy and determines which securities are bought or sold, and in
what amounts.
|
|
Sub-Advisor: |
Spectrum
Asset Management, Inc. ("Spectrum"), 2 High Ridge Park, Stamford,
CT 06905, founded in 1987, manages portfolios of preferred securities for
corporate, pension fund, insurance and endowment clients, open-end and
closed-end mutual funds, and separately managed account programs for high
net worth individual investors as well as providing volatility mitigation
solutions for some client portfolios. |
Spectrum is the sub-advisor for a
portion of the assets of the Principal Spectrum Preferred Securities Active ETF,
specifically with respect to the ongoing management of the Fund’s asset
allocation and implementation into specific securities.
Spectrum's day-to-day portfolio
management for the Principal Spectrum Preferred Securities Active ETF is shared
by multiple portfolio managers. The portfolio managers operate as a team,
sharing authority and responsibility for research and the day-to-day management
of the Fund's portfolio with no limitation on the authority of one portfolio
manager in relation to another.
Roberto
Giangregorio joined
Spectrum in 2003. Mr. Giangregorio earned a B.S. and M.S. in Mechanical
Engineering from S.U.N.Y. at Stony Brook and the University of
Wisconsin-Madison, respectively. He also earned an M.B.A. in Finance from
Cornell University.
L. Phillip
Jacoby, IV joined
Spectrum in 1995. Mr. Jacoby earned a B.S. in Finance from the Boston University
School of Management.
Manu
Krishnan joined
Spectrum in 2004. Mr. Krishnan earned a B.S. in Mechanical Engineering from the
College of Engineering, Osmania University, India, an M.S. in Mechanical
Engineering from the University of Delaware, and an M.B.A. in Finance from
Cornell University. Mr. Krishnan has earned the right to use the Chartered
Financial Analyst designation.
Mark A. Lieb
founded Spectrum in
1987. Mr. Lieb earned a B.A. in Economics from Central Connecticut State College
and an M.B.A. in Finance from the University of Hartford.
Fees Paid to PGI
The Funds pay PGI a fee for its
services, which includes the fee PGI pays to Sub-Advisors, as applicable, and to
State Street Bank and Trust for fund administration, fund accounting and other
services. Pursuant to the Management Agreement between the Funds and PGI, PGI
pays all operating expenses of each Fund, except interest expenses, taxes,
brokerage commissions and other expenses connected with executing portfolio
transactions, acquired fund fees and expenses, future distribution fees or
expenses, and extraordinary expenses.
The management fee schedules for
Funds that have not completed a full fiscal year are as follows.
|
|
|
Funds |
All
Assets |
Principal International
Multi-Factor Core Index |
0.25% |
Principal Ultra-Short Active
Income |
0.18% |
Principal U.S. Large-Cap
Multi-Factor Core Index |
0.15% |
Principal U.S. Small-MidCap
Multi-Factor Core Index |
0.20% |
The fee the Funds paid (as a
percentage of the average daily net assets) for the fiscal year ended June 30,
2019 was:
|
|
|
|
Funds |
Fee |
|
Principal Active Global
Dividend Income |
0.58% |
|
Principal Active
Income |
0.61% |
(1) |
Principal Contrarian Value
Index |
0.29% |
|
Principal Healthcare Innovators
Index |
0.42% |
|
Principal Investment Grade
Corporate Active |
0.26% |
|
Principal Millennials
Index |
0.45% |
|
Principal Price Setters
Index |
0.40% |
|
Principal Shareholder Yield
Index |
0.40% |
|
Principal Spectrum Preferred
Securities Active |
0.55% |
|
Principal Sustainable Momentum
Index |
0.29% |
|
Principal U.S. Mega-Cap
Multi-Factor Index |
0.15% |
|
Principal U.S. Small-Cap
Multi-Factor Index |
0.38% |
|
(1) Effective April 1, 2019, the
management fee is 0.49%; prior to that, the rate was 0.65%.
Availability of the discussions
regarding the basis for the Board of Trustees approval of the various management
agreements is as follows:
|
|
|
|
Semi-Annual
Report to Shareholders
for the
period ending December 31, 2019 |
Fund |
Management
Agreement
and
Sub-Advisory Agreement |
|
|
All Funds |
X |
Manager of
Managers
Principal Exchange-Traded Funds (the
"Trust") operates as a Manager of Managers. Under an order received from the SEC
(the "current order"), the Trust and PGI may enter into and materially amend
agreements with unaffiliated and wholly-owned affiliated sub-advisors
(affiliated sub-advisors which are at least 95% owned, directly or indirectly,
by PGI or an affiliated person of PGI) without obtaining shareholder approval,
including to:
|
|
• |
hire one or more sub-advisors;
|
|
|
• |
change sub-advisors; and
|
|
|
• |
reallocate management fees
between PGI and sub-advisors. |
Although there is no present intent
to do so, the funds may, in the future, rely on current SEC Staff guidance which
expands relief under the current order to allow PGI to enter into and materially
amend agreements with majority-owned affiliated sub-advisors (affiliated
sub-advisors which are at least 50% owned, directly or indirectly, by PGI or an
affiliated person of PGI), and, further, to all sub‑advisors regardless of the
degree of affiliation with PGI.
In order to rely on the varying
degrees of relief granted by the order and/or the SEC Staff guidance, a Fund
must receive approval from its shareholders (or, in the case of a new Fund, the
Fund’s sole initial shareholder before the Fund is available to the other
purchasers). The shareholders of each Fund have approved such Fund's reliance on
the order, as supplemented by the SEC Staff guidance, with respect to
unaffiliated, wholly-owned affiliated, and majority owned affiliated
sub-advisors. The shareholders of the Principal International Multi-Factor Core
Index, Principal U.S. Large-Cap Multi-Factor Core Index, and Principal U.S.
Small-MidCap Multi-Factor Core Index ETFs have approved reliance on the order,
as supplemented by the SEC Staff guidance, with respect to all sub-advisors,
regardless of the degree of affiliation with PGI.
PGI has ultimate responsibility for
the investment performance of each fund that utilizes a sub-advisor due to its
responsibility to oversee sub-advisors and recommend their hiring, termination,
and replacement.
DISTRIBUTOR AND
OTHER FUND SERVICE PROVIDERS
ALPS Distributors, Inc. (the
"Distributor") serves as the principal underwriter and distributor of Creation
Units for the Funds. The Distributor does not maintain a secondary market in
Shares.
State Street Bank and Trust Company
is the sub-administrator, custodian, transfer agent, and dividend disbursing
agent for the Funds.
PRICING OF
FUND SHARES
The Funds will directly issue and
redeem Shares on a continuous basis, to and from authorized participants
("APs"), at net asset value ("NAV") per Share in aggregations of Shares called
“Creation Units.” The value of the Funds' Shares bought and sold in the
secondary market (on the exchange identified in each Fund summary) will be
determined by market price, as described in the section below.
The Board of Trustees has delegated
day-to-day valuation oversight responsibilities to PGI. PGI has established a
Valuation Committee to fulfill these oversight responsibilities. The NAV of the
Funds is calculated each day the New York Stock Exchange ("NYSE") is open (share
prices are not calculated on the days on which the NYSE is closed for trading,
generally New Year’s Day, Martin Luther King, Jr. Day, Washington’s
Birthday, Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas). The share price is determined as of the
close of business of the NYSE (normally 4:00 p.m. Eastern Time). The
Funds will not treat an intraday unscheduled disruption in NYSE trading as a
closure of the NYSE and will price its shares as of 4:00 p.m. Eastern Time, if
the particular disruption directly affects only the NYSE.
Notes:
|
|
• |
If market quotations are not
readily available for a security owned by a Fund, its fair value is
determined using a policy adopted by the Trustees. Fair valuation pricing
is subjective and creates the possibility that the fair value determined
for a security may differ materially from the value that could be realized
upon the sale of the security. |
|
|
• |
A Fund's securities may be
traded on foreign securities markets that generally complete trading at
various times during the day before the close of the NYSE. Foreign
securities and currencies are converted to U.S. dollars using the exchange
rate in effect at the close of the NYSE. |
|
|
• |
The trading of foreign
securities generally or in a particular country or countries may not take
place on all days the NYSE is open, or may trade on days the NYSE is
closed. Thus, the value of the foreign securities held by the Fund may
change on days when shareholders are unable to purchase or redeem
shares. |
|
|
• |
Certain securities issued by
companies in emerging market countries may have more than one quoted
valuation at any point in time. These may be referred to as local price
and premium price. The premium price is often a negotiated price that may
not consistently represent a price at which a specific transaction can be
effected. The Fund has a policy to value such securities at a price at
which the Advisor expects the securities may be
sold. |
|
|
• |
With respect to
any portion of a Fund’s assets invested in other registered investment
companies, that portion of the Fund's NAV is calculated based on the price
(NAV or market, as applicable) of such other registered investment
companies. |
Fund Share
Trading Prices and IOPV – Secondary Market
The trading prices of Shares of a
Fund on the exchange may differ from the Funds' daily NAV. The price of the
Shares will be subject to factors such as supply and demand, as well as the
current value of the Fund’s portfolio securities. Secondary market Shares, which
are available for purchase or sale on an intraday basis, do not have a fixed
relationship to either the previous day’s NAV or to the current day’s NAV.
Prices in the secondary market, therefore, may be below, at, or above the most
recently calculated NAV per Share.
The approximate value of shares of
each Fund, known as the “indicative optimized portfolio value” (“IOPV”) will be
disseminated every fifteen seconds throughout the trading day by the national
securities exchange on which a Fund is listed or by other information providers
or market data vendors. For actively-managed Funds, the IOPV is based on the
current market value of holdings contained in the Fund's portfolio at the
beginning of the trading day. For passively managed Funds, the IOPV is based on
the creation basket constituents, which represents the current market value of
the securities and/or cash required to be deposited in exchange for Creation
Unit. The IOPV does not necessarily reflect the precise composition of the
current portfolio of securities held by the Fund at a particular point in time
nor the best possible valuation of the current portfolio. The IOPV should not be
viewed as a “real-time” update of the NAV, because the IOPV may not be
calculated in the same manner as the NAV, which is computed once a day as
discussed below. The IOPV is generally determined by using current market
quotations and/or price quotations obtained from broker-dealers that may trade
in the portfolio securities held by the Fund. The quotations of certain Fund
holdings may not be updated during U.S. trading hours if such holdings do not
trade in the U.S. The Funds are not involved in, or responsible for, the
calculation or dissemination of the IOPV and makes no warranty as to its
accuracy.
Shares of each Fund may trade in the
secondary market on days when the Fund does not accept orders to purchase or
redeem shares. On such days, shares may trade in the secondary market with more
significant premiums or discounts than might otherwise be experienced on days
when the Fund accepts purchase and redemption orders.
Information regarding how often the
Shares of each Fund traded on the exchange at a price above (at a premium) or
below (at a discount) the NAV per Share of the Fund during the past four
calendar quarters (if available) can be found at www.principaletfs.com. Data
presented represents past performance and cannot be used to predict future
results.
PURCHASE AND SALE
OF FUND SHARES
Generally
The Funds will directly issue shares
to authorized participants ("APs") on a continuous basis at net asset value
("NAV") per Share in aggregations of Shares called “Creation Units,” in exchange
for portfolio securities, in the amounts listed below.
|
|
|
|
Fund(s) |
Number of
Shares in a Creation Unit* |
Principal International
Multi-Factor Core Index |
100,000 |
|
All Other Funds |
50,000 |
|
*Number of Shares in a Creation Unit
is subject to change.
To be an AP, you must be a broker or
dealer or other participant ("Participating Party") in the Continuous Net
Settlement System of the National Securities Clearing Corporation (“NSCC”) or a
participant in the DTC with access to the DTC system (“DTC Participant”), and
you must execute an agreement ("Participant Agreement") with the Distributor,
which must be accepted by the Transfer Agent, that governs transactions in the
Fund's Creation Units.
APs may acquire Shares directly from
the Funds, and APs may tender their Shares for redemption directly to the Funds,
at NAV per Share only in Creation Units or Creation Unit Aggregations, and in
accordance with the procedures described in the SAI. Shares are not individually
redeemable, but are redeemable only in Creation Unit aggregations, and in
exchange for portfolio securities and/or cash.
All orders to purchase or redeem
Creation Units must be placed through an AP that has entered into a Participant
Agreement with the Distributor and accepted by the Transfer Agent with respect
to the creation and redemption of Creation Units. An investor purchasing or
redeeming a Creation Unit from the Funds may be charged a fee (“Transaction
Fee”) to protect existing shareholders of the Funds from the dilutive costs
associated with the purchase and redemption of Creation Units.
Shareholders who are not APs will
not be able to purchase or redeem Shares directly with or from the Funds. As a
result, most investors will buy and sell Shares of the Funds in secondary market
transactions through brokers. Shares of the Funds are expected to be listed for
trading on the secondary market on the exchange identified in the Fund Summary
for each Fund. Shares can be bought and sold throughout the trading day like
other publicly traded shares. There is no minimum investment. When buying or
selling Shares through a broker, you will incur customary brokerage commissions
and charges, and you may pay some or all of the spread between the bid and the
offered price in the secondary market on each leg of a round trip (purchase and
sale) transaction. Due to the costs of buying or selling shares, including
bid/ask spreads, frequent trading of shares may significantly reduce investment
results and an investment in Shares may not be advisable for investors who
anticipate regularly making small investments. Shares of the Funds trade under
the symbols set forth on the cover of this prospectus. Contact your broker for
additional information on how to buy and sell Shares.
