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497August 01,
2023TRUST FOR PROFESSIONAL
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ActivePassive Core
Bond ETF |
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(APCB) |
ActivePassive
Intermediate Municipal Bond ETF |
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(APMU) |
ActivePassive
International Equity ETF |
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(APIE) |
ActivePassive U.S.
Equity ETF |
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(APUE) |
Listed
on NYSE Arca, Inc.
Prospectus
December 29,
2023
The
U.S. Securities and Exchange Commission (the “SEC”) has not approved or
disapproved of these securities or determined if this Prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
ActivePassive
ETFs
Each
a Series of Trust for Professional Managers (the “Trust”)
Investment
Objective
The
investment objective of the ActivePassive Core Bond ETF (“Core Bond ETF” or the
“Fund”) is to provide current income consistent with low volatility of
principal.
Fees and Expenses of the
Fund
This
table describes the fees and expenses that you may pay if you buy, hold and sell
shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment) |
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Management
Fees |
0.35% |
Other
Expenses(1) |
0.00% |
Acquired
Fund Fees and Expenses(1)(2) |
0.01% |
Total
Annual Fund Operating Expenses |
0.36% |
(1)Estimated for the Fund’s
current fiscal year.
(2)Acquired Fund Fees
and Expenses (“AFFE”) are the indirect costs of investing in other investment
companies. Total Annual Fund Operating Expenses do not correlate to thew ratio
of expenses to average net assets in the Fund’s Financial Highlights because the
Financial Highlights include only the direct operating expenses incurred by the
Fund and exclude AFFE.
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 hold or
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. The Example does not take into account brokerage
commissions that you may pay on your purchases and sales of
Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would
be:
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One
Year |
Three
Years |
$37 |
$116 |
Portfolio
Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Shares are
held in a taxable account. These transaction costs and potentially higher taxes,
which are not reflected in Total Annual Fund Operating Expenses or in the
Example, affect the Fund’s performance. During the fiscal period from May 2,
2023 (commencement of operations) through August 31, 2023, the Fund’s portfolio
turnover rate was 12.7% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that blends active and
passive investment strategies to optimize costs, tracking and potential return
over the Fund’s benchmark index, the Bloomberg U.S. Aggregate Bond Index (the
“Underlying Index”). Under normal
market conditions, the Fund will invest
at least 80% of its net assets (plus any borrowings for investment
purposes) in fixed income securities that are rated investment grade or better
and up to 20% of its net assets in high yield debt securities, also known as
“junk bonds.” The ratio of the Fund’s assets that are
allocated to active versus passive investment strategies is determined by
Envestnet Asset Management, Inc., the Fund’s investment adviser (the “Adviser”),
and is based on a variety of factors, including the Adviser’s proprietary
research that looks at the likelihood of active managers outperforming or
underperforming within the asset classes in which the Fund invests, the
Adviser’s research and due diligence on available investment sub-advisers (each,
a “Sub-Adviser”) within the different asset classes in which the Fund invests
and the Adviser’s assessment of how different Sub-Advisers will contribute to
overall Fund performance. The Adviser also considers academic research on factor
investing, which is an investment approach that involves selecting securities
based on attributes associated with higher returns, and the long-term
performance of factor investing with established style factors across the asset
classes in which the Fund invests. The Adviser generally employs a balanced
approach to allocating between active and passive investment management of
taxable fixed income portfolios. The Adviser takes advantage of the low costs
and index tracking of passive investing and balances it with active investing
which can provide the opportunity to add value through risk mitigation and
security selection. The portion of the Fund’s investment portfolio that is
actively managed by the Sub-Advisers and Adviser will range from 10% to 60% of
the Fund’s net assets and is expected to shift over time as economic conditions
change and the available information about the asset classes in which the Fund
invests evolves. The remaining portion of the Fund’s portfolio will be allocated
to the passive investment strategy. The Adviser will generally rebalance the
Fund’s portfolio between the active and passive investment strategies on an
annual basis but may rebalance the portfolio more frequently if market
conditions warrant or the allocation between active and passive drifts
significantly from the target allocation.
The
fixed income securities in which the Fund may invest include corporate bonds,
U.S. government securities, U.S. agency securities, mortgage- and asset-backed
securities, and foreign fixed income securities, as well as ETFs that primarily
invest in fixed income securities. The Fund may also invest in privately placed
securities that have not been registered under the Securities Act of 1933 (the
“Securities Act”), as amended, but may be resold to qualified institutional
buyers in accordance with the provisions of Rule 144A under the Securities Act
(“Rule 144A Securities”). The Fund’s investments in mortgage- and asset-backed
securities may include commercial mortgage-backed securities, and agency and
non-agency residential mortgage-backed securities including fixed and adjustable
rate pass-throughs, collateralized loan obligations (“CLOs”), collateralized
mortgage obligations (“CMOs”) and other structures such as interest only,
principal only and credit risk transfer securities. The fixed income securities
in which the Fund may invest may have fixed, floating or variable rates. The
Adviser and the Sub-Advisers will seek to limit volatility in the Fund’s
portfolio by investing in fixed income securities with different maturity dates
and credit ratings that the Adviser and the Sub-Advisers believe will provide
stable and consistent returns to the Fund. The Fund may invest in fixed income
securities with a range of maturities, from short-term obligations carrying
maturities of less than one year to long-term obligations with maturities more
than 20 years. It is expected that the weighted average maturity of the
securities in the Fund will approximate the weighted average maturity of the
Underlying Index. The debt securities in which the Fund invests must be rated
CCC+ or better at the time of purchase by any nationally recognized statistical
rating organization (“NRSRO”). In the event a security is split rated by two or
more NRSROs, the Adviser will use the lower rating to determine credit quality.
The
Underlying Index is
a broad-based benchmark that measures the investment grade, U.S.
dollar-denominated, fixed-rate taxable bond market.
The sponsor of the Underlying Index determines the composition of the Underlying
Index and relative weightings of the securities in the Underlying Index and
publishes information regarding the market value of the Underlying Index.
Neither the Fund nor the Adviser is affiliated with the sponsor of the
Underlying Index. The Underlying Index includes U.S. government securities, U.S.
agency securities, corporate bonds, and mortgage- and asset-backed securities.
To be included
in
the Underlying Index, securities must be U.S. dollar denominated, be rated
investment grade, be fixed-rate coupons and have at least one year to maturity.
Securities included in the Underlying Index must have at least $300 million
outstanding for U.S. government, U.S. agency and corporate securities, $1
billion outstanding for mortgage-backed securities, $25 million for asset-backed
securities, and $300 million for collateralized mortgage-backed securities.
Securities included in the Underlying Index must be fully taxable. In addition,
securities included in the Underlying Index must be SEC-registered or exempt
from registration at the time of issuance. The Underlying Index is rebalanced
monthly.
The
Adviser is responsible for developing, constructing and monitoring the asset
allocation and portfolio strategy for the Fund and will generally quantitatively
manage the passive allocation of the Fund’s investment portfolio. Quantitative
investing, also known as systematic investing, is an investment approach that
uses mathematical modeling, computer systems and data analysis to evaluate a
specific universe of potential investments. Quantitative investing uses data to
build portfolios that either attempt to track an index, provide exposure to
specific investment style factors, or structure the portfolio according to
desired attributes. The Adviser’s quantitative strategy with respect to the Fund
seeks to construct the passive allocation of the portfolio to provide investment
results that, before expenses, correspond to the price and performance of the
Underlying Index. The Adviser manages the passive allocation utilizing a
representative sampling strategy, meaning that the Fund may not purchase all of
the securities represented in the Underlying Index, but it will attempt to
construct the passive allocation of the Fund to hold a portfolio of individual
fixed income securities that, in the aggregate, have risk, return and credit
quality characteristics that resemble the risk, return and credit quality
characteristics of the Underlying Index. As part of the passive allocation, the
Fund may invest in passively-managed ETFs in trying to construct the passive
allocation to track the Underlying Index. The passive allocation may be
represented by securities maturing at regular intervals, meaning that the
fixed-income securities in the Fund’s passive allocation will have maturity
dates that are evenly spaced across several years so that the proceeds may be
reinvested at regular intervals as the securities mature.
The
Adviser also believes that the Fund’s reward and risk characteristics can be
enhanced by employing one or more Sub-Advisers, with complementary styles and
approaches, who actively manage distinct segments of a market, asset class or
investment style for the Fund. The Fund currently employs two Sub-Advisers to
manage the Fund’s qualitative active allocation, Sage Advisory Services, Ltd.
Co. (“Sage Advisory”) and Neuberger Berman Investment Advisers LLC (“NBIA”).
Sage Advisory will manage a sleeve of the qualitative active allocation by
seeking to invest in a broad range of investment grade fixed income securities
with an anticipated average maturity between three and seven years. Sage
Advisory will emphasize safety of principal and liquidity in selecting
securities for the Fund. NBIA will manage a sleeve of the qualitative active
allocation and select securities for the Fund’s portfolio utilizing a
disciplined relative value approach to sector allocation, research-driven
security selection and duration management. The Sub-Advisers generally rely on
detailed proprietary research and focus on the sectors and securities they
believe are undervalued relative to the market. The Sub‑Advisers will actively
trade the portion of Fund’s investment portfolio they manage, and the Fund may
experience a high portfolio turnover rate. In selecting securities for
investment, the Sub-Advisers typically:
•Use
in-depth fundamental research to identify sectors and securities for potential
investment and to analyze risk;
•Analyze
the credit quality of issuers, an issuer’s potential for success, the credit,
currency, and economic risks of potential investments and their issuers,
security-specific features, current and potential future valuation of potential
investments, and trading opportunities to select investments;
•Look
to capitalize on rapidly shifting market risks and dynamics caused by economic
and technical factors; and
•Consider the liquidity of securities and the portfolio overall as an
important factor in portfolio construction.
Principal Risks of Investing in
the Fund
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with those of other funds. As with any investment,
there is a risk that you could lose all or a portion of your investment in the
Fund. Some or all of these risks may adversely affect the Fund’s
net asset value (“NAV”), trading price, yield, total return and/or ability to
meet its investment objective. The following additional risks could affect the
value of your investment, and are ordered alphabetically rather than by
importance. You should understand these risks before investing. For more
information about the risks of investing in the Fund, see the section in the
Fund’s Prospectus titled “Fund Details — Principal Risks.” The principal risks
of investing in the Fund are:
•Active
Management Risk. For
the Fund’s active allocation, active management by the Adviser and Sub-Advisers
in selecting and maintaining a portfolio of securities that will achieve the
Fund’s investment objective could cause the Fund to underperform compared to
other funds having similar investment objectives.
•Asset-Backed
and Mortgage-Backed Securities Risk. Asset-backed
and mortgage-backed securities are subject to risk of prepayment. These types of
securities may also decline in value because of mortgage foreclosures or
defaults on the underlying obligations. Asset-backed and mortgage-backed
securities are also subject to extension risk, the risk that rising interest
rates could cause prepayments to decrease, extending the life of asset-backed
and mortgage-backed securities with lower payment
rates.
•Asset
Class Risk.
Securities and other assets in the Fund’s portfolio may underperform in
comparison to the general financial markets, a particular financial market or
other asset classes.
•Calculation
Methodology Risk. Quantitative
modeling used may not accurately predict future market movements or
characteristics, which may negatively affect performance. Models may also
perform differently than expected due to implementation problems, technological
malfunction, or programming or data inaccuracies, among other possible
issues.
•Call
Risk. During
periods of falling interest rates, an issuer of a callable bond held by the Fund
may “call” or repay the security before its stated maturity, and the Fund may
have to reinvest the proceeds at lower interest rates, resulting in a decline in
the Fund’s income.
•CMOs
Risk. The Fund may be affected by the credit risk of CMOs, which is the
possibility that the Fund will be less likely to receive payments of principal
and interest, and will be more likely to suffer a loss, if there are defaults on
the mortgage loans underlying the CMOs. This risk may be increased to the extent
that the underlying mortgages include sub-prime mortgages and in relation to the
level of subordination of the category of the CMOs held by the Fund. While CMO
collateral is typically issued by the Government National Mortgage Association
(“GNMA”), Federal National Mortgage Association (“FNMA”) or Federal Home Loan
Mortgage Corporation (“FHLMC”), the CMO itself may be issued by a private party,
such as a brokerage firm, that is not covered by government
guarantees.
•CLOs
Risk.
CLOs are a type of asset-backed security. CLOs are ordinarily issued by a trust
or other special purpose entity and are typically collateralized by a pool of
loans, which may include, among others, domestic and non-U.S. senior secured
loans, senior unsecured loans, and subordinate corporate loans, including loans
that may be rated below investment grade or equivalent unrated loans, held by
such issuer. Any collateral may be relatively illiquid or lose all or
substantially all of its value subsequent to
investment. In the event of bankruptcy of a borrower, the Fund could
experience delays or limitations in realizing the benefits of any collateral
securing a loan.
•Credit
Risk. Credit
risk is the risk that an issuer will not make timely payments of principal and
interest. Underlying investments may lose value due to borrowers defaulting or
failing to pay back debt.
•Cybersecurity
Risk. With
the increased use of technologies such as the Internet to conduct business, the
Fund is susceptible to operational, information security, and related risks.
Cyber incidents affecting the Fund or its service providers may cause
disruptions and impact business operations, potentially resulting in financial
losses, interference with the Fund’s ability to calculate its NAV, impediments
to trading, the inability of shareholders to transact business, violations of
applicable privacy and other laws, regulatory fines, penalties, reputational
damage, reimbursement or other compensation costs, or additional compliance
costs.
•Debt
Securities Risk. The values of debt securities may increase or decrease as a result of
the following: market fluctuations, changes in interest rates, actual or
perceived inability or unwillingness of issuers, guarantors or liquidity
providers to make scheduled principal or interest payments or illiquidity in
debt securities markets; the risk of low rates of return due to reinvestment of
securities during periods of falling interest rates or repayment by issuers with
higher coupon or interest rates; and/or the risk of low income due to falling
interest rates. To the extent that interest rates rise, certain underlying
obligations may be paid off substantially slower than originally anticipated and
the value of those securities may fall sharply.
•ETF
Investment Risk.
The Fund’s investment in shares of ETFs subjects it to the risks of owning the
securities underlying the ETF, as well as the same structural risks faced by an
investor purchasing shares of the Fund, including authorized participant
concentration risk, market maker risk, premium/discount risk and trading issues
risk. As a shareholder in another ETF, the Fund bears its proportionate share of
the ETF’s expenses, subjecting Fund shareholders to duplicative
expenses.
•ETF
Risk.
The Fund is an ETF and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk.
The Fund has a limited number of financial institutions that may act as
Authorized Participants (“APs”). In addition, there may be a limited number of
market makers and/or liquidity providers in the marketplace. To the extent
either of the following events occur, Shares may trade at a material discount to
NAV and possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their
functions.
◦Cash
Redemption Risk. The
Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. The Fund may be
required to sell or unwind portfolio investments to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to realize a capital
gain that it might not have realized if it had made a redemption in-kind. As a
result, the Fund may pay out higher annual capital gain distributions than if
the in-kind redemption process was used. To the extent that the transaction fees
charged for redemptions of creation units is insufficient to cover the Fund’s
transaction costs of selling portfolio securities, the Fund’s performance could
be negatively impacted.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and 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
May Trade at Prices Other Than NAV. As with all ETFs, Shares may be bought and sold in the secondary
market at market prices. As a result, investors in the Fund may pay
significantly more or receive significantly less for Shares than the Fund’s NAV.
Although it is expected that the market price of Shares will approximate the
Fund’s NAV, there may be times when the market price of Shares is more than the
NAV intra-day (premium) or less than the NAV intra-day (discount) due to supply
and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be
significant.
◦Trading.
Although Shares are listed for trading on the NYSE Arca, Inc. (the “Exchange”)
and may be traded on U.S. exchanges other than the Exchange, there can be no
assurance that Shares will trade with any volume, or at all, on any stock
exchange. In stressed market conditions, the liquidity of Shares may begin to
mirror the liquidity of the Fund’s underlying portfolio holdings, which can be
significantly less liquid than Shares. This could lead to the Fund’s shares
trading at a price that is higher or lower than the Fund’s
NAV.
•Floating
or Variable Rate Securities Risk.
Securities with floating or variable interest rates 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 instruments will not generally increase in value if interest rates decline.
Changes in interest rates will also affect the amount of interest income the
Fund earns on its floating or variable rate
investments.
•Foreign
Securities Risk. Non-U.S.
securities are subject to risks relating to political, social and economic
developments abroad and differences between U.S. and foreign regulatory
requirements and market practices. Issuers of foreign securities may not be
required to provide operational or financial information that is as timely or
reliable as those required for issuers of U.S. securities. The income or
dividends earned on foreign securities may be subject to foreign withholding
taxes.
•High
Portfolio Turnover Rate Risk. The
Fund may have a relatively high turnover rate compared to many registered funds.
A high portfolio turnover rate (100% or more) has the potential to result in
increased brokerage transaction costs which may lower the Fund’s returns.
Furthermore, a high portfolio turnover rate may result in the realization by the
Fund, and distribution to shareholders, of a greater amount of capital gains,
including short-term capital gains, than if the Fund had a low portfolio
turnover rate. Distributions to shareholders of short-term capital gains are
taxed as ordinary income under federal income tax laws. This could result in a
higher tax liability and may lower an investor’s after-tax
return.
•High-Yield
Securities Risk. The
fixed income investments held by the Fund that are rated below investment grade,
also known as “junk bonds”, are subject to additional risk factors such as
increased possibility of default, illiquidity of the security, and changes in
value based on public perception of the issuer. Such securities are generally
considered speculative because they present a greater risk of loss, including
default, than higher quality fixed income
investments.
•Index-Related
Risk. A
portion of the Fund may use a passive investment approach and may be affected by
a general decline in market segments or asset classes relating to the Underlying
Index. The Fund
invests
the passive allocation of its portfolio in securities and instruments intended
to track the performance of the Underlying Index regardless of the investment
merits of the securities included in the Underlying Index. Generally, the index
provider does not provide any warranty, or accept any liability, with respect to
the quality, accuracy, or completeness of either the Underlying Index or its
related data.
•Interest
Rate Risk.
An increase in interest rates may cause the value of fixed-income securities
held by the Fund to decline. The Fund may be subject to a greater risk of rising
interest rates due to the current period of historically low rates and the
effect of potential government fiscal policy initiatives and resulting market
reaction to those initiatives.
•Liquidity
Risk. Liquidity risk exists when particular investments are difficult to
purchase or sell, possibly preventing the Fund from selling such illiquid
investments at an advantageous time or price. A lack of liquidity may also cause
the value of investments to decline. Illiquid investments may also be difficult
to value.
•Management
Risk. The
ability of the Fund to meet its investment objective is directly related to the
ability of the Adviser and Sub-Advisers to implement the investment strategies
for the Fund. The value of your investment in the Fund may vary with the
effectiveness of the Adviser’s and Sub-Advisers’ research, analysis and asset
allocation among portfolio securities and asset allocation between the Fund’s
active and passive investment strategies. If the Adviser’s and Sub-Advisers’
investment strategies do not produce the expected results, your investment could
be diminished or even lost.
•Market
Risk.
The trading prices of the Fund’s investments fluctuate in response to a variety
of factors. The Fund’s NAV and market price may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time.
•Market
Trading Risk. Active trading markets for Shares may not be developed or maintained
by market makers or APs. APs are not obligated to make a market in the Shares or
to submit purchase or redemption orders for creation units. Trading in Shares on
an exchange may be halted in certain circumstances.
•New
Fund Risk. The Fund is a recently organized, management investment company with
a limited operating history. As a result, prospective investors have a limited
track record on which to base their investment decision. There is also a risk
that the Fund will not grow to or maintain an economically viable size, in which
case it could ultimately liquidate without shareholder
approval.
•Prepayment
Risk. The
risk that the issuer of a debt security repays all or a portion of the principal
prior to the security’s maturity therefore resulting in lower yields to
shareholders of the Fund. The Fund may be unable to re-invest the proceeds in an
investment with as great a yield.
•Recent
Market Events Risk.
U.S. and international markets have experienced and may continue to experience
volatility in recent months and years due to a number of economic, political and
global macro factors including uncertainty regarding inflation and central
banks’ interest rate increases, the possibility of a national or global
recession, trade tensions, political events, the war between Russia and Ukraine,
significant conflict between Israel and Hamas in the Middle East, and the impact
of the coronavirus (COVID-19) global pandemic. The impact of COVID-19 may last
for an extended period of time. As a result of continuing political tensions and
armed conflicts, including the war between Ukraine and Russia, the U.S. and the
European Union imposed sanctions on certain Russian individuals and companies,
including certain financial institutions, and have limited certain exports and
imports to and from Russia. The war has contributed to recent market volatility
and may continue to do so. Continuing market
volatility
as a result of recent market conditions or other events may have an adverse
effect on the performance of the Fund.
•Rule
144A Securities Risk. The
market for Rule 144A securities typically is less active than the market for
publicly-traded securities. Rule 144A securities carry the risk that the
liquidity of these securities may become impaired, making it more difficult for
the Fund to sell these bonds.
•Tracking
Error Risk.
The performance of the passive allocation of the Fund and the Underlying Index
may differ from each other for a variety of reasons. For example, the Fund
incurs operating expenses and portfolio transaction costs not incurred by the
Underlying Index. In addition, the passive allocation of the Fund may not be
fully invested in the securities of the Underlying
Index.
•U.S.
Government and U.S. Agency Obligations Risk. The
Fund may invest in securities issued by the U.S. government or its agencies or
instrumentalities. U.S. Government obligations include securities issued or
guaranteed as to principal and interest by the U.S. Government, its agencies or
instrumentalities, such as the U.S. Treasury. Payment of principal and interest
on U.S. Government obligations may be backed by the full faith and credit of the
United States or may be backed solely by the issuing or guaranteeing agency or
instrumentality itself. In the latter case, the investor must look principally
to the agency or instrumentality issuing or guaranteeing the obligation for
ultimate repayment, which agency or instrumentality may be privately owned.
There can be no assurance that the U.S. Government would provide financial
support to its agencies or instrumentalities (including government- sponsored
enterprises) where it is not obligated to do so.
•Valuation
Risk. The
prices provided by the Fund’s pricing services or independent dealers or the
fair value determinations made by the Adviser may be different from the prices
used by other investment companies or from the prices at which debt obligations
are actually bought and sold. The prices of certain debt obligations provided by
pricing services may be subject to frequent and significant change, and will
vary depending on the information that is
available.
Performance
When the Fund has
been in operation for a full calendar year, performance information will be
shown in the Prospectus and will give some indication of the risks of investing
in the Fund by comparing the Fund’s performance with a broad measure of market
performance. Updated performance information is available on the
Fund’s website at www.activepassive.com
or by calling the Fund toll-free at 1-800-617-0004.
Management
Investment
Adviser and Sub-Advisers.
Envestnet Asset Management, Inc. is the Fund’s investment adviser. Neuberger
Berman Investment Advisers LLC and Sage Advisory Services, Ltd. Co. serve as the
Fund’s Sub-Advisers.
Portfolio
Managers.
The Fund is managed by the following team of portfolio managers:
|
|
|
|
|
|
|
| |
Portfolio
Manager |
Years
of Service
with
the Fund |
Primary
Title |
Brandon
R. Thomas |
Since
March 2023 |
Managing
Director, Co-Founder and Chief Investment Officer of the
Adviser |
Janis
Zvingelis Ph.D., CFA |
Since
March 2023 |
Senior
Vice President, Director of Quantitative Research of the
Adviser |
Gregory
Classen, CFA |
Since
March 2023 |
Senior
Vice President, Senior Portfolio Manager of the Adviser |
Timothy
Murphy |
Since
March 2023 |
Vice
President, Senior Portfolio Manager of the Adviser |
Nathan
Kush |
Since
March 2023 |
Managing
Director and Senior Portfolio Manager of NBIA |
Olumide
Owolabi |
Since
March 2023 |
Managing
Director and Senior Portfolio Manager of NBIA |
Thanos
Bardas |
Since
March 2023 |
Managing
Director, Senior Portfolio Manager and Global Co-Head of Investment Grade
of NBIA |
David
M. Brown |
Since
March 2023 |
Managing
Director, Senior Portfolio Manager and Global Co-Head of Investment Grade
of NBIA |
Robert
G. Smith, III |
Since
March 2023 |
President
and CIO of Sage |
Thomas
Urano |
Since
March 2023 |
Managing
Member of Sage |
For
important information about the purchase and sale of Fund shares, tax
information and financial intermediary compensation, please turn to “Purchase
and Sale of Fund Shares, Taxes and Financial Intermediary Compensation” on page
33.
Investment
Objective
The
investment objective of the ActivePassive Intermediate Municipal Bond ETF
(“Intermediate Municipal Bond ETF” or the “Fund”) is to provide current income
that is exempt from federal income taxes consistent with low volatility of
principal.
Fees and Expenses of the
Fund
This
table describes the fees and expenses that you may pay if you buy, hold and sell
shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
|
|
|
|
| |
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment) |
|
Management
Fees |
0.35% |
Other
Expenses(1) |
0.00% |
Acquired
Fund Fees and Expenses(1)(2) |
0.01% |
Total
Annual Fund Operating Expenses |
0.36% |
(1)Estimated for the Fund’s
current fiscal year.
(2)Acquired Fund Fees
and Expenses (“AFFE”) are the indirect costs of investing in other investment
companies. Total Annual Fund Operating Expenses do not correlate to thew ratio
of expenses to average net assets in the Fund’s Financial Highlights because the
Financial Highlights include only the direct operating expenses incurred by the
Fund and exclude AFFE.
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 hold or
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. The Example does not take into account brokerage
commissions that you may pay on your purchases and sales of
Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would
be:
|
|
|
|
| |
One
Year |
Three
Years |
$37 |
$116 |
Portfolio
Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Shares are
held in a taxable account. These transaction costs and potentially higher taxes,
which are not reflected in Total Annual Fund Operating Expenses or in the
Example, affect the Fund’s performance. During the fiscal period from May 2,
2023 (commencement of operations) through August 31, 2023, the Fund’s portfolio
turnover rate was 0% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that blends active and
passive investment strategies to optimize costs, tracking and potential return
over the Fund’s benchmark index, the Bloomberg Municipal 1-10 Year Blend Index
(the “Underlying Index”). Under normal market conditions, the
Fund will invest at least 80% of its net assets (plus any borrowings for
investment purposes) in U.S. municipal bond securities that are exempt from U.S.
federal income tax and are rated investment grade or better. The
Fund
may
also invest up to 20% of its net assets in high-yield municipal bonds, also
known as “junk bonds.” The ratio of the Fund’s assets that are allocated to
active versus passive investment strategies is determined by Envestnet Asset
Management, Inc., the Fund’s investment adviser, (the “Adviser”), and is based
on a variety of factors, including the Adviser’s proprietary research that looks
at the likelihood of active managers outperforming or underperforming within the
asset classes in which the Fund invests, the Adviser’s research and due
diligence on available investment sub-advisers (each, a “Sub-Adviser”) within
the different asset classes in which the Fund invests and the Adviser’s
assessment of how different Sub-Advisers will contribute to overall Fund
performance. The Adviser also considers academic research on factor investing,
which is an investment approach that involves selecting securities based on
attributes associated with higher returns, and the long-term performance of
factor investing with established style factors across the asset classes in
which the Fund invests. Under normal market conditions, the Adviser will
allocate at least 50% of the Fund’s assets to the passive allocation. The
Adviser’s allocation to passive investments takes advantage of low costs and
index tracking while the active allocation can provide opportunities to add
value through risk mitigation and security selection. In the event of a market
disruption, like a central bank intervention, or a disruption in credit or
liquidity, the Adviser may increase the Fund’s active allocation to take
advantage of any mispricings that may arise when the Adviser or a Sub-Adviser
determines that a security’s price does not reflect the fundamental value of the
security. The portion of the Fund’s investment portfolio that is actively
managed by the Sub-Adviser and Adviser will range from 5% to 50% of the Fund’s
net assets and is expected to shift over time as economic conditions change and
the available information about the asset classes in which the Fund invests
evolves. The remaining portion of the Fund’s portfolio will be allocated to the
passive investment strategy. The Adviser will generally rebalance the Fund’s
portfolio between the active and passive investment strategies on an annual
basis but may rebalance the portfolio more frequently if market conditions
warrant or the allocation between active and passive drifts significantly from
the target allocation.
The
Fund’s investments in municipal bonds will generally be exempt from U.S. federal
income tax but may be subject to the federal alternative minimum tax (“AMT”) for
non-corporate shareholders. The Adviser and the Sub-Adviser will seek to limit
volatility in the Fund’s portfolio by investing in municipal bonds with
different maturity dates and credit ratings that the Adviser and the Sub-Adviser
believes will provide stable and consistent returns to the Fund. The Fund’s
investments in municipal bonds may include construction loan notes, general
obligation bonds, industrial development bonds, revenue anticipation notes,
revenue bonds, tax anticipation notes and tax-exempt commercial notes. The Fund
may invest in tax-exempt securities with a range of maturities, from short-term
obligations carrying maturities of less than one year to long-term obligations
with maturities more than 20 years but expects the securities held by the Fund
to have a dollar-weighted average maturity of more than three years but less
than ten. The municipal bonds in which the Fund invests must be rated CCC+ or
better at the time of purchase by any nationally recognized statistical rating
organization (“NRSRO”). In the event a security is split rated by two or more
NRSROs, the Adviser will use the lower rating to determine credit quality. The
allocation of the Fund’s portfolio will concentrate its investments
(i.e.,
hold 25% or more of its total assets) in a particular industry or group of
industries to approximately the same extent that the Underlying Index is
concentrated. The Underlying Index is a market value-weighted index which covers
the short and intermediate components of the Bloomberg Municipal Bond Index, an
unmanaged, market value-weighted index which covers the U.S. investment-grade
tax-exempt bond market. The sponsor of the Underlying Index determines the
composition of the Underlying Index and relative weightings of the securities in
the Underlying Index and publishes information regarding the market value of the
Underlying Index. Neither the Fund nor the Adviser is affiliated with the
sponsor of the Underlying Index. The Underlying Index tracks the performance of
tax-exempt municipal general obligation, revenue, insured, and pre-refunded
bonds with a minimum $5 million par amount outstanding, issued as part of a
transaction of at least $50 million, and with a remaining maturity from 1 up to
(but not including) 12 years. The Underlying Index includes reinvestment of
income and is rebalanced monthly.
The
Adviser is responsible for developing, constructing and monitoring the asset
allocation and portfolio strategy for the Fund and will generally quantitatively
manage the passive allocation of the Fund’s investment portfolio. Quantitative
investing, also known as systematic investing, is an investment approach that
uses mathematical modeling, computer systems and data analysis to evaluate a
specific universe of potential investments. Quantitative investing uses data to
build portfolios that either attempt to track an index, provide exposure to
specific investment style factors, or structure the portfolio according to
desired attributes. The Adviser’s quantitative strategy with respect to the Fund
seeks to construct the passive allocation of the portfolio to provide investment
results that, before expenses, correspond to the performance of the Underlying
Index. The Adviser manages the passive allocation utilizing a representative
sampling strategy, meaning that the Fund may not purchase all of the securities
represented in the Underlying Index, but it will attempt to construct the
passive allocation of the Fund to hold a portfolio of securities with generally
the same risk, return and credit quality characteristics of the Underlying
Index. As part of the passive allocation, the Fund may invest in
passively-managed ETFs in trying to construct the passive allocation to track
the Underlying Index. The passive allocation may be represented by securities
maturing at regular intervals, meaning that the fixed-income securities in the
Fund’s passive allocation will have maturity dates that are evenly spaced across
several years so that the proceeds may be reinvested at regular intervals as the
securities mature.
The
Adviser also believes that the Fund’s reward and risk characteristics can be
enhanced by employing one or more Sub-Advisers, with complementary styles and
approaches, who actively manage distinct segments of a market, asset class or
investment style for the Fund. The Fund currently employs one Sub-Adviser to
manage the Fund’s qualitative active allocation, GW&K Investment Management,
LLC (“GW&K”). GW&K manages the Fund’s qualitative active allocation by
emphasizing bottom-up research to target investment grade short to intermediate
maturity municipal bonds. GW&K’s proprietary process focuses on a selective
universe of municipal bonds to seek best relative value while managing risk.
GW&K will generally rely on detailed proprietary research and focus on the
sectors and securities they believe are undervalued relative to the market.
GW&K will actively trade the portions of the Fund’s investment portfolio
they manage, and the Fund may experience a high portfolio turnover rate. In
selecting securities for investment, GW&K typically:
•Uses
in-depth fundamental research to identify sectors and securities for potential
investment and to analyze risk;
•Analyzes
the credit quality of issuers, an issuer’s potential for success, the credit,
currency, and economic risks of potential investments and their issuers,
security-specific features, current and potential future valuation of potential
investments, and trading opportunities to select investments;
•Looks
to capitalize on rapidly shifting market risks and dynamics caused by economic
and technical factors; and
•Considers the liquidity of securities and the portfolio overall as an
important factor in portfolio construction.
Principal Risks of Investing in
the Fund
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with those of other funds. As with any investment,
there is a risk that you could lose all or a portion of your investment in the
Fund. Some or all of these risks may adversely affect the Fund’s
net asset value (“NAV”), trading price, yield, total return and/or ability to
meet its investment objective. The following additional risks could affect the
value of your investment, and are ordered alphabetically rather than by
importance. You should understand these risks before investing. For more
information about the risks of investing in the Fund, see the section in the
Fund’s Prospectus titled “Fund Details — Principal Risks.” The principal risks
of investing in the Fund are:
•Active
Management Risk. For
the Fund’s active allocation, active management by the Adviser and Sub-Advisers
in selecting and maintaining a portfolio of securities that will achieve the
Fund’s investment objective could cause the Fund to underperform compared to
other funds having similar investment objectives.
•Asset
Class Risk.
Securities and other assets in the Fund’s portfolio may underperform in
comparison to the general financial markets, a particular financial market or
other asset classes.
•Calculation
Methodology Risk. Quantitative
modeling used may not accurately predict future market movements or
characteristics, which may negatively affect performance. Models may also
perform differently than expected due to implementation problems, technological
malfunction, or programming or data inaccuracies, among other possible
issues.
•Call
Risk. During
periods of falling interest rates, an issuer of a callable bond held by the Fund
may “call” or repay the security before its stated maturity, and the Fund may
have to reinvest the proceeds at lower interest rates, resulting in a decline in
the Fund’s income.
•CLOs
Risk. CLOs are a type of asset-backed security. CLOs are ordinarily issued
by a trust or other special purpose entity and are typically collateralized by a
pool of loans, which may include, among others, domestic and non-U.S. senior
secured loans, senior unsecured loans, and subordinate corporate loans,
including loans that may be rated below investment grade or equivalent unrated
loans, held by such issuer. Any collateral may be relatively illiquid or lose
all or substantially all of its value subsequent to investment. In the event of
bankruptcy of a borrower, the Fund could experience delays or limitations in
realizing the benefits of any collateral securing a loan.
•CMOs
Risk. The
Fund may be affected by the credit risk of CMOs, which is the possibility that
the Fund will be less likely to receive payments of principal and interest, and
will be more likely to suffer a loss, if there are defaults on the mortgage
loans underlying the CMOs. This risk may be increased to the extent that the
underlying mortgages include sub-prime mortgages and in relation to the level of
subordination of the category of the CMOs held by the Fund. In addition, CMOs
may be less liquid or may exhibit greater price volatility than other types of
mortgages or asset-backed securities. Some CMOs may be structured in a way that
when interest rates change, the impact of changing prepayment rates on the
effective maturities of certain issues of these securities is magnified. CMO
risk also depends on the issuer. While CMO collateral is typically issued by the
GNMA, FNMA or FHLMC, the CMO itself may be issued by a private party, such as a
brokerage firm, that is not covered by government guarantees. CMO collateral may
also include different or specialized types of mortgage loans or mortgage loan
pools, letters of credit, or other types of credit enhancements and these
so-called “private label” CMOs are the sole obligation of their
issuer.
•Concentration
Risk.
Because the Fund’s passive allocation may be concentrated in an industry or
group of industries if the Underlying Index concentrates in a particular
industry or group of industries, the Fund is subject to loss due to adverse
occurrences that may affect any such industry or group of
industries.
•Credit
Risk. Credit
risk is the risk that an issuer will not make timely payments of principal and
interest. Underlying investments may lose value due to borrowers defaulting or
failing to pay back debt.
•Cybersecurity
Risk. With
the increased use of technologies such as the Internet to conduct business, the
Fund is susceptible to operational, information security, and related risks.
Cyber incidents affecting the Fund or its service providers may cause
disruptions and impact business operations, potentially resulting
in
financial losses, interference with the Fund’s ability to calculate its NAV,
impediments to trading, the inability of shareholders to transact business,
violations of applicable privacy and other laws, regulatory fines, penalties,
reputational damage, reimbursement or other compensation costs, or additional
compliance costs.
•Debt
Securities Risk. The values of debt securities may increase or decrease as a result
of the following: market fluctuations, changes in interest rates, actual or
perceived inability or unwillingness of issuers, guarantors or liquidity
providers to make scheduled principal or interest payments or illiquidity in
debt securities markets; the risk of low rates of return due to reinvestment of
securities during periods of falling interest rates or repayment by issuers with
higher coupon or interest rates; and/or the risk of low income due to falling
interest rates. To the extent that interest rates rise, certain underlying
obligations may be paid off substantially slower than originally anticipated and
the value of those securities may fall sharply.
•ETF
Investment Risk.
The Fund’s investment in shares of ETFs subjects it to the risks of owning the
securities underlying the ETF, as well as the same structural risks faced by an
investor purchasing shares of the Fund, including authorized participant
concentration risk, market maker risk, premium/discount risk and trading issues
risk. As a shareholder in another ETF, the Fund bears its proportionate share of
the ETF’s expenses, subjecting Fund shareholders to duplicative
expenses.
•ETF
Risk.