PGI may recommend to the Board, and
the Board may elect, to liquidate and terminate a Fund at any time without
shareholder approval.
|
|
Note: |
No salesperson, broker-dealer,
or other person is authorized to give information or make representations
about the Fund other than those contained in this Prospectus. Information
or representations not contained in this prospectus may not be relied upon
as having been provided or made by the Trust, the Funds, PGI, any
Sub-Advisor, or the Distributor. |
Book
Entry
Shares are held in book-entry form,
which means that no stock certificates are issued. The Depository Trust Company
("DTC") or its nominee is the record owner of all outstanding Shares of the
Funds and is recognized as the owner of all Shares for all
purposes.
Investors owning Shares are
beneficial owners as shown on the records of DTC or its participants. DTC serves
as the securities depository for all Shares. Participants in DTC include
securities brokers and dealers, banks, trust companies, clearing corporations
and other institutions that directly or indirectly maintain a custodial
relationship with DTC. As a beneficial owner of Shares, you are not entitled to
receive physical delivery of stock certificates or to have Shares registered in
your name, and you are not considered a registered owner of Shares. Therefore,
to exercise any right as an owner of Shares, you must rely upon the procedures
of DTC and its participants. These procedures are the same as those that apply
to any other stocks that you hold in book entry or "street name"
form.
DIVIDENDS AND
DISTRIBUTIONS
The Funds intend to generally make
distributions of net income:
|
|
• |
monthly for the Principal
Active Income, Principal Investment Grade Corporate Active, Principal
Spectrum Preferred Securities Active, and Principal Ultra-Short Active
Income ETFs. The factors that could affect a Fund’s ability to make
regular monthly distributions include, without limitation, changes in
interest rates, the performance of the financial markets in which the Fund
invests, the allocation of Fund assets across different asset classes and
investments, the performance of the Fund’s investment strategies, and the
amount and timing of the Fund’s prior distributions. Each Fund seeks to
tailor the amount of its monthly income payments to moderate fluctuations
in the amounts it distributes to shareholders over the course of the year.
Although each Fund attempts to moderate fluctuations, the amounts it
distributes to shareholders are not fixed and may not be the same each
month. Further, the Funds do not guarantee they will make any monthly
income payments to shareholders. |
|
|
• |
quarterly for the Principal
Active Global Dividend Income, Principal Contrarian Value Index, Principal
Healthcare Innovators Index, Principal International Multi-Factor Core
Index, Principal Millennials Index, Principal Price Setters Index,
Principal Shareholder Yield Index, Principal Sustainable Momentum Index,
Principal U.S. Large-Cap Multi-Factor Core Index, Principal U.S. Mega-Cap
Multi-Factor Index, Principal U.S. Small-Cap Multi-Factor Index and
Principal U.S. Small-MidCap Multi-Factor Core Index ETFs. The Funds do not
guarantee they will make any quarterly payments to their shareholders.
|
The Funds do not expect to make
distributions that will be treated as return of capital, although no Fund can
guarantee that it will not do so. Return of capital represents the return of a
shareholder’s original investment in Fund shares, not a dividend from the Fund’s
profits and earnings. If a Fund’s distributions are treated as a return of
capital, the distributions themselves may not be taxable, but they will lower a
shareholder's basis in the Fund shares so that when such shares are sold (even
if they are sold at a loss on the original investment), the shareholder may be
obligated to pay taxes on the capital gains. At the end of the year, the Funds
may be required under applicable law to re-characterize distributions for the
year among ordinary income, capital gains, and return of capital (if any) for
purposes of tax reporting to shareholders.
To the extent that distributions a
Fund pays are derived from a source other than net income (such as a return of
capital), you will receive a notice disclosing the source of such distributions.
Furthermore, such notice will be posted monthly on our website at
www.principalfunds.com/sources-of-distribution. You may request a copy of all
such notices, free of charge, by telephoning 1-800-787-1621. The amounts and
sources of distributions included in such notices are estimates only and you
should not rely upon them for purposes of reporting income taxes. Each Fund will
send shareholders a Form 1099-DIV for the calendar year that will tell
shareholders how to report these distributions for federal income tax
purposes.
No dividend reinvestment service is
provided by the Trust. Broker-dealers may make available DTC book-entry Dividend
Reinvestment Service for use by beneficial owners of the Fund for reinvestment
of their dividend distributions. Beneficial owners should contact their broker
to determine the availability and costs of the service and the details of
participation. Brokers may require beneficial owners to adhere to specific
procedures and timetables. If this service is available and used, dividend
distributions of both income and realized gains will be automatically reinvested
in additional whole shares of the Fund purchased in the secondary
market.
FREQUENT
PURCHASES AND REDEMPTIONS
Particularly where creation and
redemption baskets include a cash component, frequent purchases and redemptions
pose a risk to the Funds because they may disrupt the management of the Funds by
forcing the Funds to hold short-term (liquid) assets rather than investing for
long-term growth, which results in lost investment opportunities for the Funds.
Such transactions may also cause unplanned portfolio turnover, hurt the
portfolio performance of the Funds, and increase expenses of the Funds due to
increased broker-dealer commissions and recordkeeping and related
costs.
Shares of the Funds are listed and
traded on national securities exchanges. Therefore, it is unlikely that a
shareholder could take advantage of a potential arbitrage opportunity presented
by a lag between a change in the value of the Fund’s portfolio securities after
the close of the primary markets for the Fund’s portfolio securities and the
reflection of that change in a Fund’s NAV (“market timing”), because each Fund
sells and redeems its shares directly through transactions that are in-kind
and/or for cash, with a deadline for placing cash-related transactions no later
than the close of the primary markets for the Fund’s portfolio securities.
Further, each Fund may impose transaction fees on purchases and redemptions of
Creation Units to cover the custodial and other costs each Fund incurs in
effecting trades which may help minimize the potential consequences of frequent
purchases and redemptions of shares. For these reasons, the Board of Trustees
believes that a frequent trading monitoring policy is unnecessary for the Funds.
Each Fund reserves the right, without prior written notice, to reject orders
from APs that the Fund determines to be disruptive to the management of the Fund
or otherwise not in the best interests of the Fund.
TAX
CONSIDERATIONS
The following discussion summarizes
some of the possible consequences under current federal tax law of an investment
in a Fund. It is not a substitute for personal tax advice. You also may be
subject to state, local, and/or foreign tax on Fund distributions and sales of
Shares. Consult your personal tax advisor about the potential tax consequences
of an investment in Shares under all applicable tax laws. For more information,
please see the section entitled "Taxes" in the SAI.
Taxes
As with any investment, you should
consider how your investment in Shares will be taxed. The tax information in
this Prospectus is provided as general information. You should consult your own
tax professional about the tax consequences of an investment in
Shares.
Unless your investment in Shares is
made through a tax-exempt entity or tax-deferred retirement account, such as an
IRA plan, you need to be aware of the possible tax consequences
when:
|
|
• |
a Fund makes
distributions, |
|
|
• |
you sell your Shares listed on
the exchange, and |
|
|
• |
you purchase or redeem
Creation Units. |
Taxes on
Distributions
As stated above, dividends from net
investment income and net capital gains, ordinarily, are declared and paid
monthly or quarterly. A Fund also may pay a special distribution at the end of
the calendar year to comply with federal tax requirements. In general, your
distributions are subject to federal income tax when they are paid, whether you
take them in cash or reinvest them in the Fund.
Dividends paid out of a Fund's
income and net realized short-term capital gains, if any, are generally taxable
as ordinary income, except that the Fund’s dividends attributable to its
“qualified dividend income” (i.e., dividends received on stock of most domestic
and foreign corporations, including Chinese corporations, with respect to which
the Fund satisfies certain holding period and other restrictions) generally will
be subject to federal income tax for individual and certain other non-corporate
shareholders (each, an “individual shareholder”) who satisfy those restrictions
with respect to their Fund shares at the lower rates for long-term capital
gains—a maximum of 15% (or 20% for individual shareholders with taxable income
exceeding certain thresholds, which will be adjusted annually for inflation).
Distributions of net long-term capital gains, if any, in excess of net
short-term capital losses are taxable as long-term capital gains, regardless of
how long you have held the Shares.
Distributions in excess of a Fund's
current and accumulated earnings and profits, if any, are treated as a tax-free
return of capital to the extent of your basis in the Shares, and as capital gain
thereafter. A distribution will reduce the Fund's NAV per Share and may be
taxable to you as ordinary income or long-term capital gains even though, from
an investment standpoint, the distribution may constitute a return of
capital.
By law, a Fund may be required to
withhold a percentage of your distributions and proceeds if you have not
provided your taxpayer identification number or social security
number.
Taxes on Share
Sales
Any capital gain or
loss you realize upon a sale of Shares generally is treated as long-term capital
gain, taxable at the rates mentioned above for individual shareholders, or loss
if you held the Shares for more than one year and as short-term capital gain or
loss if you held the Shares for one year or less. The ability to deduct capital
losses may be limited.
Taxes on Purchase
and Redemption of Creation Units
An AP who exchanges securities for
Creation Units generally will recognize a gain or a loss. The gain or loss will
be equal to the difference between the market value of the Creation Units at the
time and the exchanger's aggregate basis in the securities surrendered and the
cash component paid. A person who exchanges Creation Units for securities
generally will recognize a gain or loss equal to the difference between the
exchanger's basis in the Creation Units and the aggregate market value of the
securities received and the cash redemption amount. The Internal Revenue
Service, however, may assert that a loss realized upon an exchange of securities
for Creation Units cannot be deducted currently under the rules governing "wash
sales," or on the basis that there has been no significant change in economic
position. Persons exchanging securities should consult their own tax advisors
with respect to whether wash sale rules apply and when a loss might be
deductible.
Any capital gain or loss realized
upon redemption of Creation Units generally is treated as long-term capital gain
or loss if the Shares have been held for more than one year and as a short-term
capital gain or loss if the Shares have been held for one year or less.
DISTRIBUTION
PLANS AND INTERMEDIARY COMPENSATION
Distribution
and/or Service (12b-1) Fees
The Trust has adopted a distribution
plan for the Fund pursuant to Rule 12b-1 under the Investment Company Act. Under
the 12b-1 Plan, each Fund is authorized to pay fees for distribution related
expenses and/or for providing services to shareholders of up to 0.25% of the
Fund’s average daily net assets each year.
No 12b-1 fees are currently paid by
the Funds, and there are no current plans to impose these fees.
However, in the event the Board of
Trustees approves charging 12b-1 fees in the future, because Rule 12b-1 fees are
paid out of Fund assets and are ongoing fees, over time they will increase the
cost of your investment in the Funds and may cost you more than other types of
sales charges.
Additional
Payments to Intermediaries
Shares of the Funds are sold
primarily through intermediaries, such as brokers, dealers, investment advisors,
banks, trust companies, pension plan consultants, retirement plan administrators
and insurance companies.
PGI and its affiliates may, out of
their own resources, pay amounts to intermediaries that support the distribution
or marketing of shares of the Funds or provide services to Fund
shareholders.
In some cases, PGI, the Distributor,
or their respective affiliates will provide payments or reimbursements in
connection with the costs of conferences and seminars, and educational, training
and marketing efforts related to the Fund. Such activities may be sponsored by
intermediaries, PGI, the Distributor, or their respective affiliates. Additional
costs paid or reimbursed may include travel, lodging, entertainment, meals and
small gifts. In some cases, PGI, the Distributor, or their respective affiliates
will also provide payment or reimbursement for expenses associated with
transactions ("ticket") charges and general marketing expenses. For more
information, see the SAI.
The payments described in this
prospectus may create a conflict of interest by influencing your Financial
Professional or your intermediary to recommend a Fund over another investment.
Ask your Financial Professional or visit your intermediary's website for more
information about the total amounts paid to them by PGI and its affiliates, and
by sponsors of other investment companies your Financial Professional may
recommend to you.
Your intermediary may charge you
additional fees other than those disclosed in this prospectus. Ask your
Financial Professional about any fees and commissions they charge.
FUND ACCOUNT
INFORMATION
Continuous
Offering
The method by which Creation Unit
Aggregations are created and traded may raise certain issues under applicable
securities laws. Because new Creation Unit Aggregations of Shares are issued and
sold by the Fund on an ongoing basis, a "distribution," as such term is used in
the Securities Act of 1933, as amended (the "Securities Act"), may occur at any
point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed
participants in a distribution in a manner which could render them statutory
underwriters and subject them to the prospectus delivery requirement and
liability provisions of the Securities Act.
For example, a broker-dealer firm or
its client may be deemed a statutory underwriter if it takes Creation Unit
Aggregations after placing an order with the Distributor, breaks them down into
constituent Shares and sells such Shares directly to customers, or if it chooses
to couple the creation of a supply of new Shares with an active selling effort
involving solicitation of secondary market demand for Shares. A determination of
whether one is an underwriter for purposes of the Securities Act must take into
account all the facts and circumstances pertaining to the activities of the
broker-dealer or its client in the particular case, and the examples mentioned
above should not be considered a complete description of all the activities that
could lead to a characterization as an underwriter.