The Fund is an ETF and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk.
The Fund has a limited number of financial institutions that may act as
Authorized Participants (“APs”). In addition, there may be a limited number of
market makers and/or liquidity providers in the marketplace. To the extent
either of the following events occur, Shares may trade at a material discount to
NAV and possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their
functions.
◦Cash
Redemption Risk. The
Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. The Fund may be
required to sell or unwind portfolio investments to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to realize a capital
gain that it might not have realized if it had made a redemption in-kind. As a
result, the Fund may pay out higher annual capital gain distributions than if
the in-kind redemption process was used. To the extent that the transaction fees
charged for redemptions of creation units is insufficient to cover the Fund’s
transaction costs of selling portfolio securities, the Fund’s performance could
be negatively impacted.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and 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
May Trade at Prices Other Than NAV.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. As a result, investors in the Fund may pay significantly more or
receive significantly less for Shares than the Fund’s NAV. Although it is
expected that the market price of Shares will approximate the Fund’s NAV, there
may be times when the market price of
Shares is more than the NAV intra-day
(premium) or less than the NAV intra-day (discount) due to supply and demand of
Shares or during periods of market volatility. This risk is heightened in times
of market volatility, periods of steep market declines, and periods when there
is limited trading activity for Shares in the secondary market, in which case
such premiums or discounts may be
significant.
◦Trading.
Although Shares are listed for trading on the NYSE Arca, Inc. (the “Exchange”)
and may be traded on U.S. exchanges other than the Exchange, there can be no
assurance that Shares will trade with any volume, or at all, on any stock
exchange. In stressed market conditions, the liquidity of Shares may begin to
mirror the liquidity of the Fund’s underlying portfolio holdings, which can be
significantly less liquid than Shares. This could lead to the Fund’s shares
trading at a price that is higher or lower than the Fund’s
NAV.
•High
Portfolio Turnover Rate Risk. The
Fund may have a relatively high turnover rate compared to many registered funds.
A high portfolio turnover rate (100% or more) has the potential to result in
increased brokerage transaction costs which may lower the Fund’s returns.
Furthermore, a high portfolio turnover rate may result in the realization by the
Fund, and distribution to shareholders, of a greater amount of capital gains,
including short-term capital gains, than if the Fund had a low portfolio
turnover rate. Distributions to shareholders of short-term capital gains are
taxed as ordinary income under federal income tax laws. This could result in a
higher tax liability and may lower an investor’s after-tax
return.
•High-Yield
Securities Risk. The
fixed income investments held by the Fund that are rated below investment grade,
also known as “junk bonds”, are subject to additional risk factors such as
increased possibility of default, illiquidity of the security, and changes in
value based on public perception of the issuer. Such securities are generally
considered speculative because they present a greater risk of loss, including
default, than higher quality fixed income
investments.
•Index-Related
Risk. A portion of the Fund may use a passive investment approach and may
be affected by a general decline in market segments or asset classes relating to
the Underlying Index. The Fund invests the passive allocation of its portfolio
in securities and instruments intended to track the performance of the
Underlying Index regardless of the investment merits of the securities included
in the Underlying Index. Generally, the index provider does not provide any
warranty, or accept any liability, with respect to the quality, accuracy, or
completeness of either the Underlying Index or its related
data.
•Interest
Rate Risk.
An increase in interest rates may cause the value of fixed-income securities
held by the Fund to decline. The Fund may be subject to a greater risk of rising
interest rates due to the current period of historically low rates and the
effect of potential government fiscal policy initiatives and resulting market
reaction to those initiatives.
•Liquidity
Risk. Liquidity risk exists when particular investments are difficult to
purchase or sell, possibly preventing the Fund from selling such illiquid
investments at an advantageous time or price. A lack of liquidity may also cause
the value of investments to decline. Illiquid investments may also be difficult
to value.
•Management
Risk. The
ability of the Fund to meet its investment objective is directly related to the
ability of the Adviser and Sub-Advisers to implement the investment strategies
for the Fund. The value of your investment in the Fund may vary with the
effectiveness of the Adviser’s and Sub-Advisers’ research, analysis and asset
allocation among portfolio securities and asset allocation between the Fund’s
active
and passive investment strategies. If the Adviser’s and Sub-Advisers’ investment
strategies do not produce the expected results, your investment could be
diminished or even lost.
•Market
Risk.
The trading prices of the Fund’s investments fluctuate in response to a variety
of factors. The Fund’s NAV and market price may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time.
•Market
Trading Risk. Active trading markets for Shares may not be developed or maintained
by market makers or APs. APs are not obligated to make a market in the Shares or
to submit purchase or redemption orders for creation units. Trading in Shares on
an exchange may be halted in certain circumstances.
•Municipal
Securities Risk. Municipal
securities can be significantly affected by political or economic changes,
including changes made in the law after issuance of the securities, as well as
uncertainties in the municipal market related to taxation, legislative changes
or the rights of municipal security holders, including in connection with an
issuer insolvency. Municipal securities backed by current or anticipated
revenues from a specific project or specific assets can be negatively affected
by the inability to collect revenues from such projects or assets. Certain
municipal securities are issued by entities with limited taxing authority such
as school districts, or dependent on revenue from a particular sector or
industry, such as the utilities sector, infrastructure sector, or transportation
industry.
•New
Fund Risk. The Fund is a recently organized, management investment company
with a limited operating history. As a result, prospective investors have a
limited track record on which to base their investment decision. There is also a
risk that the Fund will not grow to or maintain an economically viable size, in
which case it could ultimately liquidate without shareholder
approval.
•Prepayment
Risk. The
risk that the issuer of a debt security repays all or a portion of the principal
prior to the security’s maturity therefore resulting in lower yields to
shareholders of the Fund. The Fund may be unable to re-invest the proceeds in an
investment with as great a yield.
•Recent
Market Events Risk.
U.S. and international markets have experienced and may continue to experience
volatility in recent months and years due to a number of economic, political and
global macro factors including uncertainty regarding inflation and central
banks’ interest rate increases, the possibility of a national or global
recession, trade tensions, political events, the war between Russia and Ukraine,
significant conflict between Israel and Hamas in the Middle East, and the impact
of the coronavirus (COVID-19) global pandemic. The impact of COVID-19 may last
for an extended period of time. As a result of continuing political tensions and
armed conflicts, including the war between Ukraine and Russia, the U.S. and the
European Union imposed sanctions on certain Russian individuals and companies,
including certain financial institutions, and have limited certain exports and
imports to and from Russia. The war has contributed to recent market volatility
and may continue to do so. Continuing market volatility as a result of recent
market conditions or other events may have an adverse effect on the performance
of the Fund.
•Tax
Risk. Municipal
securities may decrease in value during times when federal income tax rates are
falling. The Fund’s investments are affected by changes in federal income tax
rates applicable to, or the continuing federal tax-exempt status of, interest
income on municipal obligations. Any proposed or actual changes in such rates or
exempt status, therefore, can significantly affect the liquidity, marketability
and supply and demand for municipal obligations, which would in turn affect the
Fund’s ability to acquire and dispose of municipal obligations at desirable
yield and price levels. If you are subject to the federal AMT, you may have to
pay federal tax on a portion of your distributions from tax
exempt
income. If this is the case, the Fund’s net after-tax return to you may be
lower. The Fund would typically not be a suitable investment for investors
investing through tax exempt or tax-deferred
accounts.
•Tracking
Error Risk.
The performance of the passive allocation of the Fund and the Underlying Index
may differ from each other for a variety of reasons. For example, the Fund
incurs operating expenses and portfolio transaction costs not incurred by the
Underlying Index. In addition, the passive allocation of the Fund may not be
fully invested in the securities of the Underlying
Index.
•Valuation
Risk. The
prices provided by the Fund’s pricing services or independent dealers or the
fair value determinations made by the Adviser may be different from the prices
used by other investment companies or from the prices at which debt obligations
are actually bought and sold. The prices of certain debt obligations provided by
pricing services may be subject to frequent and significant change, and will
vary depending on the information that is
available.
Performance
When the Fund has
been in operation for a full calendar year, performance information will be
shown in the Prospectus and will give some indication of the risks of investing
in the Fund by comparing the Fund’s performance with a broad measure of market
performance. Updated performance information is available on the
Fund’s website at www.activepassive.com
or by calling the Fund toll-free at 1-800-617-0004.
Management
Investment
Adviser and Sub-Advisers.
Envestnet Asset Management, Inc. is the Fund’s investment adviser. GW&K
Investment Management, LLC serves as the Fund’s Sub-Adviser.
Portfolio
Managers.
The Fund is managed by the following team of portfolio managers:
|
|
|
|
|
|
|
| |
Portfolio
Manager |
Years
of Service
with
the Fund |
Primary
Title |
Brandon
R. Thomas |
Since
March 2023 |
Managing
Director, Co-Founder and Chief Investment Officer of the
Adviser |
Janis
Zvingelis Ph.D., CFA |
Since
March 2023 |
Senior
Vice President, Director of Quantitative Research of the
Adviser |
Gregory
Classen, CFA |
Since
March 2023 |
Senior
Vice President, Senior Portfolio Manager of the Adviser |
Timothy
Murphy |
Since
March 2023 |
Vice
President, Senior Portfolio Manager of the Adviser |
John
B. Fox, CFA |
Since
March 2023 |
Partner
and Co-Director of Fixed Income of GW&K |
Kara
M. South, CFA |
Since
March 2023 |
Partner
and Municipal Bond Portfolio Manager of GW&K |
Martin
R. Tourigny, CFA |
Since
March 2023 |
Partner
and Municipal Bond Portfolio Manager of GW&K |
Brian
T. Moreland, CFA |
Since
March 2023 |
Partner
and Municipal Bond Portfolio Manager of
GW&K |
For
important information about the purchase and sale of Fund shares, tax
information and financial intermediary compensation, please turn to “Purchase
and Sale of Fund Shares, Taxes and Financial Intermediary Compensation” on page
33.
Investment
Objective
The
investment objective of the ActivePassive International Equity ETF
(“International Equity ETF” or the “Fund”) is to provide long-term capital
appreciation.
Fees and Expenses of the
Fund
This
table describes the fees and expenses that you may pay if you buy, hold and sell
shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and 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(1) |
0.00% |
Total
Annual Fund Operating Expenses |
0.45% |
(1)Estimated for the Fund’s
current fiscal year.
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 hold or
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. The Example does not take into account brokerage
commissions that you may pay on your purchases and sales of
Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would
be:
|
|
|
|
| |
One
Year |
Three
Years |
$46 |
$144 |
Portfolio
Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Shares are
held in a taxable account. These transaction costs and potentially higher taxes,
which are not reflected in Total Annual Fund Operating Expenses or in the
Example, affect the Fund’s performance. During the fiscal period from May 2,
2023 (commencement of operations) through August 31, 2023, the Fund’s portfolio
turnover rate was 15.1% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that blends active and
passive investment strategies to optimize costs, tracking and potential return
over the Fund’s benchmark index, the S&P Classic ADR Composite Index (the
“Benchmark Index”). Under normal market conditions, the
Fund will invest at least 80% of its net assets (plus any borrowings for
investment purposes) in equity securities of non-U.S. companies with varying
market capitalizations. The Benchmark Index is a broad-based
index that seeks to track the American depositary receipts (“ADRs”) trading on
the New York Stock Exchange (“NYSE”), the NASDAQ Stock Market, LLC (“NASDAQ”),
and over-the-counter (“OTC”) in the United States, subject to size and liquidity
requirements. The Benchmark Index includes developed market and emerging market
countries. The sponsor of the Benchmark Index determines the composition of the
Benchmark Index and relative weightings of the securities in the Benchmark Index
and publishes information regarding the market
value
of the Benchmark Index. Neither the Fund nor the Adviser is affiliated with the
sponsor of the Benchmark Index. The Benchmark Index measures the float-adjusted
market capitalization weighted performance. To be eligible for Benchmark Index
inclusion, a company must have a level II or III ADR program, New York Shares or
Global Registered Shares listed with the NYSE or NASDAQ, or have a Level 1 ADR
program traded OTC. Additionally, stocks must have been continuously trading for
at least three months to be eligible for inclusion in the Benchmark Index. All
stocks meeting the eligibility criteria are selected for Benchmark Index
inclusion. Constituents are weighted by float-adjusted market capitalization and
the index is rebalanced quarterly. The Fund may also utilize a strategic beta
investment strategy for a portion of the Fund’s active investment allocation.
The ratio of the Fund’s assets that are allocated to active versus passive
investment strategies is determined by Envestnet Asset Management, Inc., the
Fund’s investment adviser (the “Adviser”), and is based on a variety of factors,
including the Adviser’s proprietary research that looks at the likelihood of
active managers outperforming or underperforming within the asset classes in
which the Fund invests, the Adviser’s research and due diligence on available
investment sub-advisers (each, a “Sub-Adviser”) within the different asset
classes in which the Fund invests and the Adviser’s assessment of how different
Sub-Advisers will contribute to overall Fund performance. The Adviser also
considers academic research on factor investing, which is an investment approach
that involves selecting securities based on attributes associated with higher
returns, and the long-term performance of factor investing with established
style factors across the asset classes in which the Fund invests. Historically
the Adviser has found that international developed companies are more researched
and established than emerging market companies. This makes the market for
international developed companies more efficient due to the availability of
information and therefore, there are fewer opportunities to find market
mispricings that may arise when the Adviser or a Sub-Adviser determines that a
security’s price does not reflect the fundamental value of the security. The
Adviser generally employs more active management in its allocations to investing
in emerging markets because those companies are generally less mature and less
researched and uses more passive management for investing in developed markets
as they tend to be more mature and more accurately valued. The
portion of the Fund’s investment portfolio that is actively managed by the
Sub-Advisers and Adviser will range from 30% to 80% of the Fund’s net assets and
is expected to shift over time as economic conditions change and the available
information about the asset classes in which the Fund invests evolves. The
remaining portion of the Fund’s portfolio will be allocated to the passive
investment strategy. The Adviser will generally rebalance the Fund’s portfolio
between the active and passive investment strategies on an annual basis but may
rebalance the portfolio more frequently if market conditions warrant or the
allocation between active and passive drifts significantly from the target
allocation.
The
Fund’s investment in equity securities may include common stock and preferred
stock of companies that are either domiciled or have their primary operations
outside the United States. The Fund may invest in companies located in non-U.S.
developed markets and in companies located in emerging markets. The Adviser
considers a country to be an emerging market country if companies domiciled in
that country are represented in the S&P Emerging Classic ADR Index. Under
normal market conditions the Fund will only invest in ADRs for exposure to
securities of non-U.S. companies.
The
Adviser is responsible for developing, constructing and monitoring the asset
allocation and portfolio strategy for the Fund and will quantitatively manage
the passive and strategic beta portions of the Fund’s investment portfolio.
Quantitative
investing, also known as systematic investing, is an investment approach that
uses mathematical modeling, computer systems and data analysis to evaluate a
specific universe of potential investments. Quantitative investing uses data to
build portfolios that either attempt to track an index or provide exposure to
specific investment style factors.
The Adviser’s quantitative strategy with respect to the passive allocation of
the Fund seeks to provide investment results that, before expenses, correspond
to the performance of the S&P Developed Markets Classic ADR Index (the
“Underlying Index”). The Adviser manages the passive allocation utilizing a
representative sampling strategy, meaning that the Fund may not
purchase
all of the securities represented in the Underlying Index, but it will attempt
to construct the passive allocation of the Fund to hold a portfolio of
securities that, in the aggregate, have risk, return and quality characteristics
that resemble the risk, return and quality characteristics of the Underlying
Index. As part of the passive allocation, the Fund may invest in
passively-managed ETFs in trying to construct the passive allocation to track
the Underlying Index. The Underlying Index seeks to track the developed
market
ADRs trading on the NYSE, NASDAQ, and OTC in the United States,
subject to size and liquidity requirements. The sponsor of the Underlying Index
determines the composition of the Underlying Index and relative weightings of
the securities in the Underlying Index and publishes information regarding the
market value of the Underlying Index. Neither the Fund nor the Adviser is
affiliated with the sponsor of the Underlying Index. The Underlying Index
measures the float-adjusted market capitalization weighted performance. To be
eligible for Underlying Index inclusion, a company must have a level II or III
ADR program, New York Shares or Global Registered Shares listed with the NYSE or
NASDAQ, or have a Level 1 ADR program traded OTC. Additionally, stocks must have
been continuously trading for at least three months to be eligible for inclusion
in the Underlying Index. All stocks meeting the eligibility criteria are
selected for Underlying Index inclusion. Constituents are weighted by
float-adjusted market capitalization and the Underlying Index rebalanced
quarterly.
Strategic
beta investing involves screening the Fund’s investment universe for securities
with specified characteristics that the Adviser believes offer opportunities for
better returns. The Fund’s strategic beta allocation emphasizes exposure to
investment style factors, including but not limited to value, momentum and
quality, that academic research has linked to higher expected returns. Value
investing aims
to capture excess returns from stocks that have low prices relative to their
fundamental value. This is commonly tracked by price to book, price to earnings,
dividends, and free cash flow. Momentum investing employs the thesis that stocks
that have outperformed in the past tend to exhibit strong returns for a period
of time going forward. Quality investing is often captured through exposure to
companies having low debt, stable earnings, consistent asset growth, and strong
corporate governance. Quality stocks are identified by using common financial
metrics like a return on equity, debt to equity and earnings variability.
The
combined active, passive and strategic beta allocations in the Fund’s portfolio
will have similar characteristics (e.g.,
average market capitalization and region exposure) to the Benchmark Index.
The
Adviser also believes that the Fund’s reward and risk characteristics can be
enhanced by employing one or more Sub-Advisers, with complementary styles and
approaches, who actively manage distinct segments of a market, asset class or
investment style for the Fund. The Fund currently employs two Sub-Advisers to
manage the Fund’s qualitative active allocation, AllianceBernstein L.P.
(“AllianceBernstein”) and Causeway Capital Management LLC (“Causeway”).
AllianceBernstein manages a sleeve of the Fund’s qualitative active allocation
by seeking to invest in high-quality large- and mid-cap ADRs that generate
consistent revenue and demonstrate stable earnings growth potential. Causeway
will utilize an international value ADR strategy that seeks long-term growth of
capital by utilizing a “value” investing style, which targets stocks that
Causeway believes are trading at a lower price than their true value. Typical
value characteristics Causeway will consider in evaluating investments for the
Fund include low price-to-earnings ratio relative to the sector, high yield
relative to the market, low price-to-book value ratio relative to the market,
low price-to-cash flow ratio relative to the market, and financial strength.
Causeway will generally invest in companies with market capitalizations of US$5
billion or greater at the time of investment. The Sub-Advisers generally rely on
detailed proprietary research and actively focus on the sectors and securities
they believe are undervalued relative to the market. The Sub‑Advisers will
actively trade the portion of the Fund’s investment portfolio they manage, and
the Fund may experience a high portfolio turnover rate. In selecting securities
for investment, the Sub-Advisers typically:
•Use
in-depth fundamental research to identify sectors and securities for potential
investment and to analyze risk;
•Exploit
inefficiencies in the valuation of risk and reward;
•Look
to capitalize on rapidly shifting market risks and dynamics caused by economic
and technical factors; and
•Consider the liquidity of securities and the portfolio overall as an
important factor in portfolio construction.
Principal Risks of Investing in
the Fund
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with those of other funds. As with any investment,
there is a risk that you could lose all or a portion of your investment in the
Fund. Some or all of these risks may adversely affect the Fund’s
net asset value (“NAV”), trading price, yield, total return and/or ability to
meet its investment objective. The following additional risks could affect the
value of your investment, and are ordered alphabetically rather than by
importance. You should understand these risks before investing. For more
information about the risks of investing in the Fund, see the section in the
Fund’s Prospectus titled “Fund Details — Principal Risks.” The principal risks
of investing in the Fund are:
•Active
Management Risk. For
the Fund’s active allocation, active management by the Adviser and Sub-Advisers
in selecting and maintaining a portfolio of securities that will achieve the
Fund’s investment objective could cause the Fund to underperform compared to
other funds having similar investment objectives.
•Asset
Class Risk.
Securities and other assets in the Fund’s portfolio may underperform in
comparison to the general financial markets, a particular financial market or
other asset classes.
•Calculation
Methodology Risk. Quantitative
modeling used may not accurately predict future market movements or
characteristics, which may negatively affect performance. Models may also
perform differently than expected due to implementation problems, technological
malfunction, or programming or data inaccuracies, among other possible
issues.
•Cybersecurity
Risk. With
the increased use of technologies such as the Internet to conduct business, the
Fund is susceptible to operational, information security, and related risks.
Cyber incidents affecting the Fund or its service providers may cause
disruptions and impact business operations, potentially resulting in financial
losses, interference with the Fund’s ability to calculate its NAV, impediments
to trading, the inability of shareholders to transact business, violations of
applicable privacy and other laws, regulatory fines, penalties, reputational
damage, reimbursement or other compensation costs, or additional compliance
costs.
•Emerging
Markets Risk.
Countries in emerging markets are generally more volatile and can have
relatively unstable governments, social and legal systems that do not protect
shareholders, economies based on only a few industries, and securities markets
that trade a small number of issues. Emerging market securities may be subject
to relatively more abrupt and severe price declines due to the smaller
securities markets, lower trading volumes and less government regulation of
securities markets in emerging market countries compared to those in developed
countries. Investments in emerging market securities generally are more illiquid
and volatile and subject to a higher risk of settlement disruptions than
investments in securities of issuers in developed
countries.
•Equity
Securities Risk. Common
stocks are susceptible to general stock market fluctuations and to volatile
increases and decreases in value as market confidence in and perceptions of
their issuers change. Preferred stocks are subject to the risk that the dividend
on the stock may be changed or omitted by the issuer, and that participation in
the growth of an issuer may be limited.
•ETF
Investment Risk.
The Fund’s investment in shares of ETFs subjects it to the risks of owning the
securities underlying the ETF, as well as the same structural risks faced by an
investor purchasing shares of the Fund, including authorized participant
concentration risk, market maker risk, premium/discount risk and trading issues
risk. As a shareholder in another ETF, the Fund bears its proportionate share of
the ETF’s expenses, subjecting Fund shareholders to duplicative
expenses.
•ETF
Risk.
The Fund is an ETF and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk.
The Fund has a limited number of financial institutions that may act as
Authorized Participants (“APs”). In addition, there may be a limited number of
market makers and/or liquidity providers in the marketplace. To the extent
either of the following events occur, Shares may trade at a material discount to
NAV and possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their
functions.
◦Cash
Redemption Risk. The
Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. The Fund may be
required to sell or unwind portfolio investments to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to realize a capital
gain that it might not have realized if it had made a redemption in-kind. As a
result, the Fund may pay out higher annual capital gain distributions than if
the in-kind redemption process was used. To the extent that the transaction fees
charged for redemptions of creation units is insufficient to cover the Fund’s
transaction costs of selling portfolio securities, the Fund’s performance could
be negatively impacted.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and 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
May Trade at Prices Other Than NAV. As with all ETFs, Shares may be bought and sold in the secondary
market at market prices. As a result, investors in the Fund may pay
significantly more or receive significantly less for Shares than the Fund’s NAV.
Although it is expected that the market price of Shares will approximate the
Fund’s NAV, there may be times when the market price of Shares is more than the
NAV intra-day (premium) or less than the NAV intra-day (discount) due to supply
and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be
significant.
◦Trading.
Although Shares are listed for trading on the NYSE Arca, Inc. (the “Exchange”)
and may be traded on U.S. exchanges other than the Exchange, there can be no
assurance that Shares will trade
with
any volume, or at all, on any stock exchange. In stressed market conditions, the
liquidity of Shares may begin to mirror the liquidity of the Fund’s underlying
portfolio holdings, which can be significantly less liquid than Shares. This
could lead to the Fund’s shares trading at a price that is higher or lower than
the Fund’s NAV.
•Foreign
Securities Risk. Non-U.S.
securities are subject to risks relating to political, social and economic
developments abroad and differences between U.S. and foreign regulatory
requirements and market practices. Issuers of foreign securities may not be
required to provide operational or financial information that is as timely or
reliable as those required for issuers of U.S. securities. The income or
dividends earned on foreign securities may be subject to foreign withholding
taxes.
•High
Portfolio Turnover Rate Risk. The
Fund may have a relatively high turnover rate compared to many registered funds.
A high portfolio turnover rate (100% or more) has the potential to result in
increased brokerage transaction costs which may lower the Fund’s returns.
Furthermore, a high portfolio turnover rate may result in the realization by the
Fund, and distribution to shareholders, of a greater amount of capital gains,
including short-term capital gains, than if the Fund had a low portfolio
turnover rate. Distributions to shareholders of short-term capital gains are
taxed as ordinary income under federal income tax laws. This could result in a
higher tax liability and may lower an investor’s after-tax
return.
•Index-Related
Risk. A
portion of the Fund may use a passive investment approach and may be affected by
a general decline in market segments or asset classes relating to the Underlying
Index. The Fund invests the passive allocation of its portfolio in securities
and instruments intended to track the performance of the Underlying Index
regardless of the investment merits of the securities included in the Underlying
Index. Generally, the index provider does not provide any warranty, or accept
any liability, with respect to the quality, accuracy, or completeness of either
the Underlying Index or its related data.
•Management
Risk. The
ability of the Fund to meet its investment objective is directly related to the
ability of the Adviser and Sub-Advisers to implement the investment strategies
for the Fund. The value of your investment in the Fund may vary with the
effectiveness of the Adviser’s and Sub-Advisers’ research, analysis and asset
allocation among portfolio securities and asset allocation between the Fund’s
active and passive investment strategies. If the Adviser’s and Sub-Advisers’
investment strategies do not produce the expected results, your investment could
be diminished or even lost.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing. The
securities of large-capitalization companies may be relatively mature compared
to smaller companies and therefore subject to slower growth during times of
economic expansion. Large-capitalization companies may also be unable to respond
quickly to new competitive challenges, such as changes in technology and
consumer tastes.
◦Mid-Capitalization
Investing.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of small-capitalization
companies generally trade in
lower volumes and are subject to greater and more unpredictable price
changes than large- or mid-capitalization stocks or the stock market as a whole.
There is typically less publicly available information concerning
smaller-capitalization companies than for larger, more established
companies.
•Market
Risk.
The trading prices of the Fund’s investments fluctuate in response to a variety
of factors. The Fund’s NAV and market price may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time.
•Market
Trading Risk. Active trading markets for Shares may not be developed or maintained
by market makers or APs. APs are not obligated to make a market in the Shares or
to submit purchase or redemption orders for creation units. Trading in Shares on
an exchange may be halted in certain circumstances.
•New
Fund Risk. The Fund is a recently organized, management investment company
with a limited operating history. As a result, prospective investors have a
limited track record on which to base their investment decision. There is also a
risk that the Fund will not grow to or maintain an economically viable size, in
which case it could ultimately liquidate without shareholder
approval.
•Preferred
Stock Risk.
Preferred stock is subject to the risk that the dividend on the stock may be
changed or omitted by the issuer, and that participation in the growth of an
issuer may be limited.
•Recent
Market Events Risk.
U.S. and international markets have experienced and may continue to experience
volatility in recent months and years due to a number of economic, political and
global macro factors including uncertainty regarding inflation and central
banks’ interest rate increases, the possibility of a national or global
recession, trade tensions, political events, the war between Russia and Ukraine,
significant conflict between Israel and Hamas in the Middle East, and the impact
of the coronavirus (COVID-19) global pandemic. The impact of COVID-19 may last
for an extended period of time. As a result of continuing political tensions and
armed conflicts, including the war between Ukraine and Russia, the U.S. and the
European Union imposed sanctions on certain Russian individuals and companies,
including certain financial institutions, and have limited certain exports and
imports to and from Russia. The war has contributed to recent market volatility
and may continue to do so. Continuing market volatility as a result of recent
market conditions or other events may have an adverse effect on the performance
of the Fund.
•Tracking
Error Risk.
The performance of the passive allocation of the Fund and the Underlying Index
may differ from each other for a variety of reasons. For example, the Fund
incurs operating expenses and portfolio transaction costs not incurred by the
Underlying Index. In addition, the passive allocation of the Fund may not be
fully invested in the securities of the Underlying
Index.
Performance
When the Fund has
been in operation for a full calendar year, performance information will be
shown in the Prospectus and will give some indication of the risks of investing
in the Fund by comparing the Fund’s performance with a broad measure of market
performance. Updated performance information is available on the
Fund’s website at www.activepassive.com
or by calling the Fund toll-free at 1-800-617-0004.
Management
Investment
Adviser and Sub-Advisers.
Envestnet Asset Management, Inc. is the Fund’s investment adviser.
AllianceBernstein LP and Causeway Capital Management LLC serve as the Fund’s
Sub-Advisers.
Portfolio
Managers.
The Fund is managed by the following team of portfolio managers:
|
|
|
|
|
|
|
| |
Portfolio
Manager |
Years
of Service
with
the Fund |
Primary
Title |
Brandon
R. Thomas |
Since
March 2023 |
Managing
Director, Co-Founder and Chief Investment Officer of the
Adviser |
Janis
Zvingelis Ph.D., CFA |
Since
March 2023 |
Senior
Vice President, Director of Quantitative Research of the
Adviser |
Gregory
Classen, CFA |
Since
March 2023 |
Senior
Vice President, Senior Portfolio Manager of the Adviser |
Timothy
Murphy |
Since
March 2023 |
Vice
President, Senior Portfolio Manager of the Adviser |
Dev
Chakrabarti |
Since
March 2023 |
Co-CIO
– Concentrated Global Growth of AllianceBernstein |
Sarah
Ketterer |
Since
March 2023 |
Chief
Executive Officer and Fundamental Portfolio Manager of
Causeway |
Harry
Hartford |
Since
March 2023 |
President
and Fundamental Portfolio Manager of Causeway |
Jonathan
Eng |
Since
March 2023 |
Fundamental
Portfolio Manager of Causeway |
Conor
Muldoon |
Since
March 2023 |
Fundamental
Portfolio Manager of Causeway |
Alessandro
Valentini |
Since
March 2023 |
Fundamental
Portfolio Manager of Causeway |
Ellen
Lee |
Since
March 2023 |
Fundamental
Portfolio Manager of Causeway |
Steven
Nguyen |
Since
March 2023 |
Fundamental
Portfolio Manager of Causeway |
Brian
Woonhyung Cho |
Since
March 2023 |
Fundamental
Portfolio Manager of Causeway |
For
important information about the purchase and sale of Fund shares, tax
information and financial intermediary compensation, please turn to “Purchase
and Sale of Fund Shares, Taxes and Financial Intermediary Compensation” on page
33.
Investment
Objective
The
investment objective of the ActivePassive U.S. Equity ETF (“U.S. Equity ETF” or
the “Fund”) is to provide long term capital
appreciation.
Fees and Expenses of the
Fund
This
table describes the fees and expenses that you may pay if you buy, hold and sell
shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
|
|
|
|
| |
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment) |
|
Management
Fees |
0.30% |
Other
Expenses(1) |
0.00% |
Acquired
Fund Fees and Expenses(1)(2) |
0.03% |
Total
Annual Fund Operating Expenses |
0.33% |
(1)Estimated for the Fund’s
current fiscal year.
(2)Acquired Fund Fees
and Expenses (“AFFE”) are the indirect costs of investing in other investment
companies. Total Annual Fund Operating Expenses do not correlate to thew ratio
of expenses to average net assets in the Fund’s Financial Highlights because the
Financial Highlights include only the direct operating expenses incurred by the
Fund and exclude AFFE.
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 hold or
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. The Example does not take into account brokerage
commissions that you may pay on your purchases and sales of
Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would
be:
|
|
|
|
| |
One
Year |
Three
Years |
$34 |
$106 |
Portfolio
Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Shares are
held in a taxable account. These transaction costs and potentially higher taxes,
which are not reflected in Total Annual Fund Operating Expenses or in the
Example, affect the Fund’s performance. During the fiscal period from May 2,
2023 (commencement of operations) through August 31, 2023, the Fund’s portfolio
turnover rate was 8.9% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that blends active and
passive investment strategies to optimize costs, tracking and potential return
over the Fund’s benchmark index, the CRSP U.S. Total Market Index (the
“Benchmark Index”). Under normal
market conditions, the Fund will invest at least 80% of its net assets (plus any
borrowings for investment purposes) in equity securities of U.S. companies
included in the Benchmark Index. The Benchmark Index captures broad U.S. equity
market coverage and includes securities traded on NYSE, NYSE American, NYSE
ARCA, NASDAQ, Bats Global Markets, and
the Investors Exchange. The sponsor of the
Benchmark Index determines the composition of the Benchmark Index and relative
weightings of the securities in the Benchmark Index and publishes information
regarding the market value of the Benchmark Index. Neither the Fund nor the
Adviser is affiliated with the sponsor of the Benchmark Index. The Benchmark
Index includes nearly 4,000 constituents across mega, large, small and micro
capitalizations, representing nearly 100% of the U.S. investable equity market.
To be eligible for Benchmark Index inclusion, a company must have more than $15
million in total market capitalization, the company’s float shares must be
greater than 12.5% of the total shares outstanding, the average of the adjusted
trading volume over the last 125 days divided by float shares on the ranking
date must be at least 0.0008, and the company must satisfy consecutive trading
day requirements. The Benchmark Index is weighted according to free-float market
capitalization and is recalculated quarterly. The Fund may also utilize a
strategic beta strategy for a portion of the Fund’s active investment portfolio.
The Adviser will generally rebalance the Fund’s portfolio between the active and
passive investment strategies on an annual basis but may rebalance the portfolio
more frequently if market conditions warrant or the allocation between active
and passive drifts significantly from the target allocation.
Historically
Envestnet Asset Management, Inc., the Fund’s investment adviser (the “Adviser”),
has found that large cap companies in the U.S. are more researched and attract
more scrutiny and research coverage than smaller capitalization companies. The
Adviser will generally allocate more to active management for investments in
smaller companies and use more passive management for larger companies. The
portion of the Fund’s investment portfolio that is actively-managed by the
Adviser will range from 15% to 65% of the Fund’s net assets and is expected to
shift over time as economic conditions change and the available information
about the asset classes in which the Fund invests evolves. The remaining portion
of the Fund’s portfolio will be allocated to the passive strategy. The Fund will
invest at least 60% of its net assets in equity securities of U.S. companies
with large market capitalizations. The Fund’s investment in equity securities
may include common stock and preferred stock.
The
Adviser will quantitatively manage the passive and strategic beta portion of the
Fund’s investment portfolio. Quantitative investing, also known as systematic
investing, is an investment approach that uses mathematical modeling, computer
systems and data analysis to evaluate a specific universe of potential
investments. Quantitative investing uses data to build portfolios that either
attempt to track an index or provide exposure to specific investment style
factors. The Adviser’s quantitative strategy with respect to the Fund seeks to
construct the passive allocation of the portfolio to provide investment results
that, before expenses, correspond to the price and performance of the CRSP U.S.
Large Cap Index (the “Underlying Index”). The sponsor of the Underlying Index
determines the composition of the Underlying Index and relative weightings of
the securities in the Underlying Index and publishes information regarding the
market value of the Underlying Index. Neither the Fund nor the Adviser is
affiliated with the sponsor of the Underlying Index. The Underlying Index
includes mega and large U.S. companies that comprise the top 85% of investable
market capitalization and represents the top 85% by market capitalization of the
Benchmark Index. The Underlying Index captures broad U.S. equity market coverage
and includes securities traded on NYSE, NYSE American, NYSE ARCA, NASDAQ, Bats
Global Markets, and the Investors Exchange. The Underlying Index is weighted
according to free-float market capitalization and is recalculated quarterly. The
Adviser manages the passive allocation utilizing a representative sampling
strategy, meaning that the Fund may not purchase all of the securities
represented in the Underlying Index, but it will attempt to construct the
passive allocation of the Fund to hold a portfolio of securities that, in the
aggregate, have risk, return and quality characteristics that resemble the risk,
return and quality characteristics of the Underlying Index. As part of the
passive allocation, the Fund may invest in passively-managed ETFs in trying to
construct the passive allocation to track the Underlying
Index.
Strategic
beta investing involves screening the Fund’s investment universe for securities
with specified characteristics that the Adviser believes offer opportunities for
better returns. Strategic beta is a quantitative approach that emphasizes
exposure to investment style factors, such as value, momentum and quality, that
academic research has linked to higher expected returns. For the strategic beta
portion of the Fund’s portfolio, the Adviser will generally invest in large
capitalization stocks and ETFs that primarily invest in small capitalization
stocks. Investing in ETFs that provide exposure to small capitalization stocks
will give the Fund exposure to a distinct asset class from the rest of the
Fund’s portfolio with a unique risk profile. Value investing aims to capture
excess returns from stocks that have low prices relative to their fundamental
value. This is commonly tracked by price to book, price to earnings, dividends,
and free cash flow. Momentum investing employs the thesis that stocks that have
outperformed in the past tend to exhibit strong returns for a period of time
going forward. Quality investing is often captured through exposure to companies
having low debt, stable earnings, consistent asset growth, and strong corporate
governance. Quality stocks are identified by using common financial metrics like
a return to equity, debt to equity and earnings variability. The combined active
and passive allocations will have similar characteristics (e.g.,
average market capitalization) to the Benchmark Index.
The
Adviser believes that the Fund’s reward and risk characteristics can be enhanced
by employing one or more investment sub-advisers (each, a “Sub-Adviser”), with
complementary styles and approaches, who actively manage distinct segments of a
market, asset class or investment style for the Fund. The Fund does not
currently employ any Sub-Advisers to manage a portion of the Fund’s qualitative
active allocation, but it may employ one or more Sub-Advisers in the
future.