Broker-dealer firms also should note
that dealers who are not "underwriters" but are effecting transactions in
Shares, whether or not participating in the distribution of Shares, generally
are required to deliver a prospectus. This is because the prospectus delivery
exemption in Section 4(a)(3)(C) of the Securities Act is not available in
respect of such transactions as a result of Section 24(d) of the 1940 Act. As a
result, broker-dealer firms should note that dealers who are not "underwriters"
but are participating in a distribution (as contrasted with engaging in ordinary
secondary market transactions), and thus dealing with the Shares that are part
of an overallotment within the meaning of Section 4(a)(3)(C) of the Securities
Act, will be unable to take advantage of the prospectus delivery exemption
provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses
to exchange members, the prospectus delivery mechanism of Rule 153 under the
Securities Act only is available with respect to transactions on a national
exchange.
Reservation of
Rights
The Trust reserves the right to
amend or terminate a Fund, as well as certain terms related to a Fund, described
in this prospectus. Shareholders will be notified of any such action to the
extent required by law.
Multiple
Translations
This prospectus may be translated
into other languages. In the event of any inconsistencies or ambiguity as to the
meaning of any word or phrase in a translation, the English text will
prevail.
Financial
Statements
Shareholders will receive annual
financial statements for the Funds, audited by the Funds’ independent registered
public accounting firm. Shareholders will also receive semiannual financial
statements that are unaudited.
Section
12(d)(1)
Section 12(d)(1) of the 1940 Act
restricts investments by investment companies in the securities of other
investment companies. However, registered investment companies are permitted to
invest in a Fund beyond the limits set forth in Section 12(d)(1) subject to
certain terms and conditions set forth in an SEC exemptive order issued to the
Trust, including that such investment companies enter into an agreement with the
Trust on behalf of a Fund prior to exceeding the limits imposed by Section
12(d)(1).
Underlying
Indices
Nasdaq (the “Index Provider”)
developed the methodology for each underlying index listed below with input from
the Fund's advisor. The Index Provider sponsors and owns each index, determines
the composition and relative weightings of the securities in the index, and
publishes information regarding the market value of the index. The Index
Provider is not affiliated with the Fund or the advisor.
Nasdaq
Developed Select Leaders Core Index (NQDMSLCN)
This Index is designed to provide
exposure to companies within the Nasdaq Developed Market Ex-US Ex-Korea Large
Mid Cap Index (the "Parent Index") that exhibit high degrees of sustainable
shareholder yield, pricing power, and strong momentum.
Index eligibility is limited to
common stocks, ordinary shares, depositary receipts, shares of beneficial
interest and REITs.
To be eligible for inclusion in the
Index, a security must be in the top 50% of the Parent Index by aggregate market
cap, or (if not in the top 50% by market cap) in the top 33% of the final rank
(as described below). One security per issuer is permitted, and securities are
not eligible if the issuer has entered into a definitive agreement that would
result in the security being ineligible or is currently in bankruptcy
proceedings.
Securities in the Parent Index are
divided into two groups - the top 50% by market cap, and the bottom 50% by
market cap. The bottom 50% is ranked using a currency-neutral approach (each
currency maintains similar weight as the initial universe of stocks). Selected
names are then equally weighted within each currency (all names selected are
over-weighted).
Securities are ranked using the
following model criteria:
|
|
• |
Pricing Power (Quality Growth
Factor) - Factors that demonstrate consistent sales growth, earnings
quality and growth, and profitability, with low price
volatility. |
|
|
• |
Shareholder Yield (Value
Factor) - Factors that identify companies possessing the ability to
sustain total shareholder yield in the form of dividends, share
repurchases, and cash flow generation. |
|
|
• |
Momentum - Factors that
analyze the term structure of stock prices (i.e. evaluating price
momentum over multiple horizons) to determine
sustainability. |
The Index employs a modified market
cap weighted methodology. At the rebalancing, the Index is rebalanced based on
the ranking results described above. Securities in the top 50% by market cap
receive 50% of the weight in the Index and are float adjusted market cap
weighted, and then adjustments are made to increase the weight of the top 20%.
Securities in the bottom 50% by market cap receive the remaining 50% of the
weight in the Index, using the currency-neutral approach described above, and
then adjustments are made to decrease the weight of the bottom 20%.
The Index is evaluated semi-annually
in May and November. Additionally, if at any time during the year a security no
longer meets the eligibility criteria, or is otherwise determined to have become
ineligible for inclusion in the Index, the security is removed from the Index
and is not replaced.
Nasdaq may, from time to time,
exercise reasonable discretion as it deems appropriate in order to ensure Index
integrity.
Nasdaq
Global Millennial Opportunity Index - NQGMOI
The Nasdaq Global Millennial
Opportunity Index is designed to provide exposure to companies within the Nasdaq
Global Index that are impacted by the spending and lifestyle activities of the
Millennial generation, which refers to people born from 1980 to the
mid-2000s. Index eligibility is limited to specific security types. To be
eligible for inclusion in the Index, a security must be a component of the
Nasdaq Global Index. However, an exchange-listed security that is not a
component of the Nasdaq Global Index may be eligible if it otherwise meets all
of the eligibility criteria.
Each security's exposure to
Millennials is determined using a proprietary, multi-step research process.
First, fundamental research is conducted on trends related to the millennial
generation, including but not limited to: consumer spending data, consumer
behavior, technology and demographics. Based on this analysis, key categories
are identified that appear to be most reflective of how the millennial
generation spends time and money. As of May 22, 2016, eight key themes related
to Millennials have been identified: technology (such as devices, eCommerce,
apps, and games); consumer goods (such as clothing and travel); drinking,
dining, and health/wellness; households; financials (such as FinTech and wealth
management); education; women as consumers (including child care, clothing,
beauty and cosmetics); and sharing economy (such as car rental, lending
services, and self-storage). These themes may change over time.
Using a variety of sources
(including, but not limited to: industry reports, investment research and
financial statements published by companies), companies with significant
exposures to these themes are identified. Companies identified at this stage are
then considered for further analysis, which ultimately determines their
eligibility for inclusion in the Index.
In the final step of the research
process, companies are evaluated based on quantitative and qualitative factors
using the fundamental research conducted on trends related to the millennial
generation. A composite analysis scores these companies to determine the
companies that are most reflective of Millennial companies. Each is identified
as having low, medium, or high exposure to Millennials based on the materiality
of the company's exposure to Millennial-related themes and the potential role of
Millennials in driving long-term growth.
To be eligible for the Index, a
security must have high or medium exposure to Millennials. "Medium exposure"
means that Millennials-related products, technologies, services and solutions
are an
important factor of the
company's business model, strategy and research and development, and are
material to sales and/or growth. "High exposure" means that Millennials-related
products, technologies, services and solutions are core to the company's business model,
strategy and research and development, and are material to sales and/or growth.
Securities with a market
capitalization of less than $200M are excluded from being eligible for the
Index, as are duplicative securities (where companies are listed more than
once). Certain other securities may be excluded from the Index due to
operational concerns, for example, where it is difficult to gain access to the
market for the securities. Securities are also excluded if certain extraordinary
events have recently occurred, such as large-scale investigations or charges
against key executives.
The remaining securities are then
ranked based upon the following two factors: quality growth and value. Every
security receives a rank based upon the scores for these two factors. Each
of these two factors are then combined and equally weighted.
Securities of companies having high
exposure to Millennials receive 70% of the weight of the index. High
exposure securities are broken down into two groups: large cap (40% index
weight) and small-mid-cap (30% index weight) and weighted as follows:
|
|
• |
High exposure, large cap
securities in the top 50% of the two factor ranking receive 24% index
weight; |
|
|
• |
High exposure, large cap
securities in the bottom 50% of the two factor ranking receive 16% index
weight; |
|
|
• |
High exposure, small-mid cap
securities in the top 50% of the two factor ranking receive 18% index
weight; and |
|
|
• |
High exposure, small-mid cap
securities in the bottom 50% of the two factor ranking receive 12% index
weight. |
Securities of companies having
medium exposure to Millennials receive 30% of the weight of the index. In order
to receive a weight in the index, medium exposure securities must be ranked in
the top 50% of the two factor ranking with respect to their large or
small-mid-cap counterparts.
|
|
• |
Medium exposure, large cap
securities in the top 50% of the two factor ranking receive 20% index
weight; |
|
|
• |
Medium exposure, small-mid cap
securities in the top 50% of the two factor ranking receive 10% index
weight. |
As described above, there are six
eligible buckets of securities. Securities within each of the six assigned
buckets are equally weighted.
|
|
1. |
Large cap, high exposure to
Millennials, top 50% of the two factor ranking system (24% index
weight) |
|
|
2. |
Large cap, high exposure to
Millennials, bottom 50% of the two factor ranking system (16% index
weight) |
|
|
3. |
Small-mid-cap, high exposure
to Millennials, top 50% of the two factor ranking system (18% index
weight) |
|
|
4. |
Small-mid-cap, high exposure
to Millennials, bottom 50% of the two factor ranking system (12% index
weight) |
|
|
5. |
Large cap, medium exposure to
Millennials, top 50% of the two factor ranking system (20% index
weight) |
|
|
6. |
Small-mid-cap, medium exposure
to Millennials, top 50% of the two factor ranking system (10% index
weight) |
The Index is rebalanced
annually.
Nasdaq
US Contrarian Value Index - NQUSCVT
The Nasdaq US Contrarian Value Index
uses a quantitative model designed to provide exposure to equity securities
within the Nasdaq US Large Mid Cap Index (the "Parent Index") that appear to be
undervalued by the market relative to their fundamental value, and taking
multiple market environments into consideration.
To be eligible for the Index, a
security must meet the following criteria:
|
|
• |
be a component of the Parent
Index; |
|
|
• |
cannot be classified as a
Utilities company according to Industry Classification Benchmark (ICB);
|
|
|
• |
be in the top 30% of book
yield if the market environment is classified as a “bear market” or be in
the top 30% of adjusted book yield if the market environment is classified
as “normal market”, as is outlined below; |
|
|
• |
may not have entered into a
definitive agreement or other arrangement which would likely result in the
security no longer being Index eligible;
and |
|
|
• |
may not be issued by an issuer
currently in bankruptcy proceedings. |
One security per issuer is
permitted.
The book yield for each security in
the Parent Index, using book value per share and price as of the most recent
quarter end, is calculated for each of the last 28 quarters. Then the median
book yield of the Parent Index is calculated for each of the last 28 quarters.
If the most recent median book yield of the Parent Index is greater than two
standard deviations plus the average of the median book yields of the last 28
quarters of the Parent Index, then the market condition is classified as “bear
market”; otherwise, the market condition is classified as “normal market”. Once
the market condition is determined, the rank for each security is calculated
based on the most recent quarter end book yield.
If the market condition is “bear
market,” the top 30% by book yield are selected as the final basket. If the
market condition is “normal market,” then the leverage, twelve-month price
volatility, and forward earnings dispersion for each security is calculated as
of most recent quarter end and used to determine an adjusted book yield rank of
each security. Then the top 30% are selected from the final adjusted book yield
ranks to determine the final basket.
Securities in the top 10% get a
weight of 50%; the next 10% gets a weight of 35%; and the next 10% gets a weight
of and 15%. These three groups are selected and weighted from Financials and
non-Financials separately so that each such ICB classification maintains its
respective weight from the Parent Index. Within each group, securities are
equal-weighted.
The Index is evaluated annually. The
market condition is evaluated quarterly. If there is a reversal in the market
condition from the prior quarter (either a change from “bear market” to “normal
market” or “normal market” to “bear market”), then there is a special rebalance.
If at any time during the year other than the evaluation, an Index security no
longer meets the eligibility criteria, or is otherwise determined to have become
ineligible for inclusion in the Index, the security is removed from the Index
and is not replaced.
Nasdaq
US Healthcare Innovators Index (NQGHCIN)
The Nasdaq US Healthcare Innovators
Index is designed to provide exposure to non-mega cap US Health Care companies
within the Nasdaq US Benchmark Index that are "non-earners," which refers to
early-stage companies that are not yet consistently profitable. Index
eligibility is limited to specific security types only. To be eligible for
inclusion in the Index, a security must be a component of the Nasdaq US
Benchmark Index and each security must be classified as Health Care according to
the Industry Classification Benchmark (ICB).
Securities are ranked based upon
their market cap and liquidity. Those securities not ranked in the top 150
securities of the Nasdaq US Benchmark Index by market cap are deemed eligible.
If in the index in the prior period, those securities with a rank in the top 80%
by average daily dollar trading volume (ADDTV) of the Nasdaq US Benchmark Index
are deemed eligible. For new securities to be eligible they must satisfy a
liquidity threshold, using a 3-month ADDTV, of being in the Top 70% most liquid
names with Nasdaq US Benchmark Index. Lastly, securities considered to be
non-earners by means of having negative earnings over the prior 4, prior 8 or
future 4 quarters at least half of the time are deemed eligible. The index is
rebalanced semi-annually in April and October and employs a modified market cap
weighting methodology. Final eligible securities receive a maximum weight of 3%
and all excess weight is distributed proportionally across the remaining index
securities.
Nasdaq
US Large Cap Select Leaders Core Index (NQUSLSLCT)
This Index is designed to provide
exposure to companies within the Nasdaq US Large Cap Index (the "Parent Index")
that exhibit high degrees of sustainable shareholder yield, pricing power, and
strong momentum.