Principal Risks of Investing in
the Fund
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with those of other funds. As with any investment,
there is a risk that you could lose all or a portion of your investment in the
Fund. Some or all of these risks may adversely affect the Fund’s
net asset value (“NAV”), trading price, yield, total return and/or ability to
meet its investment objective. The following additional risks could affect the
value of your investment, and are ordered alphabetically rather than by
importance. You should understand these risks before investing. For more
information about the risks of investing in the Fund, see the section in the
Fund’s Prospectus titled “Fund Details — Principal Risks.” The principal risks
of investing in the Fund are:
•Active
Management Risk. For
the Fund’s active allocation, active management by the Adviser in selecting and
maintaining a portfolio of securities that will achieve the Fund’s investment
objective could cause the Fund to underperform compared to other funds having
similar investment objectives.
•Asset
Class Risk.
Securities and other assets in the Fund’s portfolio may underperform in
comparison to the general financial markets, a particular financial market or
other asset classes.
•Calculation
Methodology Risk. Quantitative
modeling used may not accurately predict future market movements or
characteristics, which may negatively affect performance. Models may also
perform differently than expected due to implementation problems, technological
malfunction, or programming or data inaccuracies, among other possible
issues.
•Cybersecurity
Risk. With
the increased use of technologies such as the Internet to conduct business, the
Fund is susceptible to operational, information security, and related risks.
Cyber incidents affecting the Fund or its service providers may cause
disruptions and impact business operations, potentially resulting in financial
losses, interference with the Fund’s ability to calculate its NAV, impediments
to trading, the inability of shareholders to transact business, violations of
applicable privacy and other laws, regulatory
fines,
penalties, reputational damage, reimbursement or other compensation costs, or
additional compliance costs.
•Equity
Securities Risk. Common
stocks are susceptible to general stock market fluctuations and to volatile
increases and decreases in value as market confidence in and perceptions of
their issuers change. Preferred stocks are subject to the risk that the dividend
on the stock may be changed or omitted by the issuer, and that participation in
the growth of an issuer may be limited.
•ETF
Investment Risk.
The Fund’s investment in shares of ETFs subjects it to the risks of owning the
securities underlying the ETF, as well as the same structural risks faced by an
investor purchasing shares of the Fund, including authorized participant
concentration risk, market maker risk, premium/discount risk and trading issues
risk. As a shareholder in another ETF, the Fund bears its proportionate share of
the ETF’s expenses, subjecting Fund shareholders to duplicative
expenses.
•ETF
Risk.
The Fund is an ETF and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk.
The Fund has a limited number of financial institutions that may act as
Authorized Participants (“APs”). In addition, there may be a limited number of
market makers and/or liquidity providers in the marketplace. To the extent
either of the following events occur, Shares may trade at a material discount to
NAV and possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their
functions.
◦Cash
Redemption Risk. The
Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. The Fund may be
required to sell or unwind portfolio investments to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to realize a capital
gain that it might not have realized if it had made a redemption in-kind. As a
result, the Fund may pay out higher annual capital gain distributions than if
the in-kind redemption process was used. To the extent that the transaction fees
charged for redemptions of creation units is insufficient to cover the Fund’s
transaction costs of selling portfolio securities, the Fund’s performance could
be negatively impacted.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and 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
May Trade at Prices Other Than NAV. As with all ETFs, Shares may be bought and sold in the secondary
market at market prices. As a result, investors in the Fund may pay
significantly more or receive significantly less for Shares than the Fund’s NAV.
Although it is expected that the market price of Shares will approximate the
Fund’s NAV, there may be times when the market price of Shares is more than the
NAV intra-day (premium) or less than the NAV intra-day (discount) due to supply
and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be
significant.
◦Trading.
Although Shares are listed for trading on the NYSE Arca, Inc. (the “Exchange”)
and may be traded on U.S. exchanges other than the Exchange, there can be no
assurance that Shares will trade with any volume, or at all, on any stock
exchange. In stressed market conditions, the liquidity of Shares may begin to
mirror the liquidity of the Fund’s underlying portfolio holdings, which can be
significantly less liquid than Shares. This could lead to the Fund’s shares
trading at a price that is higher or lower than the Fund’s
NAV.
•High
Portfolio Turnover Rate Risk. The
Fund may have a relatively high turnover rate compared to many registered funds.
A high portfolio turnover rate (100% or more) has the potential to result in
increased brokerage transaction costs which may lower the Fund’s returns.
Furthermore, a high portfolio turnover rate may result in the realization by the
Fund, and distribution to shareholders, of a greater amount of capital gains,
including short-term capital gains, than if the Fund had a low portfolio
turnover rate. Distributions to shareholders of short-term capital gains are
taxed as ordinary income under federal income tax laws. This could result in a
higher tax liability and may lower an investor’s after-tax
return.
•Index-Related
Risk. A
portion of the Fund may use a passive investment approach and may be affected by
a general decline in market segments or asset classes relating to the Underlying
Index. The Fund invests the passive allocation of its portfolio in securities
and instruments intended to track the performance of the Underlying Index
regardless of the investment merits of the securities included in the Underlying
Index. Generally, the index provider does not provide any warranty, or accept
any liability, with respect to the quality, accuracy, or completeness of either
the Underlying Index or its related data.
•Management
Risk. The
ability of the Fund to meet its investment objective is directly related to the
ability of the Adviser to implement the investment strategies for the Fund. The
value of your investment in the Fund may vary with the effectiveness of the
Adviser’s research, analysis and asset allocation among portfolio securities and
asset allocation between the Fund’s active and passive investment strategies. If
the Adviser’s investment strategies do not produce the expected results, your
investment could be diminished or even lost.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing. The
securities of large-capitalization companies may be relatively mature compared
to smaller companies and therefore subject to slower growth during times of
economic expansion. Large-capitalization companies may also be unable to respond
quickly to new competitive challenges, such as changes in technology and
consumer tastes.
◦Mid-Capitalization
Investing.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole.
◦Small-Capitalization
Investing. The securities of small-capitalization companies may be more
vulnerable to adverse issuer, market, political, or economic developments than
securities of large- or mid-capitalization companies. The securities of
small-capitalization companies generally trade in lower volumes and are subject
to greater and more unpredictable price changes than large- or
mid-capitalization stocks or the stock market as a whole. There is typically
less publicly available information concerning smaller-capitalization companies
than for larger, more established companies.
•Market
Risk.
The trading prices of the Fund’s investments fluctuate in response to a variety
of factors. The Fund’s NAV and market price may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time.
•Market
Trading Risk. Active trading markets for Shares may not be developed or maintained
by market makers or APs. APs are not obligated to make a market in the Shares or
to submit purchase or redemption orders for creation units. Trading in Shares on
an exchange may be halted in certain circumstances.
•New
Fund Risk. The Fund is a recently organized, management investment company
with a limited operating history. As a result, prospective investors have a
limited track record on which to base their investment decision. There is also a
risk that the Fund will not grow to or maintain an economically viable size, in
which case it could ultimately liquidate without shareholder
approval.
•Preferred
Stock Risk.
Preferred stock is subject to the risk that the dividend on the stock may be
changed or omitted by the issuer, and that participation in the growth of an
issuer may be limited.
•Recent
Market Events Risk.
U.S. and international markets have experienced and may continue to experience
volatility in recent months and years due to a number of economic, political and
global macro factors including uncertainty regarding inflation and central
banks’ interest rate increases, the possibility of a national or global
recession, trade tensions, political events, the war between Russia and Ukraine,
significant conflict between Israel and Hamas in the Middle East, and the impact
of the coronavirus (COVID-19) global pandemic. The impact of COVID-19 may last
for an extended period of time. As a result of continuing political tensions and
armed conflicts, including the war between Ukraine and Russia, the U.S. and the
European Union imposed sanctions on certain Russian individuals and companies,
including certain financial institutions, and have limited certain exports and
imports to and from Russia. The war has contributed to recent market volatility
and may continue to do so. Continuing market volatility as a result of recent
market conditions or other events may have an adverse effect on the performance
of the Fund.
•Tracking
Error Risk.
The performance of the passive allocation of the Fund and the Underlying Index
may differ from each other for a variety of reasons. For example, the Fund
incurs operating expenses and portfolio transaction costs not incurred by the
Underlying Index. In addition, the passive allocation of the Fund may not be
fully invested in the securities of the Underlying
Index.
Performance
When the Fund has
been in operation for a full calendar year, performance information will be
shown in the Prospectus and will give some indication of the risks of investing
in the Fund by comparing the Fund’s performance with a broad measure of market
performance. Updated performance information is available on the
Fund’s website at www.activepassive.com
or by calling the Fund toll-free at 1-800-617-0004.
Management
Investment
Adviser.
Envestnet Asset Management, Inc. is the Fund’s investment adviser.
Portfolio
Managers.
The Fund is managed by the following team of portfolio managers:
|
|
|
|
|
|
|
| |
Portfolio
Manager |
Years
of Service
with
the Fund |
Primary
Title |
Brandon
R. Thomas |
Since
March 2023 |
Managing
Director, Co-Founder and Chief Investment Officer of the
Adviser |
Janis
Zvingelis Ph.D., CFA |
Since
March 2023 |
Senior
Vice President, Director of Quantitative Research of the
Adviser |
Gregory
Classen, CFA |
Since
March 2023 |
Senior
Vice President, Senior Portfolio Manager of the Adviser |
Timothy
Murphy |
Since
March 2023 |
Vice
President, Senior Portfolio Manager of the
Adviser |
For
important information about the purchase and sale of Fund shares, tax
information and financial intermediary compensation, please turn to “Purchase
and Sale of Fund Shares, Taxes and Financial Intermediary Compensation” on page
33.
Purchase
and Sale of Shares
Each
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Funds generally issue and redeem Creation Units in exchange for a portfolio of
securities closely approximating the holdings of the Funds (the “Deposit
Securities”) and/or a designated amount of U.S. cash.
Shares
are listed on the Exchange, and individual Shares may only be purchased and sold
in the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. This difference in bid and
asked prices is often referred to as the “bid-ask spread”. Because the Funds
have not commenced operations, the Funds do not have a sufficient trading
history to report trading information and related costs.
Recent
information about the Funds, including its NAV, market price, premiums and
discounts, and bid-ask spreads can also be found on the Funds’ website at
www.activepassive.com.
Tax
Information
Except
for the Intermediate Municipal Bond ETF, each Fund’s distributions will be taxed
as ordinary income or long-term capital gains, unless you are investing through
a tax-deferred or other tax-advantaged arrangement, such as a 401(k) plan or an
IRA. You may be taxed later upon withdrawal of monies from such tax-deferred or
other tax-advantaged arrangements.
Distributions
reported by the Intermediate Municipal Bond Fund as “exempt-interest dividends”
are exempt from regular federal income tax but may be subject to state or local
income taxes and may be tax preference items for purposes of the AMT.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (a “Financial Intermediary”), the Adviser or its affiliates may
pay the Financial Intermediary for certain activities related to the Funds,
including participation in activities that are designed to make Financial
Intermediaries more knowledgeable about exchange traded products, including the
Fund, or for other activities, such as marketing, educational training or other
initiatives related to the sale or promotion of Shares. These payments may
create a conflict of interest by influencing the Financial Intermediary and your
salesperson to recommend the Funds over another investment. Any such
arrangements do not result in increased Fund expenses. Ask your financial
adviser or visit the Financial Intermediary’s website for more
information.
The
Core Bond ETF seeks to provide current income consistent with low volatility of
principal. The Intermediate Municipal Bond ETF seeks to provide current income
that is exempt from federal income taxes consistent with low volatility of
principal. The International Equity ETF and the U.S. Equity ETF seek to provide
long-term capital appreciation. Each Fund’s investment objective is
non-fundamental and may be changed by the Board of Trustees of the Trust (the
“Board of Trustees”) without shareholder approval upon 60 days’ written notice
to shareholders. Except for the Intermediate Municipal Bond ETF, the Funds may
not make any change to their investment policy of investing at least 80% of net
assets in investments suggested by the Fund’s name without first changing the
Fund’s name and providing shareholders with at least 60 days’ prior written
notice. The Intermediate Municipal Bond ETF may not change its policy of
investing at least 80% of its net assets in investments suggested by the Fund’s
name without the approval of the Fund’s shareholders.
Temporary
Strategies.
The Funds may take temporary defensive measures in response to adverse market,
political or other conditions as determined by the Adviser. Such measures
include investments in: (1) highly liquid short-term fixed income securities
issued by or on behalf of municipal or corporate issuers, obligations of the
U.S. Government and its agencies, commercial paper and bank certificates of
deposit; (2) shares of other investment companies which have investment
objectives consistent with those of the Funds; (3) repurchase agreements
involving any such securities, and (4) money market funds or other money market
instruments. There is no limit on the extent to which the Funds may take
temporary defensive measures. In taking such measures, the Funds may fail to
achieve its investment objective.
The
Manager of Managers Approach.
The Adviser is responsible for developing, constructing and monitoring the asset
allocation and portfolio strategy for the Funds. To further achieve the
investment objectives of a Fund, the Adviser may utilize one or more
Sub-Advisers with expertise in various types of investment strategies using a
“manager of managers” approach. A Sub-Adviser may use a variety of investment
techniques to achieve a Fund’s investment objective. These techniques may change
over time as new instruments and techniques are introduced or as a result of
regulatory or market developments. The Adviser selects the Sub-Advisers for a
Fund, subject to approval by the Board of Trustees, and allocates the assets of
a Fund among its respective Sub-Advisers, as applicable. The Adviser reviews a
wide range of factors in evaluating each Sub-Adviser including, but not limited
to, past investment performance during various market conditions, investment
strategies and processes used, structures of portfolios and risk management
procedures, reputation, experience and training of key personnel, correlation of
results with other sub-advisers and assets under management.
Before
investing in the Funds, you should carefully consider your own investment goals,
the amount of time you are willing to leave your money invested, and the amount
of risk you are willing to take. Remember, in addition to possibly not achieving
your investment goals, you
could lose all or a portion of your investment in a Fund.
The Funds’ principal risks are presented in alphabetical order to facilitate
finding particular risks and comparing them with other funds. Each risk
summarized below is considered a “principal risk” of investing in a Fund, as
applicable, regardless of the order in which it appears. The number of risk
factors applicable to a Fund does not necessarily correlate to the overall risk
of an investment in that Fund. The principal risks of investing in the Funds
are:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Core
Bond ETF |
Intermediate
Municipal Bond ETF |
International
Equity ETF |
U.S.
Equity ETF |
Active
Management Risk |
ü |
ü |
ü |
ü |
Asset-Backed
and Mortgage-Backed Securities Risk |
ü |
— |
— |
— |
Asset
Class Risk |
ü |
ü |
ü |
ü |
Calculation
Methodology Risk |
ü |
ü |
ü |
ü |
Call
Risk |
ü |
ü |
— |
— |
CMOs
Risk |
ü |
ü |
— |
— |
CLOs
Risk |
ü |
ü |
— |
— |
Concentration
Risk |
— |
ü |
— |
— |
Credit
Risk |
ü |
ü |
— |
— |
Cybersecurity
Risk |
ü |
ü |
ü |
ü |
Debt
Securities Risk |
ü |
ü |
— |
— |
Emerging
Market Risk |
— |
— |
ü |
— |
Equity
Securities Risk |
— |
— |
ü |
ü |
ETF
Investment Risk |
ü |
ü |
ü |
ü |
ETF
Risk |
ü |
ü |
ü |
ü |
Floating
or Variable Rate Securities Risk |
ü |
x |
x |
x |
Foreign
Securities Risk |
ü |
— |
ü |
— |
High
Portfolio Turnover Risk |
ü |
ü |
ü |
ü |
High-Yield
Securities Risk |
ü |
ü |
— |
— |
Index-Related
Risk |
ü |
ü |
ü |
ü |
Interest
Rate Risk |
ü |
ü |
— |
— |
Liquidity
Risk |
ü |
ü |
— |
— |
Management
Risk |
ü |
ü |
ü |
ü |
Market
Capitalization Risk |
— |
— |
ü |
ü |
Market
Risk |
ü |
ü |
ü |
ü |
Market
Trading Risk |
ü |
ü |
ü |
ü |
Municipal
Securities Risk |
— |
ü |
— |
— |
New
Fund Risk |
ü |
ü |
ü |
ü |
Preferred
Stock Risk |
— |
— |
ü |
ü |
Prepayment
Risk |
ü |
ü |
— |
— |
Recent
Market Events Risk |
ü |
ü |
ü |
ü |
Rule
144A Securities Risk |
ü |
x |
x |
x |
Tax
Risk |
x |
ü |
x |
— |
Tracking
Error Risk |
ü |
ü |
ü |
ü |
U.S.
Government and U.S. Agency Obligations Risk |
ü |
ü |
— |
— |
Valuation
Risk |
ü |
ü |
— |
— |
ü Principal
risk
x Non-principal
risk
— Not
applicable
Active
Management Risk. For
each Fund’s active allocation, active management by the Adviser in selecting and
maintaining a portfolio of securities that will achieve a Fund’s investment
objective could cause a Fund to underperform compared to other funds having
similar investment objectives.
Asset-Backed
and Mortgage-Backed Securities Risk. Asset-backed
and mortgage-backed securities are subject to risk of prepayment. This is more
likely to occur when interest rates fall because many borrowers refinance
mortgages to take advantage of more favorable rates. Prepayments on mortgage-
backed securities are also affected by other factors, such as the volume of home
sales. A Fund’s yield will be reduced if cash from prepaid securities is
reinvested in securities with lower interest rates. The risk of prepayment may
also decrease the value of mortgage-backed securities. Asset-backed securities
may have a higher level of default and recovery risk than mortgage-backed
securities. However, both of these types of securities may decline in value
because of mortgage foreclosures or defaults on the underlying obligations.
Enforcing rights against the underlying assets or collateral may be difficult,
or the underlying assets or collateral may be insufficient if the issuer
defaults. The values of certain types of mortgage-backed securities, such as
inverse floaters and interest-only and principal-only securities, may be
extremely sensitive to changes in interest rates and prepayment rates.
Asset-backed and mortgage- backed securities are also subject to extension risk,
the risk that rising interest rates could cause prepayments to decrease,
extending the life of asset-backed and mortgage-backed securities with lower
payment rates. Mortgage-backed securities (“MBS”) generally are classified as
either commercial MBS (“CMBS”) or residential MBS (“RMBS”), each of which are
subject to certain specific risks. RMBS are subject to the risks generally
associated with fixed-income securities and mortgage-backed securities.
Delinquencies and defaults by borrowers in payments on the underlying mortgages,
and the related losses, are affected by general economic conditions, the
borrower’s equity in the mortgaged property and the borrower’s financial
circumstances. The market for CMBS developed more recently and is relatively
small compared to the market for RMBS. CMBS may lack standardized terms, have
shorter maturities than residential mortgage loans and may provide for payment
of all or substantially all of the principal only at maturity rather than
regular amortization of principal. Adverse changes in economic conditions and
circumstances are more likely to have an adverse impact on MBS secured by loans
on commercial properties than on those secured by loans on residential
properties.
Asset
Class Risk. Securities
and other assets in a Fund’s portfolio may underperform in comparison to the
general financial markets, a particular financial market or other asset
classes.
Calculation
Methodology Risk. Quantitative
modeling used may not accurately predict future market movements or
characteristics, which may negatively affect performance. Models may also
perform differently than expected due to implementation problems, technological
malfunction, or programming or data inaccuracies, among other possible
issues.