Index eligibility is limited to
common stocks, ordinary shares, depositary receipts, shares of beneficial
interest and REITs. To be eligible for inclusion in the index, a security must
be in the top 50% of the Parent Index by aggregate market cap, or (if not in the
top 50% by market cap) in the top 33% of the final rank (as described below).
One security per issuer is permitted, and securities are not eligible if the
issuer has entered into a definitive agreement that would result in the security
being ineligible or is currently in bankruptcy proceedings.
Securities in the Parent Index are
divided into two groups - the top 50% by market cap, and the bottom 50% by
market cap. The bottom 50% of the portfolio by market cap is constructed using
an industry-neutral approach (each industry maintains similar weight as the
initial universe of stocks).
Securities are ranked using the
following model criteria:
|
|
• |
Pricing Power (U.S. Quality
Growth Factor) - Factors that demonstrate consistent sales growth,
earnings quality and growth, and profitability, with low price
volatility. |
|
|
• |
Shareholder Yield (U.S. Value
Factor) - Factors that identify companies possessing the ability to
sustain total shareholder yield in the form of dividends, share
repurchases, and cash flow generation. |
|
|
• |
U.S. Momentum - Factors that
analyze the term structure of stock prices (i.e. evaluating price
momentum over multiple horizons) to determine
sustainability. |
The Index employs a modified market
cap weighted methodology. At the rebalancing, the Index is rebalanced based on
the ranking results described above. Securities in the top 50% by market cap
receive 50% of the weight in the Index and are float adjusted market cap
weighted, and then adjustments are made to increase the weight of the top 20%.
Securities in the bottom 50% by market cap that are in the top 33% by rank
receive the remaining 50% of the weight in the Index, using the industry-neutral
approach described above, and then adjustments are made to increase the weight
of the top 20%. .
The Index is evaluated semi-annually
in April and October. Additionally, if at any time during the year a security no
longer meets the eligibility criteria, or is otherwise determined to have become
ineligible for inclusion in the Index, the security is removed from the Index
and is not replaced.
Nasdaq may, from time to time,
exercise reasonable discretion as it deems appropriate in order to ensure Index
integrity.
Nasdaq
US Mega Cap Select Leaders Index - NQMCUSLT
The Nasdaq US Mega Cap Select
Leaders Index uses a quantitative model designed to provide exposure to equity
securities of companies with the largest market capitalizations in the Nasdaq US
500 Large Cap Index (the "Parent Index"), with higher weights given to
securities that are less volatile.
To be eligible for the Index, a
security must be in the top 50th percentile of the Parent Index by aggregate
company market capitalization. One security per company is permitted.
The Index employs a modified
equal-dollar weighting methodology. Securities of companies in the top 10% of
aggregate market cap maintain company market cap weight. Securities of
companies that are not in the top 10% of aggregate market cap are initially
equal weighted and then volatility adjusted such that those in the groups with
lower volatility receive 1% higher weight than the initial equal weighting, the
middle groups maintain the equal weighting, and those with higher volatility
receive 1% lower weight than the initial equal weighting. This process is
employed so that the least volatile securities have the highest weight and the
most volatile securities have the lowest weight.
The Index is evaluated semi-annually
in April and October. Security additions and deletions are made effective after
the close of trading on the last trading day in April and October. Additionally,
if at any time during the year other than the evaluation, an Index Security no
longer meets the eligibility criteria, or is otherwise determined to have become
ineligible for inclusion in the Index, the security is removed from the Index
and is not replaced.
The
Nasdaq US Price Setters Index (NQPRCE)
The Nasdaq US Price Setters Index
(NQPRCE) is designed to provide exposure to US companies within the Nasdaq US
Large Mid Cap Index which exhibit high degrees of pricing power. The universe of
securities is screened by a series of quantitative and qualitative factors. The
top-ranked securities are then selected, and a proprietary weighting methodology
is applied. Index eligibility is limited to specific security types only. To be
eligible for inclusion in the Index, a security must be a component of the
Nasdaq US Large Mid Cap Index (NQUSBLM) and must be a top 550 name by market
capitalization.
Securities are ranked based upon the
following eleven factors: Earnings per share ("EPS") Growth (1 year), EPS Growth
(3 year), operating margin, operating margin growth (1 year), 12 months return
volatility, sales growth (3 year), return on equity, the coefficient of
variation of 7 year EPS, earning quality, the standard deviation of 7 year
operating margin, and the coefficient of variation of second fiscal year EPS
estimate. The average of the 11 factor scores is taken to create one score in a
scale of 1 to 10 (1 = best). Then, a final rank is created based upon the
average score of each security, with full market cap determining the outcome if
there is a tie. Lastly, the top 150 securities by final rank are selected. The
Index employs a modified equal dollar weighting methodology such that securities
in the top 50 by rank receive 50% of the index weight, the top 51-100 receive
35% of the index weight, and the top 101-150 receive 15% of the index weight.
Each security’s Index market value is rebalanced annually in March to an equal
dollar value corresponding to an equal percent weight within each bucket of 50
securities, with the aggregate market value of the Index totaling the unadjusted
market value of the eligible securities. In short, the top 50 names receive a
weight of 1.0% each, the following 51-100 securities receive a weight of 0.7%
each and the following 101-150 securities receive a weight of 0.3% each.
Nasdaq
US Shareholder Yield Index (NQSHYL)
The Nasdaq US Shareholder Yield
Index (NQSHYL) is designed to provide exposure to US companies within the Nasdaq
US Large MidCap Index (NQUSBLM) which exhibit high degrees of sustainable
shareholder yield. The universe of securities is screened by a series of
quantitative and qualitative factors. The top-ranked securities are then
selected, and a proprietary weighting methodology is applied. Index eligibility
is limited to specific security types only. To be eligible for inclusion in the
Index, a security must be a component of the Nasdaq US Large MidCap Index and
the security must have paid a regular dividend in the prior year.
Securities are ranked based upon the
following nine factors: dividend yield, buyback yield, dividend payout per
share, free cash flow to price, free cash flow growth 3-year Sharpe ratio,
EBITDA to debt, dividend yield historical valuation (3-year and 5-year),
dividend growth (1-year, 3-year and 5-year), and free cash flow (1-year, 3-year
and 5-year). The average of the nine factor scores is taken to create one score
in a scale of 1 to 10 (1 = best). Then, a final rank is created based upon the
average score of each security with total shareholder yield (dividend yield +
buyback yield) determining the outcome if there is a tie. Lastly, the final
decile score (scale of 1 to 10; 1=best) is created by utilizing the final rank.
Securities in the top two deciles are then selected. The Index employs a
modified equal dollar weighting methodology such that securities in the top two
deciles receive 65% and 35% of the index weight, respectively. Each security’s
Index market value is rebalanced annually in March to an equal dollar value
corresponding to an equal percent weight within each decile.
Nasdaq
US Small Cap Select Leaders Index (NQUSSLT)
The Nasdaq US Small Cap Select
Leaders Index (NQUSSLT) is designed to provide exposure to equity securities of
U.S. small capitalization companies within the Nasdaq US Small Cap Index (NQUSS)
that exhibit the potential for high degrees of sustainable shareholder yield,
pricing power, and strong momentum, while adjusting for liquidity and quality as
determined by a quantitative model. Index eligibility is limited to specific
security types only. The security types eligible for the index include common
stocks, ordinary shares, depositary receipts, shares of beneficial interest and
REITs.
To be eligible for inclusion in the
Index, a security must:
|
|
• |
be a component of the Nasdaq
US Small Cap Index (NQUSS); |
|
|
• |
be in the top 90th percentile
of the Nasdaq US Benchmark Index (NQUSB) in terms of 3-month Average Daily
Dollar Volume; |
|
|
• |
be in the top 20th percentile
of the Final Rank (process described below) in the current period, or, be
in the top 50th percentile of the Final Rank, if the security was in the
index in the prior period; |
|
|
• |
have a minimum 3-month trading
history; |
|
|
• |
may not be issued by an issuer
that has entered into a definitive agreement or other arrangement which
would likely result in the security no longer being Index eligible;
and |
|
|
• |
may not be issued by an issuer
currently in bankruptcy proceedings. |
One security per issuer is
permitted. If an issuer has multiple securities, the security with the highest
dollar trading volume will be selected for possible inclusion into the Index.
Additional proprietary eligibility criteria may be applied.
Securities in the Nasdaq US Small
Cap Index (NQUSS) are ranked according to their individual Shareholder Yield,
Price Setters, and Momentum ranks. These three individual ranks determine the
degree in which a security in the Nasdaq US Small Cap Index (NQUSS) exhibits
high degrees of sustainable shareholder yield (value factor), pricing power
(quality growth factor), and momentum, respectively. These three individual
ranks are then normalized by industry so that each security has a Shareholder
Yield, Price Setters, and Momentum rank that is based on that security’s ICB
Industry Classification. This allows for the three individual ranks to be
sector-neutral.
The three individual normalized
ranks are averaged to determine a preliminary Score for each security. If the
security was not in the Shareholder Yield Index (i.e. it did not pay a
dividend), then the Price Setters and Momentum ranks are averaged to determine
the preliminary Score for each security.
A Final Rank is calculated by
ranking the preliminary Score for each security within each industry, where the
higher Average Daily Dollar Volume breaks any ties in the preliminary Score.
This Final Rank is used in the Eligibility screen, as described above, to
determine the final basket of securities in the Index.
The Index is rebalanced
semi-annually in April and October and employs a modified market cap weighting
methodology. The modified liquidity weighting is derived by first
calculating a liquidity score adjusted for volatility (“liquidity-volatility
score”). This process is done multiplying the 3-month average daily dollar
volume of an Index security by the average 3-month volatility of the Nasdaq US
Small Cap (NQUSS) universe and dividing that by the 3-month Volatility of the
corresponding Index Security. Next, the liquidity-volatility score is then used
to determine the preliminary weight of each security. The preliminary weight is
derived by dividing the liquidity-volatility score for each security by the sum
of the liquidity-volatility scores for all securities within each industry and
multiplying that by the NQUSS Benchmark Industry Weight for that security. The
final weight modifies the preliminary weight by capping each security weight at
0.7% and redistributing the excess weight evenly across all securities within
the same industry. Index Shares are then calculated multiplying the final weight
of each security derived above by the new market value of the Index and dividing
that by its corresponding Last Sale Price. The changes are effective after the
close of trading on the last trading day in April and October.
Nasdaq
US Small Mid Cap Select Leaders Core Index (NQUSSMSLCT)
This Index is designed to provide
exposure to companies within the Nasdaq US Small Cap Index and Nasdaq US Mid Cap
Index (the "Parent Indexes") that exhibit high degrees of sustainable
shareholder yield, pricing power, and strong momentum.
Index eligibility is limited to
common stocks, ordinary shares, depositary receipts, shares of beneficial
interest and REITs. To be eligible for inclusion in the index, a security must
be in the top 90% of the Parent Indexes by three month average daily dollar
trading volume, and be in the top 20% of the final rank
in the current valuation or top 50% if included in the Index in the prior period
(as described below). Each security must have a minimum three month trading
history. One security per issuer is permitted, and securities are not eligible
if the issuer has entered into a definitive agreement that would result in the
security being ineligible or is currently in bankruptcy
proceedings.
Securities are ranked using the
following model criteria:
|
|
• |
Pricing Power (U.S. Quality
Growth Factor) - Factors that demonstrate consistent sales growth,
earnings quality and growth, and profitability, with low price
volatility. |
|
|
• |
Shareholder Yield (U.S. Value
Factor) - Factors that identify companies possessing the ability to
sustain total shareholder yield in the form of dividends, share
repurchases, and cash flow generation. |
|
|
• |
U.S. Momentum - Factors that
analyze the term structure of stock prices (i.e. evaluating price
momentum over multiple horizons) to determine
sustainability. |
The portfolio is constructed using
an industry-neutral approach (each industry maintains similar weight as the
initial universe of stocks).
The stock weights are
liquidity/volatility weighted. Individual stock weights of the Index are
capped at 0.50%.
The Index is evaluated semi-annually
in April and October. Additionally, if at any time during the year a security no
longer meets the eligibility criteria, or is otherwise determined to have become
ineligible for inclusion in the Index, the security is removed from the Index
and is not replaced.
Nasdaq may, from time to time,
exercise reasonable discretion as it deems appropriate in order to ensure Index
integrity.
Nasdaq
US Sustainable Momentum Index - NQSUMOT
The Nasdaq US Sustainable Momentum
Index uses a quantitative model designed to identify equity securities within
the Nasdaq US Large Mid Cap Index (the “Parent Index”) that exhibit sustainable
price momentum, based on historical stock prices over multiple periods and
taking multiple market environments into consideration.
To be eligible for inclusion in the
Index, a security must meet the following criteria:
|
|
• |
be a component of the Parent
Index; |
|
|
• |
be in the top 15% of the
Parent Index in terms of the Sustainable Momentum (SUMO) Score or be in
the top 35% if the security is already in the Index (process described
below); |
|
|
• |
may not have entered into a
definitive agreement or other arrangement which would likely result in the
security no longer being Index eligible;
and |
|
|
• |
may not be issued by an issuer
currently in bankruptcy proceedings. |
One security per issuer is
permitted. If an issuer has multiple securities, the security with the highest
dollar trading volume will be selected for possible inclusion into the
Index.
All securities in the Parent Index
are ranked by the Sustainable Momentum (SUMO) Score. The SUMO Score is a
momentum score given to each security that is based on the following
factors:
|
|
• |
intermediate factors: 3, 4, 5,
6, 7, 8, 9, 10, 11, and 12 month risk adjusted returns. The 12 month
factor is adjusted for any security with high returns but abnormal
volatility measures. |
|
|
• |
long term factors: 36, 48, and
60 month risk adjusted returns. |
Each of the above factors gets an
individual SUMO score, and the SUMO scores for all the factors are summed to
create a composite SUMO Score for each security. To determine the composite
score, the rolling six (6) month volatility relative to the Parent Index for the
top securities in each of the factors are calculated (by highest return for the
intermediate factors and lowest return for the long term factors). This allows
the composite score to take into account intermediate term momentum as well as
long term mean reversion. The process also systematically adjusts for bear
market reversals.
The Index employs a modified equal
dollar weighting methodology. Weighting is determined in part on whether the
Index is in a high volatility regime; the ratio of the 1 month to 12 month
standard deviation of the daily returns of the Parent Index are calculated, and
if this ratio is greater than two standard deviations of the trailing seven year
average of this ratio, then the Index is in a high volatility regime.
For the initial selection of the
Index, and during regular and special rebalances in which the Index is in a high
volatility regime, securities in the top 10% of the SUMO Scores get 75% of the
weight (equally weighted within the group) and securities between 10-15% get 25%
of the weight (equally weighted within the group).
If the Index is not in a high
volatility regime at the time of a regular rebalance, the Index will include
securities in the top 15% of the SUMO Scores, as well as the securities already
in the Index that remain in the top 35% of the SUMO scores. Those below 35% are
removed, and securities that have weights greater than 5% are reduced to 3%.
Then, the following process is used to redistribute the excess weight across the
securities in the top 35% of the SUMO scores:
|
|
• |
The "target weight" is
determined for securities (this is the initial weight it held in the Index
as determined above). |
|
|
• |
If a security's current weight
is greater than the target weight, it keeps its current
weight. |
|
|
• |
If security’s current weight
is less than the target weight, its weight is increased to the target
weight. |
The Index is evaluated annually in
March. In all the other months, the Index is evaluated to determine whether or
not it is in a high volatility regime. If the Index is in a high volatility
regime, then it is rebalanced in that month. Additionally, if at any time during
the year other than the evaluation, an Index security no longer meets the
eligibility criteria, or is otherwise determined to have become ineligible for
inclusion in the Index, the security is removed from the Index and is not
replaced.
Other Information
Nasdaq®
and the
above-listed indexes (the "Nasdaq Indexes"), are registered trademarks of
Nasdaq, Inc. (which with its affiliates is referred to as the “Corporations”)
and are licensed for use by PGI. The above-named Funds are not sponsored,
endorsed, sold or promoted by the Corporations. The Corporations have not passed
on the legality or suitability of, or the accuracy or adequacy of descriptions
and disclosures relating to, the Funds. The Corporations make no representation
or warranty, express or implied to the owners of the Funds or any member of the
public regarding the advisability of investing in securities generally or in the
Funds particularly, or the ability of the Indexes to track general stock market
performance. Except where Nasdaq serves as a fund's listing agent, the
Corporations' only relationship to PGI (“Licensee”) is in the licensing of the
Nasdaq®, and certain trade names of the
Corporations and the use of the Indexes which are determined, composed and
calculated by Nasdaq without regard to Licensee or the Funds. Nasdaq has no
obligation to take the needs of the Licensee or the owners of the Funds into
consideration in determining, composing or calculating the Indexes. The
Corporations are not responsible for and have not participated in the
determination of the timing of, prices at, or quantities of the Funds to be
issued or in the determination or calculation of the equation by which the Funds
is to be converted into cash. The Corporations have no liability in connection
with the administration, marketing or trading of the Funds.
The Corporations
do not guarantee the accuracy and/or uninterrupted calculation of the Indexes or
any data included therein. The Corporations make no warranty, express or
implied, as to results to be obtained by Licensee, owners of the product(s), or
any other person or entity from the use of the Indexes or any data included
therein. The Corporations make no express or implied warranties, and expressly
disclaim all warranties of merchantability or fitness for a particular purpose
or use with respect to the Indexes or any data included therein. Without
limiting any of the foregoing, in no event shall the Corporations have any
liability for any lost profits or special, incidental, punitive, indirect, or
consequential damages, even if notified of the possibility of such
damages.
The Corporations
do not guarantee the accuracy or completeness of the data on which the
Indicative Optimized Portfolio Value (IOPV) calculations are based or the actual
computation of the value of the IOPV, nor shall the Corporations be responsible
for any delays in the computation or dissemination of the IOPV values. The
Corporations make no warranty, express or implied, as to results to be obtained
by the Funds, owners of the Funds, or any other person or entity from the use of
the IOPV(s) or any data included therein. The Corporations make no express or
implied warranties, and expressly disclaim all warranties of merchantability or
fitness for a particular purpose or use with respect to the IOPV(s) or any data
included therein. Without limiting any of the foregoing, in no event shall the
Corporations have any liability for any lost profits or special, incidental,
punitive, indirect, or consequential damages, even if notified of the
possibility of such damages.
Moody's
Investors Service, Inc. Rating Definitions:
Long-Term Obligation
Ratings
Ratings assigned on Moody's global
long-term obligation rating scales are forward-looking opinions of the relative
credit risk of financial obligations issued by non-financial corporates,
financial institutions, structured finance vehicles, project finance vehicles,
and public sector entities. Long-term ratings are assigned to issuers or
obligations with an original maturity of one year or more and reflect both on
the likelihood of a default or impairment on contractually promised payments and
the expected financial loss suffered in the event of default or
impairment. 1
1
For certain
structured finance, preferred stock and hybrid securities in which payment
default events are either not defined or do not match investor’s expectations
for timely payment, the ratings
reflect the likelihood of impairment and the expected financial loss in the
event of impairment.
|
|
Aaa: |
Obligations rated Aaa are
judged to be of the highest quality, subject to the lowest level of credit
risk. |
|
|
Aa: |
Obligations rated Aa are
judged to be of high quality and are subject to very low credit
risk. |
|
|
A: |
Obligations rated A are
considered upper-medium grade and are subject to low credit
risk. |
|
|
Baa: |
Obligations rated Baa are
subject to moderate credit risk. They are considered medium-grade and as
such may possess certain speculative
characteristics. |
|
|
Ba: |
Obligations rated Ba are
judged to be speculative and are subject to substantial credit
risk. |
|
|
B: |
Obligations rated B are
considered speculative and are subject to high credit
risk. |
|
|
Caa: |
Obligations rated Caa are
judged to be speculative of poor standing and are subject to very high
credit risk. |
|
|
Ca: |
Obligations rated Ca are
highly speculative and are likely in, or very near, default, with some
prospect of recovery of principal and
interest. |
|
|
C: |
Obligations rated C are the
lowest rated class of bonds and are typically in default, with little
prospect for recovery of principal or
interest. |
NOTE: Moody's appends numerical
modifiers, 1, 2, and 3 to each generic rating classification from Aa through
Caa. The modifier 1 indicates that the obligation ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates a ranking in the lower end of that generic rating category.
Additionally, a “(hyb)” indicator is appended to all ratings of hybrid
securities issued by banks, issuers, financial companies, and securities
firms.*
* By their
terms, hybrid securities allow for the omission of scheduled dividends,
interest, or principal payments, which can potentially result in impairment if
such an omission occurs. Hybrid securities may also be subject to contractually
allowable write-downs of principal that could result in impairment. Together the
hybrid indicator, the long-term obligation rating assigned to a hybrid security
is an expression of the relative credit risk associated with that
security.
SHORT-TERM NOTES: Short-term ratings
are assigned to obligations with an original maturity of thirteen months or less
and reflect both on the likelihood of a default on contractually promised
payments and the expected financial loss suffered in the event of default.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (or related
supporting institutions) have a superior ability to repay short-term debt
obligations.
Issuers rated Prime-2 (or related
supporting institutions) have a strong ability to repay short-term debt
obligations.
Issuers rated Prime-3 (or related
supporting institutions) have an acceptable ability to repay short-term
obligations.
Issuers rated Not Prime do not fall
within any of the Prime rating categories.
US MUNICIPAL SHORT-TERM DEBT: The
Municipal Investment Grade (MIG) scale is used to rate US municipal bonds of up
to five years maturity. MIG ratings are divided into three levels - MIG 1
through MIG 3 - while speculative grade short-term obligations are designated
SG.
MIG 1 denotes superior credit
quality, afforded excellent protection from highly reliable liquidity support,
or demonstrated broad-based access to the market for refinancing.
MIG 2 denotes strong credit quality
with ample margins of protection, although not as large as in the preceding
group.
MIG 3 notes are of acceptable credit
quality. Liquidity and cash-flow protection may be narrow and market access for
refinancing is likely to be less well-established.
SG denotes speculative-grade credit
quality and may lack sufficient margins of protection.
Description
of S&P Global Ratings' Credit Rating Definitions:
S&P Global's credit rating, both
long-term and short-term, is a forward-looking opinion of the creditworthiness
of an obligor with respect to a specific obligation. This assessment takes into
consideration the creditworthiness of guarantors, insurers, or other forms of
credit enhancement on the obligation.
The credit rating is not a
recommendation to purchase, sell or hold a security, inasmuch as it does not
comment as to market price or suitability for a particular
investor.
The ratings are statements of
opinion as of the date they are expressed furnished by the issuer or obtained by
S&P Global Ratings from other sources S&P Global Ratings considers
reliable. S&P Global Ratings does not perform an audit in connection with
any rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended, or withdrawn as a result of changes in, or
unavailability of, such information, or for other circumstances.
The ratings are based, in varying
degrees, on the following considerations:
|
|
• |
Likelihood of payment -
capacity and willingness of the obligor to meet its financial commitment
on an obligation in accordance with the terms of the
obligation; |
|
|
• |
Nature of and provisions of
the financial obligation; |
|
|
• |
Protection afforded by, and
relative position of, the financial obligation in the event of bankruptcy,
reorganization, or other arrangement under the laws of bankruptcy and
other laws affecting creditor's rights. |
LONG-TERM CREDIT
RATINGS:
|
|
AAA: |
Obligations rated ‘AAA’ have
the highest rating assigned by S&P Global Ratings. The obligor’s
capacity to meet its financial commitment on the obligation is extremely
strong. |
|
|
AA: |
Obligations rated ‘AA’ differ
from the highest-rated issues only in small degree. The obligor’s capacity
to meet its financial commitment on the obligation is very
strong. |
|
|
A: |
Obligations rated ‘A’ have a
strong capacity to meet financial commitment on the obligation although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher-rated
categories. |
|
|
BBB: |
Obligations rated ‘BBB’
exhibit adequate protection parameters; however, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to meet financial commitment on the
obligation. |
|
|
BB, B, CCC, |
Obligations rated ‘BB’, ‘B’,
‘CCC’, ‘CC’, and ‘C’ are regarded, on balance, as having
significant |
|
|
CC, and C: |
speculative characteristics.
‘BB’ indicates the lowest degree of speculation and ‘C’ the highest degree
of speculation. While such obligations will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties
or major risk exposures to adverse
conditions. |
|
|
BB: |
Obligations rated ‘BB’ are
less vulnerable to nonpayment than other speculative issues. However it
faces major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor’s
inadequate capacity to meet its financial commitment on the
obligation. |
|
|
B: |
Obligations rated ‘B’ are more
vulnerable to nonpayment than ‘BB’ but the obligor currently has the
capacity to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair this
capacity. |
|
|
CCC: |
Obligations rated ‘CCC’ are
currently vulnerable to nonpayment and is dependent upon favorable
business, financial, and economic conditions for the obligor to meet its
financial commitment on the obligation. If adverse business, financial, or
economic conditions occur, the obligor is not likely to have the capacity
to meet its financial commitment on the
obligation. |
|
|
CC: |
Obligations rated ‘CC’ are
currently highly vulnerable to nonpayment. The ‘CC’ rating is used when a
default has not yet occurred but S&P Global Ratings expects default to
be a virtual certainty, regardless of anticipated time to
default. |
|
|
C: |
The rating ‘C’ is highly
vulnerable to nonpayment, the obligation is expected to have lower
relative seniority or lower ultimate recovery compared to higher rated
obligations. |
|
|
D: |
Obligations rated ‘D’ are in
default, or in breach of an imputed promise. For non-hybrid capital
instruments, the ‘D’ rating category is used when payments on an
obligation are not made on the date due, unless S&P Global Ratings
believes that such payments will be made within five business days in the
absence of a stated grace period or within the earlier of the stated grace
period or 30 calendar days. The rating will also be used upon filing for
bankruptcy petition or the taking of similar action and where default is a
virtual certainty. If an obligation is subject to a distressed exchange
offer the rating is lowered to ‘D’. |
Plus (+) or Minus (-): The ratings
from ‘AA’ to ‘CCC’ may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
|
|
NR: |
Indicates that no rating has
been requested, that there is insufficient information on which to base a
rating or that S&P Global Ratings does not rate a particular type of
obligation as a matter of policy. |
SHORT-TERM CREDIT RATINGS: Ratings
are graded into four categories, ranging from ‘A-1’ for the highest quality
obligations to ‘D’ for the lowest.
|
|
A-1: |
This is the highest category.