Call
Risk.
During periods of falling interest rates, an issuer of a callable fixed income
securities held by a Fund may “call” or repay the security before its stated
maturity, and a Fund may have to reinvest the proceeds at lower interest rates,
resulting in a decline in the Fund’s income.
CMOs
Risk. A
Fund may be affected by the credit risk of CMOs, which is the possibility that
the Fund will be less likely to receive payments of principal and interest, and
will be more likely to suffer a loss, if there are defaults on the mortgage
loans underlying the CMOs. This risk may be increased to the extent that the
underlying mortgages include sub-prime mortgages and in relation to the level of
subordination of the category of the CMOs held by a Fund. While CMO collateral
is typically issued by the Government National Mortgage Association (“GNMA”),
Federal National Mortgage Association (“FNMA”) or Federal Home Loan Mortgage
Corporation (“FHLMC”), the CMO itself may be issued by a private party, such as
a brokerage firm, that is not covered by government guarantees.
CLOs
Risk.
CLOs are a type of asset-backed security. CLOs are ordinarily issued by a trust
or other special purpose entity and are typically collateralized by a pool of
loans, which may include, among others, domestic and non-U.S. senior secured
loans, senior unsecured loans, and subordinate corporate loans, including loans
that may be rated below investment grade or equivalent unrated loans, held by
such issuer. Any collateral may be relatively illiquid or lose all or
substantially all of its value subsequent to investment. In the event of
bankruptcy of a borrower, a Fund could experience delays or limitations in
realizing the benefits of any collateral securing a loan.
Concentration
Risk. Because
a Fund’s assets will be concentrated in an industry or group of industries to
the extent the Index concentrates in a particular industry or group of
industries, the Fund is subject to loss due to adverse occurrences that may
affect that industry or group of industries. To the extent a Fund concentrates
in the securities of issuers in a particular industry, the Fund may face more
risks than if it were diversified more broadly over numerous industries. Such
industry-based risks, any of which may adversely affect a Fund may include, but
are not limited to, the following: general economic conditions or cyclical
market patterns that could negatively affect supply and demand in a particular
industry; competition for resources, adverse labor relations, political or world
events; obsolescence of technologies; and increased competition or new product
introductions that may affect the profitability or viability of companies in an
industry. In addition, at times, an industry may be out of favor and
underperform other industries or the market as a whole.
Credit
Risk.
Debt issuers and other counterparties may not honor their obligations or may
have their debt downgraded by ratings agencies. Credit risk is the risk that an
issuer or other obligated party of a fixed income security may be unable or
unwilling to make interest and principal payments when due and the related risk
that the value of a fixed income security may decline because of concerns about
the issuer’s ability or willingness to make such payments.
Cybersecurity
Risk. With
the increased use of technologies such as the Internet to conduct business, the
Funds are susceptible to operational, information security, and related risks.
In general, cyber incidents can result from deliberate attacks or unintentional
events. Cyber attacks include, but are not limited to, gaining unauthorized
access to digital systems (e.g.,
through “hacking” or malicious software coding) for purposes of misappropriating
assets or sensitive information, corrupting data, or causing operational
disruption. Cyber attacks may also be carried out in a manner that does not
require gaining unauthorized access, such as causing denial-of-service attacks
on websites (i.e.,
efforts to make network services unavailable to intended users). Cyber incidents
affecting the Funds or their service providers have the ability to cause
disruptions and impact business operations, potentially resulting in financial
losses, interference with the Funds’ ability to calculate their NAV, impediments
to trading, the inability of shareholders to transact business, violations of
applicable privacy and other laws, regulatory fines, penalties, reputational
damage, reimbursement or other compensation costs, or additional compliance
costs. Similar adverse consequences could result from cyber incidents affecting
issuers of securities in which the Funds invest, counterparties with which the
Funds engage in transactions, governmental and other regulatory authorities,
exchange and other financial market operators, banks, brokers, dealers,
insurance companies and other financial institutions (including financial
intermediaries and service providers for shareholders) and other parties. In
addition, substantial costs may be incurred in order to prevent any cyber
incidents in the future. While the Funds’ service providers have established
business continuity plans in the event of, and risk management systems to
prevent, such cyber incidents, there are inherent limitations in such plans and
systems including the possibility that certain risks have not been identified.
Furthermore, the Funds cannot control the cyber security plans and systems put
in place by their service providers or any other third parties whose operations
may affect the Funds or their shareholders. As a result, the Funds and their
shareholders could be negatively impacted.
Debt
Securities Risk. The
values of debt securities may increase or decrease as a result of the following:
market fluctuations, changes in interest rates, actual or perceived inability or
unwillingness of issuers, guarantors or liquidity providers to make scheduled
principal or interest payments or illiquidity in debt securities markets; the
risk of low rates of return due to reinvestment of securities during periods of
falling interest rates or repayment by issuers with higher coupon or interest
rates; and/or the risk of low income due to falling interest rates. To the
extent that interest rates rise, certain underlying obligations may be paid off
substantially slower than originally anticipated and the value of those
securities may fall sharply. A rising interest rate environment may cause the
value of a Fund's fixed income securities to decrease, a decline in a Fund’s
income and yield, an adverse impact on the liquidity of a Fund’s fixed income
securities, and increased volatility of the fixed income markets. The current
historically low interest rate environment heightens the risks associated with
rising interest rates. During periods when interest rates are at low levels, a
Fund’s yield can be low, and a Fund may have a negative yield (i.e.,
it may lose money on an operating basis). If the principal on a debt obligation
is prepaid before expected, the prepayments of principal may have to be
reinvested in obligations paying interest at lower rates. During periods of
falling interest rates, the income received by a Fund may decline. Changes in
interest rates will likely have a greater effect on the values of debt
securities of longer durations. Returns on investments in debt securities could
trail the returns on other investment options, including investments in equity
securities.
Emerging
Markets Risk.
The risks of foreign investments are usually much greater when they are made in
emerging markets. Investments in emerging markets may be considered speculative.
Emerging markets are riskier than more developed markets because they tend to
develop unevenly and may never fully develop. They are more likely to experience
high rates of inflation and currency devaluations, which may adversely affect
returns. In addition, many emerging markets have far lower trading volumes and
less liquidity than developed markets. Since these markets are often small, they
may be more likely to suffer sharp and frequent price changes or long-term price
depression because of adverse publicity, investor perceptions or the actions of
a few large investors. In addition, traditional measures of investment value
used in the U.S., such as price to earnings ratios, may not apply to certain
emerging markets. Also, there may be less publicly available information about
issuers in emerging markets than would be available about issuers in more
developed capital markets, and such issuers may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to those
to which companies in developed countries are subject. In addition, investments
in emerging market countries present risks to a greater degree than those
presented by investments in countries with developed securities markets and more
advanced regulatory systems.
Many
emerging markets have histories of political instability and abrupt changes in
policies. As a result, their governments may be more likely to take actions that
are hostile or detrimental to private enterprise or foreign investment than
those of more developed countries, including expropriation of assets,
confiscatory taxation or unfavorable diplomatic developments. Some emerging
countries have pervasive corruption and crime that may hinder investments.
Certain emerging markets may also face other significant internal or external
risks, including the risk of war, and ethnic, religious and racial conflicts. In
addition, governments in many emerging market countries participate to a
significant degree in their economies and securities markets, which may impair
investment and economic growth. National policies that may limit a Fund’s
investment opportunities include restrictions on investment in issuers or
industries deemed sensitive to national interests.
Emerging
markets may also have differing legal systems and the existence or possible
imposition of exchange controls, custodial restrictions or other laws or
restrictions applicable to investments differ from those found in more developed
markets. Sometimes, they may lack, or be in the relatively early development of,
legal structures governing private and foreign investments and private property.
In addition to withholding taxes on investment income, some emerging market
countries may impose different capital gains taxes on foreign
investors.
Practices
in relation to settlement of securities transactions in emerging market
countries involve higher risks than those in developed markets, in part because
the Funds will need to use brokers and counterparties that are less well
capitalized, and custody and registration of assets in some countries may be
unreliable. The possibility of fraud, negligence, and/or undue influence being
exerted by the issuer or refusal to recognize ownership exists in some emerging
markets, and, along with other factors, could result in ownership registration
being completely lost. The Funds would absorb any loss resulting from such
registration problems and may have no successful claim for compensation. In
addition, communications between parties in the U.S. and parties in emerging
market countries may be unreliable, increasing the risk of delayed settlements
or losses of security certificates.
Equity
Securities Risk.
The Funds will be exposed to equity market risk through direct investments in
equity securities, and their investment in other equity-linked instruments.
Common stocks are susceptible to general stock market fluctuations and to
volatile increases and decreases in value as market confidence in and
perceptions of their issuers change. These investor perceptions are based on
various and unpredictable factors including expectations regarding government,
economic, monetary and fiscal policies; inflation and interest rates; economic
expansion or contraction; and global or regional political, economic and banking
crises. If you held common stock, or common stock equivalents, of any given
issuer, you would generally be exposed to greater risk than if you held
preferred stocks and debt obligations of the issuer because common stockholders,
or holders of equivalent interests, generally have inferior rights to receive
payments from issuers in comparison with the rights of preferred stockholders,
bondholders and other creditors of such issuers.
ETF
Investment Risk.
The Fund’s investment in shares of ETFs subjects it to the risks of owning the
securities underlying the ETF, as well as the same structural risks faced by an
investor purchasing shares of the Fund, including authorized participant
concentration risk, market maker risk, premium/discount risk and trading issues
risk. As a shareholder in another ETF, the Fund bears its proportionate share of
the ETF’s expenses, subjecting Fund shareholders to duplicative
expenses.
ETF
Risk.
Each Fund is an ETF, and, as a result of an ETF’s structure, they are exposed to
the following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk.
The Funds have a limited number of financial institutions that may act as
Authorized Participants (“APs”). In addition, there may be a limited number of
market makers and/or liquidity providers in the marketplace. To the extent
either of the following events occur, Shares may trade at a material discount to
NAV and possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Cash
Redemption Risk.
Each Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. The Funds may be
required to sell or unwind portfolio investments to obtain the cash needed to
distribute redemption proceeds. This may cause a Fund to realize a capital gain
that it might not have realized if it had made a redemption in-kind. As a
result, the Funds may pay out higher annual capital gain distributions than if
the in-kind redemption process was used. To the extent that the transaction fees
charged for redemptions of creation units is insufficient to cover a Fund’s
transaction costs of selling portfolio securities, the Fund’s performance could
be negatively impacted.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and 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
May Trade at Prices Other Than NAV.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. As a result, investors in the Funds may pay significantly more or
receive significantly less for Shares than a Fund’s NAV. Although it is expected
that the market price of Shares will approximate a Fund’s NAV, there may be
times when the market price of Shares is more than the NAV intra-day (premium)
or less than the NAV intra-day (discount) due to supply and demand of Shares or
during periods of market volatility. This risk is heightened in times of market
volatility, periods of steep market declines, and periods when there is limited
trading activity for Shares in the secondary market, in which case such premiums
or discounts may be significant.
◦Trading.
Although Shares are listed for trading on the Exchange and may be traded on U.S.
exchanges other than the Exchange, there can be no assurance that Shares will
trade with any volume, or at all, on any stock exchange. In stressed market
conditions, the liquidity of Shares may begin to mirror the liquidity of a
Fund’s underlying portfolio holdings, which can be significantly less liquid
than Shares. This could lead to a Fund’s shares trading at a price that is
higher or lower than the Fund’s NAV.
Floating
or Variable Rate Securities Risk. Securities
with floating or variable interest rates 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 instruments will not generally increase in value if interest rates decline.
Changes in interest rates will also affect the amount of interest income the
Fund earns on its floating or variable rate investments.
Foreign
Securities Risk. Generally,
foreign securities are issued by companies organized outside the U.S. and are
traded primarily in markets outside the U.S. Foreign securities may be more
difficult to sell than U.S. securities. Investments in foreign securities may
involve difficulties in receiving or interpreting financial and economic
information, possible imposition of taxes, higher brokerage and custodian fees,
possible currency exchange controls or other government restrictions, including
possible seizure or nationalization of foreign deposits or assets. Foreign
securities may also be less liquid and more volatile than U.S. securities. There
may also be difficulty in invoking legal protections across
borders.
High
Portfolio Turnover Rate Risk.
High portfolio turnover rates could generate capital gains, including short-
term capital gains taxable to shareholders at ordinary income rates and could
increase brokerage commission costs. To the extent that a Fund experiences an
increase in brokerage commissions due to a higher turnover rate, the performance
of a Fund could be negatively impacted by the increased expenses incurred by a
Fund. These potentially higher taxes and increased brokerage commission costs
may reduce a shareholder’s after- tax return on an investment in a
Fund.
High-Yield
Securities Risks.
The Funds invest in fixed income instruments which are or are deemed to be the
equivalent in terms of quality to securities rated below investment grade by
Moody’s Investors Service, Inc. and Standard & Poor’s Corporation and
accordingly involve great risk. Such securities are regarded as predominantly
speculative with respect to the issuer’s capacity to pay interest and repay
principal in accordance with the terms of the obligations and involve major risk
to adverse conditions. These securities offer higher returns than bonds with
higher ratings as compensation for holding an obligation of an issuer perceived
to be less creditworthy. The market prices of such securities are also subject
to abrupt and erratic
market
movements and above-average price volatility, and the spread between the bid and
ask prices of such securities may be greater than those prevailing in other
securities markets. Changes in economic conditions or developments regarding
issuers of non-investment grade debt securities are more likely to cause price
volatility and weaken the capacity of such issuers to make principal and
interest payments than is the case for higher grade debt securities. In
addition, the market for lower grade debt securities may be thinner and less
active than for higher grade debt securities.
The
Funds invest principally in high-yield securities. Such securities are generally
not exchange-traded and, as a result, these instruments trade in a smaller
secondary market than exchange-traded bonds. In addition, the Funds invest in
bonds of issuers that do not have publicly traded equity securities, making it
more difficult to hedge the risks associated with such investments. High-yield
securities that are below investment grade or unrated face ongoing uncertainties
and exposure to adverse business, financial or economic conditions which could
lead to the issuer’s inability to meet timely interest and principal payments.
The market values of certain of these lower-rated and unrated debt securities
tend to reflect individual corporate developments to a greater extent than do
higher-rated securities, which react primarily to fluctuations in the general
level of interest rates, and tend to be more sensitive to economic conditions
than are higher-rated securities. Companies that issue such securities are often
highly leveraged and may not have available to them more traditional methods of
financing. It is possible that a major economic recession could disrupt severely
the market for such securities and may have an adverse impact on the value of
such securities. In addition, it is possible that any such economic downturn
could adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon and increase the incidence of default of such
securities.
Index-Related
Risk. Each
Fund may use an indexing approach for the passive allocation of its portfolio of
its assets and may be affected by a general decline in market segments or asset
classes relating to its respective Underlying Index. Each Fund invests the
passive portion of its portfolio in securities and instruments included in, or
representative of, the applicable Underlying Index regardless of the investment
merits of the securities included in the Underlying Index. Generally, the index
provider does not provide any warranty, or accept any liability, with respect to
the quality, accuracy, or completeness of either the Underlying Index or its
related data. Additionally, errors in the construction or calculation of a
Fund’s Underlying Index may occur from time to time, and the index provider may
not identify or correct such errors for some period of time or at all. Any such
Underlying Index construction or calculation error may adversely impact the
Fund, and any gains from such errors will be kept by the Fund and any losses or
costs resulting from such errors will be borne by the Fund. Additionally,
unusual market conditions may cause the index provider to postpone a scheduled
rebalance or reconstitution, which could cause a Fund’s Underlying Index to vary
from its normal or expected composition. This means that, based on market and
economic conditions, a Fund’s performance could be lower than funds that may
actively shift their portfolio assets to take advantage of market opportunities
or to lessen the impact of a market decline or a decline in the value of one or
more issuers. The benchmark of the Fund may also differ from the Underlying
Index that the passive portion of the Fund tracks.
Interest
Rate Risk. An
increase in interest rates may cause the value of fixed-income securities held
by a Fund to decline. The Funds may be subject to a greater risk of rising
interest rates due to the current period of historically low rates and the
effect of potential government fiscal policy initiatives and resulting market
reaction to those initiatives.
Liquidity
Risk. Liquidity
risk exists when particular investments are difficult to purchase or sell,
possibly preventing a Fund from selling such illiquid investments at an
advantageous time or price. A lack of liquidity may also cause the value of
investments to decline. Illiquid investments may also be difficult to value.
Management
Risk. The
ability of the Fund to meet its investment objective is directly related to the
ability of the Adviser and Sub-Advisers to implement the investment strategies
for the Fund. The value of your investment in the Fund may vary with the
effectiveness of the Adviser’s and Sub-Adviser’s research, analysis and asset
allocation among portfolio securities and allocation between a Fund’s active and
passive investment strategies. If the Adviser’s and Sub-Advisers’, as
applicable, investment strategies do not produce the expected results, your
investment could be diminished or even lost.
Market
Capitalization Risk.
◦Large-Capitalization
Investing.
The securities of large-capitalization companies may be relatively mature
compared to smaller companies and therefore subject to slower growth during
times of economic expansion. Large-capitalization companies may also be unable
to respond quickly to new competitive challenges, such as changes in technology
and consumer tastes.
◦Mid-Capitalization
Investing.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole. Some medium capitalization companies have limited product lines,
markets, financial resources, and management personnel and tend to concentrate
on fewer geographical markets relative to large-capitalization companies.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
larger-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than larger capitalization stocks or the stock
market as a whole. Some small capitalization companies have limited product
lines, markets, and financial and managerial resources and tend to concentrate
on fewer geographical markets relative to larger capitalization companies. There
is typically less publicly available information concerning
smaller-capitalization companies than for larger, more established companies.
Small-capitalization companies also may be particularly sensitive to changes in
interest rates, government regulation, borrowing costs and earnings.
Market
Risk. The
market value of a security may move up or down, sometimes rapidly and
unpredictably. These fluctuations may cause a security to be worth less than the
price originally paid for it, or less than it was worth at an earlier time.
Market risk may affect a single issuer, industry, or sector of the economy or
the market as a whole.
Market
Trading Risk. Active
trading markets for Shares may not be developed or maintained by market makers
or APs. APs are not obligated to make a market in the Shares or to submit
purchase or redemption orders for creation units. Trading in Shares on an
exchange may be halted in certain circumstances. There can be no assurance that
the requirements of the listing exchange necessary to maintain the listing of
the Funds will continue to be met.
Municipal
Securities Risk.
Municipal securities can be significantly affected by political or economic
changes, including changes made in the law after issuance of the securities, as
well as uncertainties in the municipal market related to taxation, legislative
changes or the rights of municipal security holders, including in connection
with an issuer insolvency. Municipal securities backed by current or anticipated
revenues from
a
specific project or specific assets can be negatively affected by the inability
to collect revenues from the project or the assets.
New
Fund Risk.
There can be no assurance that the Funds will grow to or maintain an
economically viable size, in which case the Board of Trustees may determine to
liquidate a Fund. Liquidation of a Fund can be initiated without shareholder
approval by the Board of Trustees if it determines that liquidation is in the
best interest of shareholders. The timing of such liquidation may not be
favorable and could have negative tax consequences for shareholders.