The obligor’s capacity to meet its financial commitment on the obligation
is strong. Within this category, certain obligations are designated with a
plus sign (+). This indicates that the obligor’s capacity to meet its
financial commitment on these obligations is extremely
strong. |
|
|
A-2: |
Issues carrying this
designation are somewhat more susceptible to the adverse effects of the
changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor’s capacity to meet its
financial commitment on the obligation is
satisfactory. |
|
|
A-3: |
Issues carrying this
designation exhibit adequate capacity to meet their financial obligations.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet it financial
commitment on the obligation. |
|
|
B: |
Issues rated ‘B’ are regarded
as vulnerable and have significant speculative characteristics. The
obligor has capacity to meet financial commitments; however, it faces
major ongoing uncertainties which could lead to obligor’s inadequate
capacity to meet its financial
obligations. |
|
|
C: |
This rating is assigned to
short-term debt obligations that are currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic
conditions to meet its financial commitment on the
obligation. |
|
|
D: |
This rating indicates that the
issue is either in default or in breach of an imputed promise. For
non-hybrid capital instruments, the ‘D’ rating category is used when
payments on an obligation are not made on the date due, unless S&P
Global Ratings believes that such payments will be made within five
business days in the absence of a stated grace period or within the
earlier of the stated grace period or 30 calendar days. The rating will
also be used upon filing for bankruptcy petition or the taking of similar
action and where default is a virtual certainty. If an obligation is
subject to a distressed exchange offer the rating is lowered to
‘D’. |
MUNICIPAL SHORT-TERM NOTE RATINGS:
S&P Global Ratings rates U.S. municipal notes with a maturity of less than
three years as follows:
|
|
SP-1: |
A strong capacity to pay
principal and interest. Issues that possess a very strong capacity to pay
debt service is given a "+" designation. |
|
|
SP-2: |
A satisfactory capacity to pay
principal and interest, with some vulnerability to adverse financial and
economic changes over the terms of the
notes. |
|
|
SP-3: |
A speculative capacity to pay
principal and interest. |
The following financial highlights
tables are intended to help you understand the Fund’s financial performance for
the periods shown. Certain information reflects returns for a single Fund share.
The total returns in each table represent the rate that an investor would have
earned or lost each period on an investment in the Fund (assuming reinvestment
of all distributions). This information has been derived from the financial
statements audited by Ernst & Young LLP, Independent Registered Public
Accounting Firm, whose report, along with each Fund’s financial statements, is
included in Principal Exchange-Traded Funds Annual Report to Shareholders for
the fiscal year ended June 30, 2019, which is available upon request, and
incorporated by reference into the SAI.
To request a free copy of the latest
annual or semiannual report for the Fund, you may telephone 1-800-787-1621
(ETF).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Highlights |
Principal
Exchange-Traded Funds |
|
|
|
|
Principal
Active Global Dividend Income ETF |
|
|
|
For a
share outstanding for the year ended June 30 (except as
noted): |
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended |
|
|
Year
ended |
|
|
|
Period
ended |
|
|
|
|
June 30,
2019 |
|
|
June 30,
2018 |
|
|
|
June 30,
2017 (a) |
|
|
Net asset value, beginning of
period |
|
$ |
27.56 |
|
|
$ |
25.36 |
|
|
|
$ |
25.00 |
|
|
Investment
Operations: |
|
|
|
|
|
|
|
|
Net investment
income (b) |
|
0.67 |
|
|
0.69 |
|
|
|
0.17 |
|
|
Net realized and change in
unrealized gain |
|
0.39 |
|
|
2.15 |
|
|
|
0.19 |
|
|
Total from investment
operations |
|
1.06 |
|
|
2.84 |
|
|
|
0.36 |
|
|
Dividends
and Distributions to Shareholders from: |
|
|
|
|
|
|
|
|
Net investment
income |
|
(0.68 |
) |
|
(0.51 |
) |
|
|
- |
|
|
Net realized
gains |
|
(0.30 |
) |
|
(0.13 |
) |
|
|
- |
|
|
Total dividends and
distributions to stockholders |
|
(0.98 |
) |
|
(0.64 |
) |
|
|
- |
|
|
Net asset value, end of
period |
|
$ |
27.64 |
|
|
$ |
27.56 |
|
|
|
$ |
25.36 |
|
|
Total return: |
|
4.12 |
% |
|
11.24 |
% |
|
|
1.43% |
|
(c) |
Ratios/Supplemental
Data: |
|
|
|
|
|
|
|
|
Net assets, end of period
(000s) |
|
$ |
717,189 |
|
|
$ |
705,435 |
|
|
|
$ |
428,567 |
|
|
Ratio of expenses to average
net assets |
|
0.58 |
% |
|
0.58 |
% |
|
|
0.58% |
|
(d) |
Ratio of expenses to average
net assets excluding interest expense |
|
0.58 |
% |
|
- |
|
(e) |
|
- |
|
(e) |
Ratio of net investment
income to average net assets |
|
2.49 |
% |
|
2.51 |
% |
|
|
4.56% |
|
(d) |
Portfolio turnover
rate (f) |
|
31.5 |
% |
|
22.0 |
% |
|
|
0.0% |
|
(d) |
|
|
(a) |
Period from May 9, 2017, date
operations commenced, through June 30, 2017.
|
|
|
(b) |
Calculated on average shares
outstanding during the period. |
|
|
(c) |
Total return amounts have not
been annualized. |
|
|
(d) |
Computed on an annualized
basis. |
|
|
(e) |
Ratio is not applicable as
there was no interest expense in the period.
|
|
|
(f) |
Portfolio turnover rate
excludes in-kind transactions. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Highlights |
Principal
Exchange-Traded Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
Active Income ETF (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a
share outstanding for the year ended June 30 (except as
noted): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended |
|
|
Year
ended |
|
|
|
|
Year
ended |
|
|
|
|
Period
ended |
|
|
|
|
|
June 30,
2019 |
|
|
June 30,
2018 |
|
|
|
|
June 30,
2017 |
|
|
|
|
June 30,
2016 (b) |
|
|
|
Net asset value, beginning of
period |
|
$ |
40.27 |
|
|
$ |
41.31 |
|
|
|
|
$ |
39.12 |
|
|
|
|
$ |
40.00 |
|
|
|
Investment
Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment
income (c) |
|
1.91 |
|
|
1.78 |
|
|
|
|
1.95 |
|
|
|
|
2.13 |
|
|
|
Net realized and change in
unrealized gain (loss) |
|
(0.01 |
) |
|
(0.50 |
) |
|
|
|
2.22 |
|
|
|
|
(1.39 |
) |
|
|
Total from investment
operations |
|
1.90 |
|
|
1.28 |
|
|
|
|
4.17 |
|
|
|
|
0.74 |
|
|
|
Dividends
and Distributions to Shareholders from: |
|
|
|
|
|
|
|
|
|
|
|
|
Net investment
income |
|
(1.92 |
) |
|
(1.87 |
) |
|
|
|
(1.98 |
) |
|
|
|
(1.62 |
) |
|
|
Net realized
gains |
|
(0.34 |
) |
|
(0.45 |
) |
|
|
|
- |
|
|
|
|
- |
|
|
|
Total dividends and
distributions to stockholders |
|
(2.26 |
) |
|
(2.32 |
) |
|
|
|
(1.98 |
) |
|
|
|
(1.62 |
) |
|
|
Net asset value, end of
period |
|
$ |
39.91 |
|
|
$ |
40.27 |
|
|
|
|
$ |
41.31 |
|
|
|
|
$ |
39.12 |
|
|
|
Total return: |
|
4.95 |
% |
|
3.10 |
% |
|
|
|
10.92 |
% |
|
|
|
2.13% |
|
|
(d) |
Ratios/Supplemental
Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period
(000s) |
|
$ |
216,519 |
|
|
$ |
292,967 |
|
|
|
|
$ |
286,084 |
|
|
|
|
$ |
265,013 |
|
|
|
Ratio of expenses to average
net assets |
|
0.61 |
% |
|
0.65 |
% |
|
(e) |
|
0.77 |
% |
|
(e) |
|
0.85% |
|
|
(e),(f) |
Ratio of gross expenses to
average net assets |
|
- |
|
(g) |
0.68 |
% |
|
|
|
0.80 |
% |
|
|
|
1.34% |
|
|
(f) |
Ratio of net investment
income to average net assets |
|
4.84 |
% |
|
4.34 |
% |
|
|
|
4.82 |
% |
|
|
|
5.99% |
|
|
(f) |
Portfolio turnover
rate (h) |
|
17.9 |
% |
|
11.0 |
% |
|
|
|
30.7 |
% |
|
|
|
34.3% |
|
|
(f) |
|
|
(a) |
Effective May 1, 2019,
Principal EDGE Active Income ETF changed its name to Principal Active
Income ETF. |
|
|
(b) |
Period from July 8, 2015,
date operations commenced, through June 30, 2016.
|
|
|
(c) |
Calculated on average shares
outstanding during the period. |
|
|
(d) |
Total return amounts have not
been annualized. |
|
|
(e) |
Includes reimbursement from
Advisor. |
|
|
(f) |
Computed on an annualized
basis. |
|
|
(g) |
Ratio is not applicable as
there was no reimbursement from Advisor in the period.
|
|
|
(h) |
Portfolio turnover rate
excludes in-kind transactions. |
|
|
|
|
|
|
|
|
|
|
|
Financial
Highlights |
Principal
Exchange-Traded Funds |
|
|
Principal
Contrarian Value Index ETF |
|
For a
share outstanding for the year ended June 30 (except as
noted): |
|
|
|
|
|
|
|
|
Year
ended |
|
|
Period
ended |
|
|
|
|
June 30,
2019 |
|
|
June 30,
2018 (a) |
|
|
Net asset value, beginning of
period |
|
$ |
26.12 |
|
|
$ |
25.00 |
|
|
Investment
Operations: |
|
|
|
|
|
Net investment
income (b) |
|
0.39 |
|
|
0.26 |
|
|
Net realized and change in
unrealized gain |
|
0.66 |
|
|
1.03 |
|
|
Total from investment
operations |
|
1.05 |
|
|
1.29 |
|
|
Dividends
and Distributions to Shareholders from: |
|
|
|
|
|
Net investment
income |
|
(0.39 |
) |
|
(0.17 |
) |
|
Total dividends and
distributions to stockholders |
|
(0.39 |
) |
|
(0.17 |
) |
|
Net asset value, end of
period |
|
$ |
26.78 |
|
|
$ |
26.12 |
|
|
Total return: |
|
4.13 |
% |
|
5.15% |
|
(c) |
Ratios/Supplemental
Data: |
|
|
|
|
|
Net assets, end of period
(000s) |
|
$ |
5,356 |
|
|
$ |
3,918 |
|
|
Ratio of expenses to average
net assets |
|
0.29 |
% |
|
0.29% |
|
(d) |
Ratio of net investment
income to average net assets |
|
1.52 |
% |
|
1.44% |
|
(d) |
Portfolio turnover
rate (e) |
|
47.1 |
% |
|
61.6% |
|
(d) |
|
|
(a) |
Period from October 18, 2017,
date operations commenced, through June 30, 2018.
|
|
|
(b) |
Calculated on average shares
outstanding during the period. |
|
|
(c) |
Total return amounts have not
been annualized. |
|
|
(d) |
Computed on an annualized
basis. |
|
|
(e) |
Portfolio turnover rate
excludes in-kind transactions. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Highlights |
Principal
Exchange-Traded Funds |
|
|
|
|
|
|
|
|
|
|
|
Principal
Healthcare Innovators Index ETF |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a
share outstanding for the year ended June 30 (except as
noted): |
|
|
|
|
|
|
|
|
|
|
|
Year
ended |
|
|
Year
ended |
|
|
Period
ended |
|
|
|
|
|
June 30,
2019 |
|
|
June 30,
2018 |
|
|
June 30,
2017 (a) |
|
|
|
Net asset value, beginning of
period |
|
$ |
34.74 |
|
|
$ |
28.56 |
|
|
$ |
25.00 |
|
|
|
Investment
Operations: |
|
|
|
|
|
|
|
|
Net investment
loss (b) |
|
(0.13 |
) |
|
(0.12 |
) |
|
(0.08 |
) |
|
|
Net realized and change in
unrealized gain (loss) |
|
(0.24 |
) |
|
6.35 |
|
|
3.64 |
|
|
|
Total from investment
operations |
|
(0.37 |
) |
|
6.23 |
|
|
3.56 |
|
|
|
Dividends
and Distributions to Shareholders from: |
|
|
|
|
|
|
|
|
Net realized
gains |
|
- |
|
|
(0.05 |
) |
|
- |
|
|
|
Total dividends and
distributions to stockholders |
|
- |
|
|
(0.05 |
) |
|
- |
|
|
|
Net asset value, end of
period |
|
$ |
34.37 |
|
|
$ |
34.74 |
|
|
$ |
28.56 |
|
|
|
Total return: |
|
(1.05 |
)% |
|
21.83 |
% |
|
14.24% |
|
|
(c) |
Ratios/Supplemental
Data: |
|
|
|
|
|
|
|
|
Net assets, end of period
(000s) |
|
$ |
56,713 |
|
|
$ |
52,104 |
|
|
$ |
7,140 |
|
|
|
Ratio of expenses to average
net assets |
|
0.42 |
% |
|
0.42 |
% |
|
0.42% |
|
|
(d) |
Ratio of net investment loss
to average net assets |
|
(0.39 |
)% |
|
(0.38 |
)% |
|
(0.32 |
)% |
|
(d) |
Portfolio turnover
rate (e) |
|
34.5 |
% |
|
33.6 |
% |
|
18.2% |
|
|
(d) |
|
|
(a) |
Period from August 19, 2016,
date operations commenced, through June 30, 2017.
|
|
|
(b) |
Calculated on average shares
outstanding during the period. |
|
|
(c) |
Total return amounts have not
been annualized. |
|
|
(d) |
Computed on an annualized
basis. |
|
|
(e) |
Portfolio turnover rate
excludes in-kind transactions. |
|
|
|
|
|
|
|
|
|
|
|
Financial
Highlights |
Principal
Exchange-Traded Funds |
|
|
Principal
Investment Grade Corporate Active ETF |
|
For a
share outstanding for the year ended June 30 (except as
noted): |
|
|
|
|
|
|
|
|
Year
ended |
|
|
Period
ended |
|
|
|
|
June 30,
2019 |
|
|
June 30,
2018 (a) |
|
|
Net asset value, beginning of
period |
|
$ |
24.59 |
|
|
$ |
25.00 |
|
|
Investment
Operations: |
|
|
|
|
|
Net investment
income (b) |
|
0.95 |
|
|
0.19 |
|
|
Net realized and change in
unrealized gain (loss) |
|
1.66 |
|
|
(0.52 |
) |
|
Total from investment
operations |
|
2.61 |
|
|
(0.33 |
) |
|
Dividends
and Distributions to Shareholders from: |
|
|
|
|
|
Net investment
income |
|
(0.98 |
) |
|
(0.08 |
) |
|
Net realized
gains |
|
(0.02 |
) |
|
- |
|
|
Total dividends and
distributions to stockholders |
|
(1.00 |
) |
|
(0.08 |
) |
|
Net asset value, end of
period |
|
$ |
26.20 |
|
|
$ |
24.59 |
|
|
Total return: |
|
10.95 |
% |
|
(1.32 |
)% |
(c) |
Ratios/Supplemental
Data: |
|
|
|
|
|
Net assets, end of period
(000s) |
|
$ |
120,540 |
|
|
$ |
228,710 |
|
|
Ratio of expenses to average
net assets |
|
0.26 |
% |
|
0.26% |
|
(d) |
Ratio of net investment
income to average net assets |
|
3.86 |
% |
|
3.83% |
|
(d) |
Portfolio turnover
rate (e) |
|
92.8 |
% |
|
47.8% |
|
(d) |
|
|
(a) |
Period from April 18, 2018,
date operations commenced, through June 30, 2018.
|
|
|
(b) |
Calculated on average shares
outstanding during the period. |
|
|
(c) |
Total return amounts have not
been annualized. |
|
|
(d) |
Computed on an annualized
basis. |
|
|
(e) |
Portfolio turnover rate
excludes in-kind transactions. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Highlights |
Principal
Exchange-Traded Funds |
|
|
|
|
|
|
|
|
|
|
|
|
Principal
Millennials Index ETF |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a
share outstanding for the year ended June 30 (except as
noted): |
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended |
|
|
Year
ended |
|
Period
ended |
|
|
|
June 30,
2019 |
|
|
June 30,
2018 |
|
June 30,
2017 (a) |
|
Net asset value, beginning of
period |
|
$ |
36.76 |
|
|
|
$ |
28.92 |
|
|
$ |
25.00 |
|
|
Investment
Operations: |
|
|
|
|
|
|
|
|
Net investment
income (b) |
|
0.17 |
|
|
|
0.23 |
|
|
0.17 |
|
|
Net realized and change in
unrealized gain |
|
1.54 |
|
|
|
7.91 |
|
|
3.87 |
|
|
Total from investment
operations |
|
1.71 |
|
|
|
8.14 |
|
|
4.04 |
|
|
Dividends
and Distributions to Shareholders from: |
|
|
|
|
|
|
|
|
Net investment
income |
|
(0.23 |
) |
|
|
(0.23 |
) |
|
(0.09 |
) |
|
Net realized
gains |
|
- |
|
|
|
(0.07 |
) |
|
(0.03 |
) |
|
Total dividends and
distributions to stockholders |
|
(0.23 |
) |
|
|
(0.30 |
) |
|
(0.12 |
) |
|
Net asset value, end of
period |
|
$ |
38.24 |
|
|
|
$ |
36.76 |
|
|
$ |
28.92 |
|
|
Total return: |
|
4.70 |
% |
|
|
28.31 |
% |
|
16.23 |
|
(c) |
Ratios/Supplemental
Data: |
|
|
|
|
|
|
|
|
Net assets, end of period
(000s) |
|
$ |
21,031 |
|
|
|
$ |
20,217 |
|
|
$ |
7,230 |
|
|
Ratio of expenses to average
net assets |
|
0.45 |
% |
|
|
0.45 |
% |
|
0.45 |
% |
(d) |
Ratio of expenses to average
net assets excluding interest expense |
|
- |
|
(e) |
|
0.45 |
% |
|
- |
|
(e) |
Ratio of net investment
income to average net assets |
|
0.47 |
% |
|
|
0.66 |
% |
|
0.71 |
% |
(d) |
Portfolio turnover
rate (f) |
|
32.9 |
% |
(g) |
|
35.6 |
% |
|
5.1 |
% |
(d) |
|
|
(a) |
Period from August 19, 2016,
date operations commenced, through June 30, 2017.
|
|
|
(b) |
Calculated on average shares
outstanding during the period. |
|
|
(c) |
Total return amounts have not
been annualized. |
|
|
(d) |
Computed on an annualized
basis. |
|
|
(e) |
Ratio is not applicable as
there was no interest expense in the period.
|
|
|
(f) |
Portfolio turnover rate
excludes in-kind transactions. |
|
|
(g) |
The previously reported
portfolio turnover rate of 82.2% was adjusted to correct an immaterial
error related to in-kind activity. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Highlights |
Principal
Exchange-Traded Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
Price Setters Index ETF |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a
share outstanding for the year ended June 30 (except as
noted): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended |
|
|
|
Year
ended |
|
|
|
Year
ended |
|
|
|
Period
ended |
|
|
|
|
June 30,
2019 |
|
|
|
June 30,
2018 |
|
|
|
June 30,
2017 |
|
|
|
June 30,
2016 (a) |
|
|
Net asset value, beginning of
period |
|
$ |
33.32 |
|
|
|
$ |
29.03 |
|
|
|
$ |
26.08 |
|
|
|
$ |
25.00 |
|
|
Investment
Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Net investment
income (b) |
|
0.46 |
|
|
|
0.39 |
|
|
|
0.34 |
|
|
|
0.09 |
|
|
Net realized and change in
unrealized gain |
|
4.48 |
|
|
|
4.20 |
|
|
|
3.06 |
|
|
|
0.99 |
|
|
Total from investment
operations |
|
4.94 |
|
|
|
4.59 |
|
|
|
3.40 |
|
|
|
1.08 |
|
|
Dividends
and Distributions to Shareholders from: |
|
|
|
|
|
|
|
|
|
|
Net investment
income |
|
(0.47 |
) |
|
|
(0.27 |
) |
|
|
(0.39 |
) |
|
|
- |
|
|
Net realized
gains |
|
- |
|
|
|
(0.03 |
) |
|
|
(0.06 |
) |
|
|
- |
|
|
Total dividends and
distributions to stockholders |
|
(0.47 |
) |
|
|
(0.30 |
) |
|
|
(0.45 |
) |
|
|
- |
|
|
Net asset value, end of
period |
|
$ |
37.79 |
|
|
|
$ |
33.32 |
|
|
|
$ |
29.03 |
|
|
|
$ |
26.08 |
|
|
Total return: |
|
15.03 |
% |
|
|
15.89 |
% |
|
|
13.23 |
% |
|
|
4.31% |
|
(c) |
Ratios/Supplemental
Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period
(000s) |
|
$ |
20,786 |
|
|
|
$ |
21,655 |
|
|
|
$ |
7,257 |
|
|
|
$ |
6,519 |
|
|
Ratio of expenses to average
net assets |
|
0.29 |
% |
(d) |
|
0.29 |
% |
(d) |
|
0.40 |
% |
|
|
0.40% |
|
(e) |
Ratio of gross expenses to
average net assets |
|
0.40 |
% |
|
|
0.40 |
% |
|
|
- |
|
|
(f) |
- |
|
(f) |
Ratio of net investment
income to average net assets |
|
1.32 |
% |
|
|
1.22 |
% |
|
|
1.26 |
% |
|
|
1.32% (e) |
|
|
Portfolio turnover
rate (g) |
|
40.4 |
% |
|
|
63.5 |
% |
|
|
2.0 |
% |
|
|
0.0% (e) |
|
|
|
|
(a) |
Period from March 21, 2016,
date of operations commenced, through June 30, 2016.
|
|
|
(b) |
Calculated on average shares
outstanding during the period. |
|
|
(c) |
Total return amounts have not
been annualized. |
|
|
(d) |
Includes reimbursement from
Advisor. |
|
|
(e) |
Computed on an annualized
basis. |
|
|
(f) |
Ratio is not applicable as
there was no reimbursement from Advisor in the period.
|
|
|
(g) |
Portfolio turnover rate
excludes in-kind transactions. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Highlights |
Principal
Exchange-Traded Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
Shareholder Yield Index ETF |
|
|
|
|
|
|
|
|
|
|
|
|
For a
share outstanding for the year ended June 30 (except as
noted): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended |
|
|
Year
ended |
|
|
Year
ended |
|
|
|
Period
ended |
|
|
|
|
June 30,
2019 |
|
|
June 30,
2018 |
|
|
June 30,
2017 |
|
|
|
June 30,
2016 (a) |
|
|
Net asset value, beginning of
period |
|
$ |
32.49 |
|
|
$ |
29.16 |
|
|
$ |
24.65 |
|
|
|
$ |
25.00 |
|
|
Investment
Operations: |
|
|
|
|
|
|
|
|
|
|
Net investment
income (b) |
|
0.71 |
|
|
0.61 |
|
|
0.54 |
|
|
|
0.18 |
|
|
Net realized and change in
unrealized gain (loss) |
|
(0.51 |
) |
|
3.21 |
|
|
4.67 |
|
|
|
(0.53 |
) |
|
Total from investment
operations |
|
0.20 |
|
|
3.82 |
|
|
5.21 |
|
|
|
(0.35 |
) |
|
Dividends
and Distributions to Shareholders from: |
|
|
|
|
|
|
|
|
|
|
Net investment
income |
|
(0.70 |
) |
|
(0.47 |
) |
|
(0.67 |
) |
|
|
- |
|
|
Net realized
gains |
|
- |
|
|
(0.02 |
) |
|
(0.03 |
) |
|
|
- |
|
|
Total dividends and
distributions to stockholders |
|
(0.70 |
) |
|
(0.49 |
) |
|
(0.70 |
) |
|
|
- |
|
|
Net asset value, end of
period |
|
$ |
31.99 |
|
|
$ |
32.49 |
|
|
$ |
29.16 |
|
|
|
$ |
24.65 |
|
|
Total return: |
|
0.68 |
% |
|
13.17 |
% |
|
21.42 |
% |
|
|
(1.39)% |
|
(c) |
Ratios/Supplemental
Data: |
|
|
|
|
|
|
|
|
|
|
Net assets, end of period
(000s) |
|
$ |
14,395 |
|
|
$ |
14,622 |
|
|
$ |
7,290 |
|
|
|
$ |
6,163 |
|
|
Ratio of expenses to average
net assets |
|
0.29 |
% |
(d) |
0.29 |
% |
(d) |
0.40 |
% |
|
|
0.40 |
% |
(e) |
Ratio of gross expenses to
average net assets |
|
0.40 |
% |
|
0.40 |
% |
|
- |
|
(f) |
|
- |
|
(f) |
Ratio of net investment
income to average net assets |
|
2.26 |
% |
|
1.90 |
% |
|
1.98 |
% |
|
|
2.73 |
% |
(e) |
Portfolio turnover
rate (g) |
|
49.2 |
% |
|
55.5 |
% |
|
3.0 |
% |
|
|
7.1 |
% |
(e) |
|
|
(a) |
Period from March 21, 2016,
date of operations commenced, through June 30, 2016.
|
|
|
(b) |
Calculated on average shares
outstanding during the period. |
|
|
(c) |
Total return amounts have not
been annualized. |
|
|
(d) |
Includes reimbursement from
Advisor. |
|
|
(e) |
Computed on an annualized
basis. |
|
|
(f) |
Ratio is not applicable as
there was no reimbursement from Advisor in the period.