Preferred
Stock Risk. A
preferred stock has a blend of the characteristics of bonds and common stock. It
may offer the higher yield of a bond and has priority over common stock in
equity ownership, but it does not have the seniority of a bond and, unlike
common stock, its participation in the issuer’s growth may be limited. Preferred
stock has preference over common stock in the receipt of dividends or in any
residual assets after payment to creditors should the issuer be dissolved or
both. Although the dividend on a preferred stock may be set at a fixed annual
rate, in some circumstances it may be changed or discontinued by the
issuer.
Prepayment
Risk. Many
types of debt securities, including floating rate loans and mortgage-related
securities, may reflect an interest in periodic payments made by borrowers.
Although debt securities and other obligations typically mature after a
specified period of time, borrowers may pay them off sooner. When a prepayment
happens, all or a portion of the obligation will be prepaid. A borrower is more
likely to prepay an obligation which bears a relatively high rate of interest.
This means that in times of declining interest rates, there is a greater
likelihood that a Fund’s higher yielding securities will be pre-paid and the
Fund will probably be unable to re-invest those proceeds in an investment with
as great a yield, causing the Fund’s yield to decline. Securities subject to
prepayment risk generally offer less potential for gains when prevailing
interest rates fall. If a Fund buys those investments at a premium, accelerated
prepayments on those investments could cause the Fund to lose a portion of its
principal investment and result in lower yields to shareholders. The increased
likelihood of prepayment when interest rates decline also limits market price
appreciation, especially certain loans and mortgage-backed securities. The
effect of prepayments on the price of a security may be difficult to predict and
may increase the security’s price volatility. Interest-only and principal-only
securities are especially sensitive to interest rate changes, which can affect
not only their prices but can also change the income flows and repayment
assumptions about those investments.
Recent
Market Events Risk. U.S.
and international markets have experienced volatility in recent months and years
due to a number of economic, political and global macro factors, including
rising inflation and the impact of COVID‑19, which has resulted in a public
health crisis, business interruptions, growth concerns in the U.S. and overseas,
supply chain shortages and labor shortages. The impact of COVID-19 may last for
a prolonged period of time. Uncertainties regarding inflation, interest rates,
political events, the Russia-Ukraine conflict, significant conflict between
Israel and Hamas in the Middle East, rising government debt in the U.S. and
trade tensions have also contributed to market volatility. Global economies and
financial markets are increasingly interconnected, which increases the
possibility that conditions in one country or region might adversely impact
issuers in a different country or region. In particular, a rise in protectionist
trade policies, slowing global economic growth, risks associated with epidemic
and pandemic diseases, risks associated with Brexit, the risk of trade disputes,
and the possibility of changes to some international trade agreements, could
affect the economies of many nations, including the United States, in ways that
cannot necessarily be foreseen at the present time. Continuing market volatility
as a result of recent market conditions or other events may have adverse effects
on your account.
Rule
144A Securities Risk. Rule
144A securities are purchased in transactions exempt from the registration
requirements of the Securities Act pursuant to Rule 144A of the Securities Act.
Rule 144A securities may
only
be sold to qualified institutional buyers, such as the Fund. The market for Rule
144A securities typically is less active than the market for public securities.
Rule 144A securities carry the risk that the trading market may not continue and
the Fund might be unable to dispose of these securities promptly or at
reasonable prices and might thereby experience difficulty satisfying redemption
requirements.
Securities
Lending Risk. Each
Fund may lend securities from its portfolio as a non-principal strategy.
Securities lending involves the risk of a default or insolvency of the borrower.
In either of these cases, a Fund could experience delays in recovering
securities or collateral or could lose all or part of the value of the loaned
securities. A Fund also could lose money in the event of a decline in the value
of the collateral provided for loaned securities. Additionally, the loaned
portfolio securities may not be available to a Fund on a timely basis and that
Fund may therefore lose the opportunity to sell the securities at a desirable
price. Any decline in the value of a security that occurs while the security is
out on loan would continue to be borne by the applicable Fund.
Tax
Risk. Municipal
securities may decrease in value during times when federal income tax rates are
falling. A Fund’s investments are affected by changes in federal income tax
rates applicable to, or the continuing federal tax-exempt status of, interest
income on municipal obligations. Any proposed or actual changes in such rates or
exempt status, therefore, can significantly affect the liquidity, marketability
and supply and demand for municipal obligations, which would in turn affect the
Fund’s ability to acquire and dispose of municipal obligations at desirable
yield and price levels. If you are subject to the federal AMT, you may have to
pay federal tax on a portion of your distributions from tax exempt income. If
this is the case, the Fund’s net after-tax return to you may be lower. The Fund
would not be a suitable investment for investors investing through tax exempt or
tax-deferred account.
Tracking
Error Risk. The
performance of the passive allocation of each Fund and its respective Underlying
Index may differ from each other for a variety of reasons. For example, the Fund
incurs operating expenses and portfolio transaction costs not incurred by the
Underlying Index. In addition, the passive allocation of the Fund may not be
fully invested in the securities of the Underlying Index.
U.S.
Government and U.S. Agency Obligations Risk. The
Funds may invest in securities issued by the U.S. government or its agencies or
instrumentalities. U.S. Government obligations include securities issued or
guaranteed as to principal and interest by the U.S. Government, its agencies or
instrumentalities, such as the U.S. Treasury. Payment of principal and interest
on U.S. Government obligations may be backed by the full faith and credit of the
United States or may be backed solely by the issuing or guaranteeing agency or
instrumentality itself. In the latter case, the investor must look principally
to the agency or instrumentality issuing or guaranteeing the obligation for
ultimate repayment, which agency or instrumentality may be privately owned.
There can be no assurance that the U.S. Government would provide financial
support to its agencies or instrumentalities (including government- sponsored
enterprises) where it is not obligated to do so.
Valuation
Risk. The
prices provided by the Funds’ pricing services or independent dealers or the
fair value determinations made by the Adviser may be different from the prices
used by other investment companies or from the prices at which debt obligations
are actually bought and sold. The prices of certain debt obligations provided by
pricing services may be subject to frequent and significant change, and will
vary depending on the information that is available.
Information
about the Funds’ daily portfolio holdings is available at www.activepassive.com.
A complete description of the Funds’ policies and procedures with respect to the
disclosure of the Funds’ portfolio
holdings
is available in the Funds’ SAI.
Envestnet
Asset Management, Inc., located at One North Wacker Drive, Suite 1925, Suite
1925, Chicago, Illinois 60606, manages the Funds’ investments subject to the
general supervision of the Board of Trustees. The Adviser is an SEC-registered
investment advisory firm. As of September 30, 2023, the Adviser managed
approximately $375 billion in assets.
Pursuant
to the investment advisory agreement (the “Advisory Agreement”) between the
Trust, on behalf of each Fund, and the Adviser, the Adviser is responsible for
managing the Funds in accordance with their investment objectives and policies
and for making decisions with respect to and placing orders for all purchases
and sales of portfolio securities. The Adviser also maintains related records
for the Funds.
For
the services it provides to the Funds, each Fund pays the Adviser a unitary
management fee, which is calculated daily and paid monthly, at an annual rate of
each Fund’s average daily net assets as set forth in the table below:
|
|
|
|
| |
Fund |
Management
Fee |
Core
Bond ETF |
0.35% |
Intermediate
Municipal Bond ETF |
0.35% |
International
Equity ETF |
0.45% |
U.S.
Equity ETF |
0.30% |
Under
the Advisory Agreement, the Adviser has agreed to pay all expenses of the Funds
except interest charges on any borrowings, dividends, and other expenses on
securities sold short, taxes, brokerage commissions and other expenses incurred
in placing orders for the purchase and sale of securities and other investment
instruments, acquired fund fees and expenses, accrued deferred tax liability,
extraordinary expenses, distribution fees and expenses paid by the Funds under
any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act
(collectively, the “Excluded Expenses”), and the unitary management fee payable
to the Adviser.
A
discussion regarding the basis of the Board of Trustees’ approval of the
Advisory Agreement is included in the Funds’ Annual
Report
to Shareholders
for the fiscal period ended August 31, 2023.
The
Adviser also serves as investment adviser to the PMC Core Fixed Income Fund and
the PMC Diversified Equity Fund, each an open-end mutual fund series of the
Trust, which are currently offered in a separate prospectus and
SAI.
Portfolio
Managers
Unless
stated otherwise, each of the following Portfolio Managers is jointly and
primarily responsible for the day-to-day management of the assets of each Fund’s
portfolio allocated to the Adviser and for providing oversight of the
Sub-Advisers.
Brandon
R. Thomas
Brandon
R. Thomas serves as a Portfolio Manager for the Funds. Mr. Thomas co-founded the
Adviser in 1999 and currently serves as Managing Director and Chief Investment
Officer. Mr. Thomas is a graduate of Brown University. Mr. Thomas holds an
M.B.A. from the University of Chicago and a J.D. from DePaul
University.
Janis
Zvingelis Ph.D., CFA®
Janis
Zvingelis serves as a Portfolio Manager for the Funds. Prior to joining the
Adviser in 2008, Mr. Zvingelis was a research consultant with Mesirow Financial
and Ibbotson Associates. Mr. Zvingelis earned his Ph.D. in Finance from The
University of Iowa. Mr. Zvingelis also holds a MA degree in
Economics/Econometrics and an MSc degree in statistics, both from the University
of Iowa as well as an MSc in Financial Mathematics from The University of
Chicago. Mr. Zvingelis obtained his BA degree summa cum laude in Economics from
Central College in Pella, Iowa. Mr. Zvingelis is a CFA
Charterholder.
Gregory
Classen, CFA®
Gregory
Classen joined the Adviser in 2011 and serves as a Portfolio Manager for the
Funds. Mr. Classen currently serves as Director of Portfolio Management at the
Adviser and leads a team of portfolio managers for the organization. Prior to
joining the Adviser Mr. Classen was the Director of Research at FundQuest. Mr.
Classen holds a BA in Economics from Williams College and is a CFA
Charterholder.
Timothy
Murphy
Timothy
Murphy joined the firm in 2014 and serves as a Portfolio Manager for the Funds.
Mr. Murphy currently serves as Vice President and Senior Portfolio Manager at
the Adviser. Prior to joining the Adviser, Mr. Murphy worked as a Research
Analyst for Securities Finance Trust covering the banking sector and global
capital markets. Mr. Murphy worked at FundQuest, for five years prior to its
acquisition by the Adviser, as an Investment Analyst and Head Trader. Mr. Murphy
holds a BA in Political Science from Bridgewater State University and an M.B.A.
in International Business from Thunderbird School of Global Management at
Arizona State University.
CFA®
is a registered trademark owned by the CFA Institute.
The
SAI provides additional information about the Portfolio Managers’ compensation,
other accounts managed by the Portfolio Managers, and their ownership of
securities in the Funds.
The
Adviser and the Trust, on behalf of the Funds, have entered into a sub-advisory
agreement with each Sub-Adviser listed below, with respect to the Fund
identified next to each Sub-Adviser’s name. The Adviser compensates the
Sub-Advisers out of the investment advisory fees it receives from the respective
Fund. Each Sub-Adviser makes investment decisions for the assets it has been
allocated to manage. The Adviser oversees the Sub-Advisers for compliance with
each Fund’s investment objective, policies, strategies and restrictions, and
monitors each Sub-Adviser’s adherence to its investment style. The Board of
Trustees supervises the Adviser and the Sub-Advisers, establishes policies that
they must follow in their management activities, and oversees the hiring,
termination and replacement of Sub-Advisers recommended by the Adviser. The
Trust applied for, and the SEC has granted, an exemptive order with respect to
the Funds that permits the Adviser, subject to certain conditions, to terminate
existing Sub-Advisers or hire new Sub-Advisers for new or existing Funds, to
materially amend the terms of particular agreements with Sub-Advisers or to
continue the employment of existing Sub-Advisers after events that would
otherwise cause an automatic termination of a
Sub-Advisory
Agreement. This arrangement has been approved by the Board of Trustees and each
Fund’s initial shareholder. Consequently, under the exemptive order, the Adviser
has the right to hire, terminate and replace Sub-Advisers when the Board of
Trustees and the Adviser feel that a change would benefit the Funds. Within 90
days of retaining a new Sub-Adviser, shareholders of the Funds will receive
notification of the change. The manager of managers structure enables the Funds
to operate with greater efficiency and without incurring the expense and delays
associated with obtaining shareholder approval of sub-advisory agreements. The
structure does not permit investment advisory fees paid by the Funds to be
increased or change the Adviser’s obligations under the Advisory Agreement,
including the Adviser’s responsibility to monitor and oversee sub-advisory
services furnished to the Funds, without shareholder approval. Furthermore, any
sub-advisory agreements with affiliates of the Funds or the Adviser will require
shareholder approval.
Not
all of the sub-advisers listed for a particular Fund may be actively managing
assets for the Fund at all times. Subject to the oversight of the Board of
Trustees, the Adviser may temporarily allocate Fund assets away from a
Sub-Adviser. Situations in which the Adviser may make such a determination
include the level of assets in the Funds, changes in a Sub-Adviser’s personnel
or a Sub-Adviser’s adherence to an investment strategy.
The
following Sub-Advisers are responsible for the day-to-day portfolio management
of the assets of the respective Fund’s portfolio allocated to the
Sub-Adviser:
Core
Bond ETF
Neuberger
Berman Investment Advisers, LLC
Sage
Advisory Services, Ltd. Co.
Intermediate
Municipal Bond ETF
GW&K
Investment Management, LLC
International
Equity ETF
AllianceBernstein
L.P.
Causeway
Capital Management LLC
The
following provides additional information about each Sub-Adviser and the
portfolio managers (each, a “Portfolio Manager”) who are responsible for the
day-to-day management of the assets of a Fund’s portfolio managed by the
Sub-Adviser. The SAI provides additional information about the Portfolio
Managers’ compensation, other accounts managed by the Portfolio Managers and
their ownership of securities in the Funds.
AllianceBernstein
L.P.
The
Adviser has entered into a sub-advisory agreement with AllianceBernstein to
manage a portion of the International Equity ETF’s assets. AllianceBernstein is
a registered investment adviser with a principal office is located at 501
Commerce Street, Nashville, Tennessee 37203. AllianceBernstein provides
continuous advice and recommendations concerning the International Equity ETF’s
investments and is responsible for selecting the broker-dealers who execute the
portfolio transactions.
In
executing such transactions, AllianceBernstein seeks to obtain best
execution.
In
addition to providing investment advisory services to the International Equity
ETF, AllianceBernstein serves as investment adviser to individuals,
corporations, charitable organizations, pooled investment vehicles, and pension
and profit-sharing plans. As of August 31, 2023, AllianceBernstein had
approximately $694 billion in assets under management.
Dev
Chakrabarti
Dev
Chakrabarti is a Senior Vice President and Chief Investment Officer for
Concentrated Global Growth. Prior to joining AllianceBernstein in December 2013,
he was a portfolio manager/analyst on the global equity research and
portfolio-management team at WPS Advisors. Mr. Chakrabarti joined W.P. Stewart
in 2005 as a member of the European equity research and portfolio-management
team and moved to New York in 2008 to focus on global portfolios. Earlier in his
career, Mr. Chakrabarti worked as an M&A analyst at Merrill Lynch, a
financial analyst at Unilever and an equity analyst at J.P. Morgan Securities,
where he specialized in European technology stocks. Mr. Chakrabarti holds a BSc
(Hons) in economics from the University of Bristol and an MSc in finance from
London Business School.
Causeway
Capital Management LLC
The
Adviser has entered into a sub-advisory agreement with Causeway to manage a
portion of the International Equity ETF’s assets. Causeway is a registered
investment adviser with a principal office is located at 11111 Santa Monica
Boulevard, 15th Floor, Los Angeles, California 90025. Causeway is wholly-owned
by its parent holding company, Causeway Capital Holdings LLC. Sarah Ketterer and
Harry Hartford are the ultimate control persons of Causeway. Ms. Ketterer serves
as Causeway’s chief executive officer and Mr. Hartford serves as Causeway’s
president. Ms. Ketterer and Mr. Hartford hold their interests in the parent
holding company through estate planning vehicles, through which they exercise
their voting power. As of August 31, 2023, Causeway had approximately $43.7
billion in assets under management.
Sarah
Ketterer
Sarah
Ketterer is the chief executive officer at Causeway, fundamental portfolio
manager, and is responsible for investment research across all sectors. Ms.
Ketterer co-founded the firm in June 2001 and is a member of the operating
committee. From 1996 to 2001, Ms. Ketterer worked for the Hotchkis & Wiley
division of Merrill Lynch Investment Managers (HW-MLIM). At HW-MLIM, she was a
managing director and co-head of the firm's HW-MLIM International and Global
Value team. From 1990 to 1996, Ms. Ketterer was a portfolio manager at Hotchkis
and Wiley, where she founded the International Equity product. Ms. Ketterer
earned a BA in economics and political science from Stanford University and an
MBA from the Tuck School, Dartmouth College. Ms. Ketterer serves on the Stanford
University Board of Trustees, is on the advisory board of Portal Schools, and is
a supporter of Girls Who Invest. Ms. Ketterer previously served as a board
member and chair of the Los Angeles World Affairs Council and Town Hall and
chair of the investment committee of the Music Center Foundation.
Harry
Hartford
Harry
Hartford is the president at Causeway, fundamental portfolio manager, and head
of fundamental research. Mr. Hartford co-founded the firm in June 2001 and is a
member of the operating committee. From 1996 to June 2001, Mr. Hartford was a
managing director for the Hotchkis & Wiley division of Merrill Lynch
Investment Managers (HW-MLIM) and co-head of the firm's HW-MLIM international
and global value team. From 1994 to 1996, Mr. Hartford was a portfolio manager
for Hotchkis and Wiley. From 1984 to 1994, Mr. Hartford was with The Investment
Bank of Ireland, where he gained ten years’ experience in both international and
global equity management. During this time, Mr. Hartford also managed the Irish
Investment Fund, a closed-end country fund quoted on the NYSE. Before entering
the investment business, Mr. Hartford lectured in micro and macroeconomics at
Oklahoma State University. Mr. Hartford earned a BA, with honors, in economics
from the University of Dublin, Trinity College, an MSc in economics from
Oklahoma State University, and is a Phi Kappa Phi member. Mr. Hartford is a
member of The Ireland Funds America Board of Directors and serves as chair of
the Los Angeles Regional Board.
Jonathan
Eng
Jonathan
Eng is a director and fundamental portfolio manager at Causeway and is
responsible for investment research in the global consumer discretionary,
industrials, and energy sectors. Mr. Eng joined the firm in July 2001 and has
been a portfolio manager since February 2002. From 1997 to 2001, Mr. Eng was an
equity research associate for the Hotchkis and Wiley division of Merrill Lynch
Investment Managers (HW-MLIM). In 1996, Mr. Eng worked as a summer research
associate for Hotchkis and Wiley, performing U.K. and European equity research.