|
|
|
(g) |
Portfolio turnover rate
excludes in-kind transactions. |
|
|
|
|
|
|
|
|
|
|
|
Financial
Highlights |
Principal
Exchange-Traded Funds |
|
|
|
|
|
|
|
|
Principal
Spectrum Preferred Securities Active ETF |
|
|
|
For a
share outstanding for the year ended June 30 (except as
noted): |
|
|
|
|
|
|
|
|
Year
ended |
|
|
Period
ended |
|
|
|
|
June 30,
2019 |
|
|
June 30,
2018 (a) |
|
|
Net asset value, beginning of
period |
|
$ |
94.45 |
|
|
$ |
100.00 |
|
|
Investment
Operations: |
|
|
|
|
|
Net investment
income (b) |
|
3.42 |
|
|
4.72 |
|
|
Net realized and change in
unrealized gain (loss) |
|
3.82 |
|
|
(5.91 |
) |
|
Total from investment
operations |
|
7.24 |
|
|
(1.19 |
) |
|
Dividends
and Distributions to Shareholders from: |
|
|
|
|
|
Net investment
income |
|
(4.91 |
) |
|
(4.34 |
) |
|
Net realized
gains |
|
- |
|
|
(0.02 |
) |
|
Total dividends and
distributions to stockholders |
|
(4.91 |
) |
|
(4.36 |
) |
|
Net asset value, end of
period |
|
$ |
96.78 |
|
|
$ |
94.45 |
|
|
Total return: |
|
7.99 |
% |
|
(1.28 |
)% |
(c) |
Ratios/Supplemental
Data: |
|
|
|
|
|
Net assets, end of period
(000s) |
|
$ |
67,750 |
|
|
$ |
51,949 |
|
|
Ratio of expenses to average
net assets |
|
0.55 |
% |
|
0.55 |
% |
(d) |
Ratio of net investment
income to average net assets |
|
3.65 |
% |
|
4.93 |
% |
(d) |
Portfolio turnover
rate (e) |
|
27.6 |
% |
|
41.0 |
% |
(d) |
|
|
(a) |
Period from July 10, 2017,
date operations commenced, through June 30, 2018.
|
|
|
(b) |
Calculated on average shares
outstanding during the period. |
|
|
(c) |
Total return amounts have not
been annualized. |
|
|
(d) |
Computed on an annualized
basis. |
|
|
(e) |
Portfolio turnover rate
excludes in-kind transactions. |
|
|
|
|
|
|
|
|
|
|
|
Financial
Highlights |
Principal
Exchange-Traded Funds |
|
|
|
|
|
|
|
|
Principal
Sustainable Momentum Index ETF |
|
|
|
For a
share outstanding for the year ended June 30 (except as
noted): |
|
|
|
|
|
|
|
|
Year
ended |
|
|
Period
ended |
|
|
|
|
June 30,
2019 |
|
|
June 30,
2018 (a) |
|
|
Net asset value, beginning of
period |
|
$ |
28.01 |
|
|
$ |
25.00 |
|
|
Investment
Operations: |
|
|
|
|
|
Net investment
income (b) |
|
0.31 |
|
|
0.18 |
|
|
Net realized and change in
unrealized gain |
|
0.43 |
|
|
2.96 |
|
|
Total from investment
operations |
|
0.74 |
|
|
3.14 |
|
|
Dividends
and Distributions to Shareholders from: |
|
|
|
|
|
Net investment
income |
|
(0.25 |
) |
|
(0.13 |
) |
|
Total dividends and
distributions to stockholders |
|
(0.25 |
) |
|
(0.13 |
) |
|
Net asset value, end of
period |
|
$ |
28.50 |
|
|
$ |
28.01 |
|
|
Total return: |
|
2.68 |
% |
|
12.62 |
% |
(c) |
Ratios/Supplemental
Data: |
|
|
|
|
|
Net assets, end of period
(000s) |
|
$ |
5,701 |
|
|
$ |
5,603 |
|
|
Ratio of expenses to average
net assets |
|
0.29 |
% |
|
0.29 |
% |
(d) |
Ratio of net investment
income to average net assets |
|
1.13 |
% |
|
0.97 |
% |
(d) |
Portfolio turnover
rate (e) |
|
102.6 |
% |
|
158.1 |
% |
(d) |
|
|
(a) |
Period from October 18, 2017,
date operations commenced, through June 30, 2018.
|
|
|
(b) |
Calculated on average shares
outstanding during the period. |
|
|
(c) |
Total return amounts have not
been annualized. |
|
|
(d) |
Computed on an annualized
basis. |
|
|
(e) |
Portfolio turnover rate
excludes in-kind transactions. |
|
|
|
|
|
Financial
Highlights |
Principal
Exchange-Traded Funds |
|
|
|
Principal
Ultra-Short Active Income ETF |
|
For a
share outstanding for the year ended June 30 (except as
noted): |
|
|
|
Period
ended |
|
June 30,
2019 (a) |
Net asset value, beginning of
period |
$ |
25.00 |
|
Investment
Operations: |
|
Net investment
income (b) |
0.12 |
|
Net realized and change in
unrealized gain |
0.04 |
|
Total from investment
operations |
0.16 |
|
Dividends
and Distributions to Shareholders from: |
|
Net investment
income |
(0.07 |
) |
Total dividends and
distributions to stockholders |
(0.07 |
) |
Net asset value, end of
period |
$ |
25.09 |
|
Total return: (c) |
0.62 |
% |
Ratios/Supplemental
Data: |
|
Net assets, end of period
(000s) |
$ |
12,543 |
|
Ratio of expenses to average
net assets (d) |
0.18 |
% |
Ratio of net investment
income to average net assets (d) |
2.51 |
% |
Portfolio turnover
rate (d),(e) |
0.0 |
% |
|
|
(a) |
Period from April 24, 2019,
date operations commenced, through June 30, 2019.
|
|
|
(b) |
Calculated on average shares
outstanding during the period. |
|
|
(c) |
Total return amounts have not
been annualized. |
|
|
(d) |
Computed on an annualized
basis. |
|
|
(e) |
Portfolio turnover rate
excludes in-kind transactions. |
|
|
|
|
|
|
|
|
|
|
|
Financial
Highlights |
Principal
Exchange-Traded Funds |
|
|
|
|
|
|
|
|
Principal
U.S. Mega-Cap Multi-Factor Index ETF |
|
|
|
For a
share outstanding for the year ended June 30 (except as
noted): |
|
|
|
|
|
|
|
|
Year
ended |
|
|
Period
ended |
|
|
|
|
June 30,
2019 |
|
|
June 30,
2018 (a) |
|
|
Net asset value, beginning of
period |
|
$ |
26.02 |
|
|
$ |
25.00 |
|
|
Investment
Operations: |
|
|
|
|
|
Net investment
income (b) |
|
0.63 |
|
|
0.38 |
|
|
Net realized and change in
unrealized gain |
|
3.04 |
|
|
0.80 |
|
|
Total from investment
operations |
|
3.67 |
|
|
1.18 |
|
|
Dividends
and Distributions to Shareholders from: |
|
|
|
|
|
Net investment
income |
|
(0.62 |
) |
|
(0.16 |
) |
|
Total dividends and
distributions to stockholders |
|
(0.62 |
) |
|
(0.16 |
) |
|
Net asset value, end of
period |
|
$ |
29.07 |
|
|
$ |
26.02 |
|
|
Total return: |
|
14.32 |
% |
|
4.73 |
% |
(c) |
Ratios/Supplemental
Data: |
|
|
|
|
|
Net assets, end of period
(000s) |
|
$ |
1,618,941 |
|
|
$ |
1,666,525 |
|
|
Ratio of expenses to average
net assets (d) |
|
0.12 |
% |
|
0.12 |
% |
(e) |
Ratio of gross expenses to
average net assets |
|
0.15 |
% |
|
0.15 |
% |
(e) |
Ratio of net investment
income to average net assets |
|
2.30 |
% |
|
2.02 |
% |
(e) |
Portfolio turnover
rate (f) |
|
27.0 |
% |
|
39.8 |
% |
(e) |
|
|
(a) |
Period from October 11, 2017,
date operations commenced, through June 30, 2018.
|
|
|
(b) |
Calculated on average shares
outstanding during the period. |
|
|
(c) |
Total return amounts have not
been annualized. |
|
|
(d) |
Includes reimbursement from
Advisor. |
|
|
(e) |
Computed on an annualized
basis. |
|
|
(f) |
Portfolio turnover rate
excludes in-kind transactions. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Highlights |
Principal
Exchange-Traded Funds |
|
|
|
|
|
|
|
|
|
|
|
|
Principal
U.S. Small-Cap Multi-Factor Index ETF |
|
|
|
|
|
|
|
For a
share outstanding for the year ended June 30 (except as
noted): |
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended |
|
|
Year
ended |
|
|
Period
ended |
|
|
|
|
June 30,
2019 |
|
|
June 30,
2018 |
|
|
June 30,
2017 (a) |
|
|
Net asset value, beginning of
period |
|
$ |
33.45 |
|
|
$ |
28.84 |
|
|
$ |
25.00 |
|
|
Investment
Operations: |
|
|
|
|
|
|
|
Net investment
income (b) |
|
0.40 |
|
|
0.29 |
|
|
0.26 |
|
|
Net realized and change in
unrealized gain (loss) |
|
(2.03 |
) |
|
4.64 |
|
|
3.75 |
|
|
Total from investment
operations |
|
(1.63 |
) |
|
4.93 |
|
|
4.01 |
|
|
Dividends
and Distributions to Shareholders from: |
|
|
|
|
|
|
|
Net investment
income |
|
(0.39 |
) |
|
(0.30 |
) |
|
(0.17 |
) |
|
Net realized
gains |
|
- |
|
|
(0.02 |
) |
|
- |
|
|
Total dividends and
distributions to stockholders |
|
(0.39 |
) |
|
(0.32 |
) |
|
(0.17 |
) |
|
Net asset value, end of
period |
|
$ |
31.43 |
|
|
$ |
33.45 |
|
|
$ |
28.84 |
|
|
Total return: |
|
(4.84 |
)% |
|
17.14 |
% |
|
16.08 |
% |
(c) |
Ratios/Supplemental
Data: |
|
|
|
|
|
|
|
Net assets, end of period
(000s) |
|
$ |
355,200 |
|
|
$ |
351,176 |
|
|
$ |
275,466 |
|
|
Ratio of expenses to average
net assets |
|
0.38 |
% |
|
0.38 |
% |
|
0.38 |
% |
(d) |
Ratio of net investment
income to average net assets |
|
1.27 |
% |
|
0.94 |
% |
|
1.21 |
% |
(d) |
Portfolio turnover
rate (e) |
|
81.9 |
% |
|
76.3 |
% |
|
44.7 |
% |
(d) |
|
|
(a) |
Period from September 21,
2016, date operations commenced, through June 30, 2017.
|
|
|
(b) |
Calculated on average shares
outstanding during the period. |
|
|
(c) |
Total return amounts have not
been annualized. |
|
|
(d) |
Computed on an annualized
basis. |
|
|
(e) |
Portfolio turnover rate
excludes in-kind transactions. |
Additional information about the
Funds is available in the Statement of Additional Information dated November 1,
2019, which is incorporated by reference into this prospectus. Additional
information about each Fund’s investments is available in the Fund’s annual and
semi-annual reports to shareholders. In each Fund’s annual report, you will find
a discussion of the market conditions and investment strategies that
significantly affected the Fund’s performance during the last fiscal year. The
Statement of Additional Information and each Fund’s annual and semi-annual
reports can be obtained free of charge by writing Principal Exchange Traded
Funds, c/o ALPS Distributors, Inc., 1290 Broadway, Suite 1100, Denver, CO
80203. In addition, the Fund makes its Statement of Additional Information and
annual and semi-annual reports available, free of charge, on our website
www.principaletfs.com. To request this and other information about the Fund and
to make shareholder inquiries, telephone 1-800-787-1621.
Reports and other information about
the Fund are available on the EDGAR Database on the Commission’s internet site
at www.sec.gov. Copies of this information may be obtained, upon payment of a
duplicating fee, by electronic request at the following e-mail address:
[email protected].
The Fund has entered into a
management agreement with Principal Global Investors, LLC (“PGI”). The Fund
and/or PGI, on behalf of the Funds, enter into contractual arrangements with
various parties, including, among others, the Funds’ distributor, transfer agent
and custodian, who provide services to the Funds. These arrangements are between
the Fund and/or PGI and the applicable service provider. Shareholders are not
parties to, or intended to be third-party beneficiaries of, any of these
arrangements. Such arrangements are not intended to create in any individual
shareholder or group of shareholders any right, including the right to enforce
such arrangements against the service providers or to seek any remedy thereunder
against PGI or any other service provider, either directly or on behalf of the
Fund or any individual series (or fund).
This prospectus provides information
that you should consider in determining whether to purchase shares of a Fund.
This prospectus, the Statement of Additional Information, or the contracts that
are exhibits to the Fund’s registration statement are not intended to give rise
to any agreement or contract between the Fund and/or any fund and any investor,
or give rise to any contract or other rights in any individual shareholder,
group of shareholders or other person other than any rights conferred explicitly
by federal or state securities laws that may not be waived.
The U.S. government does not insure
or guarantee an investment in any Funds.
Shares of the Funds are not deposits
or obligations of, or guaranteed or endorsed by, Principal Bank or any other
financial institution, nor are shares of the Funds federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency.
Principal Exchange-Traded Funds SEC
File 811-23029