From 1993 to 1995, Mr. Eng analyzed merger and acquisition candidates at Slusser
Associates. From 1990 to 1993, Mr. Eng worked as a middle market corporate
lender for Bank of Boston. Mr. Eng earned a BA in history and economics from
Brandeis University and an MBA from the UCLA Anderson Graduate School of
Management.
Conor
Muldoon
Conor
Muldoon is a director and fundamental portfolio manager at Causeway and is
responsible for investment research in the global financials, materials, and
real estate sectors. Mr. Muldoon joined the firm in August 2003 and has been a
portfolio manager since September 2010. Mr. Muldoon is also a member of the
operating committee. From 1995 to 2003, Mr. Muldoon was an investment consultant
for Fidelity Investments where he served as a liaison between institutional
clients and investment managers within Fidelity. Mr. Muldoon was responsible for
communicating current information on the financial markets, the economy and
investment performance. Mr. Muldoon earned a BSc and an MA from the University
of Dublin, Trinity College and an MBA, with high honors, from the University of
Chicago. Mr. Muldoon was inducted into the Beta Gamma Sigma honors society and
is also a CFA charterholder.
Alessandro
Valentini
Alessandro
Valentini is a director and fundamental portfolio manager at Causeway and is
responsible for investment research in the global healthcare, financials,
materials, and real estate sectors. Mr. Valentini joined the firm in July 2006
and has been a portfolio manager since April 2013. During the summer of 2005,
Mr. Valentini worked as a research analyst at Thornburg Investment Management,
where he conducted fundamental research for the International Value Fund and the
Value Fund, focusing on the European telecommunication and Canadian oil sectors.
From 2000 to 2004, Mr. Valentini worked as a financial analyst at Goldman Sachs
in the European equities research-sales division in New York. Mr. Valentini
earned an MBA from Columbia Business School, with honors, an MA in economics
from Georgetown University and a BS, magna cum laude, from Georgetown
University. Mr. Valentini was inducted into the Beta Gamma Sigma honors society,
is a Phi Beta Kappa member, and is a CFA charterholder.
Ellen
Lee
Ellen
Lee is a director and fundamental portfolio manager at Causeway and is
responsible for investment research in the global consumer and utilities
sectors. Ms. Lee joined the firm in August 2007 and has been a portfolio manager
since January 2015. During the summer of 2006, Ms. Lee interned at Tiger Asia, a
long short equity hedge fund focused on China, Japan, and Korea. From 2001 to
2004, Ms. Lee was an associate in the mergers and acquisitions division of
Credit Suisse First Boston in Seoul, where she advised Korean corporates and
multinational corporations. From 1999 to 2000, Ms. Lee was an analyst in the
mergers and acquisitions division of Credit Suisse First Boston in Hong Kong.
Ms. Lee earned a BA in business administration from Seoul National University
and an MBA from the Stanford Graduate School of Business. Ms. Lee currently
serves on the audit and investment committee at the Center for Early Education
in West Hollywood.
Steven
Nguyen
Steven
Nguyen is a director and fundamental portfolio manager at Causeway and is
responsible for investment research in utilities & renewables, healthcare,
and business services. Mr. Nguyen joined the firm
in
April 2012 and has been a portfolio manager since January 2019. From 2006 to
2012, Mr. Nguyen was a senior credit analyst at Bradford & Marzec covering
high yield and investment grade companies in the telecommunication services,
cable, media, gaming, insurance, and REIT industries. From 2003 to 2006, Mr.
Nguyen was a credit analyst/portfolio manager in the corporate bond department
of Allegiance Capital. Mr. Nguyen earned a BA in business economics from Brown
University and an MBA, with honors, from the UCLA Anderson School of Management.
Mr. Nguyen was the president of the Anderson Student Asset Management
association. Mr. Nguyen is a CFA charterholder and has completed the CFA
Institute Certificate in ESG Investing program.
Brian
Woonhyung Cho
Brian
Woonhyung Cho is a director of Causeway. Mr. Cho joined the firm in September
2013. From 2011 to 2013, Mr. Cho was a vice president at BofA-ML Equity
Research, covering the IT hardware and supply chain sector. From 2007 to 2011,
Mr. Cho worked as an associate at Goldman Sachs Equity Research covering the
same sector. From 2006 to 2007, Mr. Cho worked as an analyst at Morgan Stanley
Equity Research covering the internet and interactive software sector. Prior to
that, Mr. Cho worked as an analyst at PA Consulting Group in the financial
services practice. Mr. Cho earned a BSc in management science from Massachusetts
Institute of Technology.
GW&K
Investment Management, LLC
The
Adviser has entered into a sub-advisory agreement with GW&K to manage a
portion of the Intermediate Municipal Bond ETF’s assets. GW&K is a
registered investment adviser with a principal office located at 222 Berkeley
Street, Boston, Massachusetts 02116, has advised individual and institutional
clients since 1974 and, as of August 31, 2023, had assets under management
of approximately $49.2 billion.
John
B. Fox, CFA®
Mr.
Fox is a partner and co-director of GW&K. He joined GW&K as a member of
the municipal bond team in 1990 after graduating from college and was promoted
to portfolio manager in 1995, a role in which he continues to serve. Mr. Fox was
appointed co-director of fixed income in 2001, responsible for overseeing all
aspects of the fixed income operations, including portfolio management,
research, and trading. Mr. Fox is a partner in the firm and is also a member of
the firm’s Management and Investment Committees. Mr. Fox received a BA in
Economics from Boston College and an MBA from Boston University. Mr. Fox is a
CFA®
charterholder
and is a member of the CFA Institute, the CFA Society Boston, the Boston
Municipal Analysts Forum, and the National Federation of Municipal
Analysts.
Kara
M. South, CFA®
Ms.
South joined GW&K in January 2022 and is a portfolio manager for all of the
firm’s municipal bond strategies and is a member of the Investment Committee and
ESG Committee. As a seasoned fixed income manager with deep knowledge of the
market, including experience managing taxable municipal bonds and ESG
strategies, Ms. South is able to draw on her extensive research and management
expertise in the evaluation of market risks, opportunities and strategic
portfolio positioning. Ms. South joins GW&K from Income Research +
Management (IR+M), where she was a senior portfolio manager and co-director of
credit research and a member of the Investment Committee. Ms. South joined IR+M
in 2010 as a research analyst. Prior to IR+M, Ms. South was a securities
valuation analyst at John Hancock Financial from 2009 to 2010. Ms. South began
her career at Wachovia Corporation (now Wells Fargo) as an interest rate
derivative analyst from 2006 to 2008. Ms. South earned a BA in Economics and
Psychology from Cornell University. Ms. South is a CFA®
charterholder and is a member of the CFA Institute and the CFA Society Boston.
In addition, Ms. South holds the Fundamentals of Sustainability Accounting (FSA)
certificate.
Martin
R. Tourigny, CFA®
Mr.
Tourigny is a partner and senior member of GW&K’s municipal bond team
responsible for portfolio management. Mr. Tourigny sits on the trading desk and
is uniquely positioned to identify and take advantage of opportunities in the
inefficient muni-bond market that match clients’ investment needs. Mr. Tourigny
is a member of the firm’s Investment and Management Committees. Prior to joining
GW&K in 1994, Mr. Tourigny was employed by Mutual Fund Services Company as a
senior fund accountant. Mr. Tourigny received his BA in Economics from Boston
College in 1991, and Masters in International Economics from Suffolk University
in 2002. Mr. Tourigny is a CFA®
charterholder and a member of the CFA Institute, the CFA Society Boston, the
Boston Security Analysts Society, the Boston Municipal Analysts Forum, and the
National Federation of Municipal Analysts.
Brian
T. Moreland, CFA®
Mr.
Moreland is a partner of GW&K and has been a portfolio manager on the
municipal bond team since 2008. Mr. Moreland has primary responsibility for
GW&K’s Municipal Enhanced Yield, 2-8 Year Municipal Bond, and Short-Term
Municipal Bond Strategies, and he trades bonds across the credit spectrum from
AAA to BBB. Mr. Moreland is a member of the firm’s Investment Committee. Mr.
Moreland joined GW&K in 1998 soon after graduating college. Mr. Moreland
started as an operations specialist and shortly thereafter transitioned to the
municipal bond team to support the research and trading efforts for the firm’s
growing municipal bond strategies. Through the years Mr. Moreland developed
expertise in researching municipal credits across the quality spectrum and
gained a deep understanding of the vast and complex municipal bond market. Mr.
Moreland received his BS in Finance from Boston College in 1997. Mr. Moreland is
a CFA®
charterholder, and is a member of the Boston Municipal Analysts Forum, the
National Federation of Municipal Analysts, the CFA Institute, and the CFA
Society Boston.
Neuberger
Berman Investment Advisers, LLC
The
Adviser has entered into a sub-advisory agreement with NBIA to manage a portion
of the Core Bond ETF’s assets. NBIA is a registered investment adviser with a
principal office located at 190 South LaSalle Street, Suite 1925, Chicago, IL
60603. NBIA and its affiliates (collectively, “Neuberger Berman”) provide a
broad range of global investment solutions, including equity, fixed income and
alternatives, to institutions and individuals through customized separately
managed accounts and funds. As of August 31, 2023, Neuberger Berman had
approximately $439 billion in assets under management.
David
M. Brown, CFA®
David
M. Brown is a Portfolio Manager for the segment of the Core Bond ETF’s assets
managed by NBIA. Mr. Brown, CFA, Managing Director, rejoined the firm in 2003.
Mr. Brown is Global Co-Head of Investment Grade and acts as Senior Portfolio
Manager on both Global Investment Grade and Multi-Sector Fixed Income
strategies. Mr. Brown is a member of the Fixed Income Investment Strategy
Committee and the Fixed Income Multi-Sector Group. Mr. Brown also leads the
Investment Grade Credit team in determining credit exposures across both Global
Investment Grade and Multi-Sector Fixed Income strategies. Mr. Brown initially
joined the firm in 1991 after graduating from the University of Notre Dame with
a BA in Government and subsequently received his MBA in Finance from
Northwestern University. Prior to his return, he was a senior credit analyst at
Zurich Scudder Investments and later a credit analyst and portfolio manager at
Deerfield Capital. Mr. Brown has been awarded the Chartered Financial Analyst
designation.
Thanos
Bardas, PhD.
Thanos
Bardas, PhD is a Portfolio Manager for the segment of the Core Bond ETF’s assets
managed by NBIA. Dr. Bardas, Managing Director, joined the firm in 1998. Dr.
Bardas is the Global Co-Head of Investment Grade and serves as a Senior
Portfolio Manager on Global Investment Grade and Multi-Sector Fixed income
strategies. Dr. Bardas sits on the firm’s Asset Allocation Committee and Fixed
Income’s
Investment
Strategy Committee, and is a member of the Fixed Income Multi-Sector Group. Dr.
Bardas also leads the Global Rates team in determining rates exposure across
various portfolio strategies and oversees both inflation and LDI investments.
Dr. Bardas graduated with honors from Aristotle University, Greece, earned his
MS from the University of Crete, Greece, and holds a PhD in Theoretical Physics
from State University of New York at Stony Brook. Dr. Bardas holds FINRA Series
7 and Series 66 licenses.
Nathan
Kush
Nathan
Kush is a Portfolio Manager for the segment of the Core Bond ETF’s assets
managed by NBIA. Mr. Kush, Managing Director, joined the firm in 2001. Mr. Kush
is a Senior Portfolio Manager for the firm’s Global Investment Grade strategies.
Additionally, he is involved in investment grade credit research and previously
covered the banking, brokerage, finance, insurance and REIT sectors. Before
joining the Global Investment Grade team, he spent three years in Debt Capital
Markets in the Investment Banking Division of Lehman Brothers. Mr. Kush earned a
BS in Finance and Accounting from Tulane University and an MBA from the
University of Chicago.
Olumide
Owolabi
Olumide
Owolabi is a Portfolio Manager for the segment of the Core Bond ETF’s assets
managed by NBIA. Mr. Owolabi, Managing Director, joined the firm in 2003. Mr.
Owolabi is the Head of the U.S. Rates team and serves as a Senior Portfolio
Manager on multiple Fixed Income strategies including Core Bond, Core Plus,
Government and Inflation-aware investments. Mr. Owolabi has over the years held
leadership, investment and research positions across multiple Fixed Income
investment groups. Previously, Mr. Owolabi was a Senior Quantitative Analyst
where he developed quantitative tools and valuation models in interest rates,
inflation products and credit. Prior to joining the firm, he spent four years in
the banking industry, the last two as an investment analyst in the Treasury and
Investment group of City Express Bank Plc. Mr. Owolabi earned a BS in
Mathematics from the University of Ilorin in Nigeria and an MS in Financial
Mathematics from the University of Chicago. In addition, he holds FINRA Series 7
and Series 66 licenses.
Sage
Advisory Services, Ltd. Co.
The
Adviser has entered into a sub-advisory agreement with Sage Advisory to manage a
portion of the Core Bond ETF’s assets. Sage Advisory is a registered investment
adviser with a principal office is located at 5900 Southwest Parkway Building 1,
Austin, Texas 78735. Sage Advisory serves the institutional and high net-worth
marketplace with conventional ESG fixed income asset management,
assets/liability solutions and global asset allocation strategies. As of
August 31, 2023, Sage Advisory had approximately $21,297 million in assets
under management.
Robert
G. Smith III
Robert
G. Smith III co-founded Sage Advisory in 1996 and serves as the firm’s President
and Chief Investment Officer and leads the Investment Committee. He began his
career in 1970 at Moody’s Investors Services as a member of the Corporate Bond
Rating Committee and then went on to Loeb, Rhodes & Co. to cover the
insurance industry in the Institutional Equity Research department. Mr. Smith
later worked at Merrill Lynch & Co. for 13 years in a variety of
institutional research, trading and portfolio management roles in New York and
London. During this period, Mr. Smith was assigned to the Saudi Arabian Monetary
Agency as a Resident Financial Advisor in Riyadh responsible for managing the
foreign reserves of the Central Bank. Mr. Smith received his M.B.A. in Finance
from New York University Stern School of Business, is an Accredited Investment
Fiduciary and a Certified Investment Management Consultant.
Thomas
Urano
Thomas
Urano is a Managing Partner of Sage Advisory and a member of the Investment
Committee. He leads the portfolio management team overseeing Sage’s fixed income
and equity strategies. Prior to joining Sage,
Mr.
Urano worked at Credit Suisse Asset Management in New York trading fixed income
assets and implementing investment strategy on behalf of the firm's
institutional clients. Mr. Urano began his career in 1996 as a fixed income
portfolio analyst with Morgan Keegan. Mr. Urano received his B.A. in Economics
from The University of Texas at Austin and is a CFA charter holder and a member
of the CFA Institute.
CFA®
is a registered trademark owned by the CFA Institute.
A
discussion regarding the basis for the Board of Trustees’ approval of each
sub-advisory agreement between the Adviser and each Sub-Adviser will be included
in the Funds’ first annual or semi-annual report to shareholders.
Foreside
Fund Services, LLC, an affiliate of Foreside Financial Group, LLC d/b/a ACA
Group (the “Distributor”), the Funds’ distributor, is a broker-dealer registered
with the SEC. The Distributor’s principal address is Three Canal Plaza, Suite
100, Portland, Maine 04101. Generally, the Distributor will not distribute
Shares in aggregations less than a Creation Unit, and the Distributor does not
maintain a secondary market in the shares. The Distributor is a broker-dealer
registered under the Securities Exchange Act of 1934 and a member of the
Financial Industry Regulatory Authority, Inc. (“FINRA”). The Distributor has no
role in determining the policies of the Funds or the securities that are
purchased or sold by the Funds and is not affiliated with the Adviser or any of
their respective affiliates.
U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services,
located at 615 East Michigan Street, Milwaukee, Wisconsin 53202, serves as the
administrator and transfer agent for the Funds.
U.S.
Bank National Association, located at 1555 N. Rivercenter Drive, Milwaukee,
Wisconsin 53212, serves as the custodian for the Funds.
Pursuant
to the Trust’s Amended and Restated Declaration of Trust (the “Declaration of
Trust”), and subject to the limitations disclosed in the Declaration of Trust, a
Fund shareholder may only bring a derivative action if (i) the shareholder or
shareholders make a pre-suit demand upon the Board of Trustees to bring the
subject action unless an effort to cause the Board of Trustees to bring such an
action is not likely to succeed (as defined in the Declaration of Trust); (ii)
shareholders eligible to bring such derivative action under the Delaware
Statutory Trust Act who hold at least 10% of the outstanding voting securities
of the Trust, or 10% of the outstanding voting securities of the series or class
to which such action relates, shall join in the request for the Board of
Trustees to commence such action; and (iii) the Board of Trustees is afforded a
reasonable amount of time to consider such shareholder request and to
investigate the basis of such claim. The Board of Trustees shall be entitled to
retain counsel or other advisors in considering the merits of the request and
shall require an undertaking by the shareholders making such request to
reimburse the Trust for the expense of any such advisors in the event that the
Trustees determine not to bring such action. The
provision requiring at least 10% of the outstanding voting securities of the
Trust, applicable series or class to join in the request to bring the derivative
action and the provision requiring an undertaking by the requesting shareholders
to reimburse the Trust for the expense of any advisors retained by the Board in
the event that the Trustees determine not to bring such action, do not apply to
claims brought under federal securities laws.
The
Funds issue and redeem Shares at NAV only in Creation Units. Only APs may
acquire Shares directly from the Funds, and only APs may tender their Shares for
redemption directly to the Funds, at NAV. Each AP must be a member or
participant of a clearing agency registered with the SEC and must execute a
Participant Agreement that has been agreed to by the Distributor, and that has
been accepted by the Transfer Agent, with respect to purchases and redemptions
of Creation Units. Once created, Shares trade in the secondary market in
quantities less than a Creation Unit.
Most
investors buy and sell individual Shares in secondary market transactions
through brokers. Shares are listed for trading on the secondary market on the
Exchange and can be bought and sold throughout the trading day like other
publicly traded securities. In addition, because secondary market transactions
occur at market prices, you may pay more than NAV when you buy Shares, and
receive less than NAV when you sell those Shares.
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 offer price in the secondary market on each leg of a round trip
(purchase and sale) transaction. The commission is frequently a fixed amount and
may be a significant proportional cost for investors seeking to buy or sell
small amounts of shares. The spread with respect to shares of a Fund varies over
time based on the Fund’s trading volume and market liquidity and is generally
lower if a Fund has a lot of trading volume and market liquidity and higher if a
Fund has little trading volume and market liquidity.
Because
of the costs of buying and selling Shares, frequent trading may reduce
investment return and an investment in a Fund may not be advisable for investors
who anticipate regularly making small investments.
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.
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. DTC’s
participants 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 securities that you hold in book entry or
“street name” through your brokerage account.
The
Funds impose no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to adopt a written policy restricting frequent
trading in the Funds, the Board evaluated the risks of market timing activities
by Fund shareholders. Purchases and redemptions by APs, who are the only parties
that may purchase or redeem Shares directly with the Funds, are an essential
part of the ETF process and help keep
Share
trading prices in line with NAV. As such, the Funds accommodate frequent
purchases and redemptions by APs. However, frequent purchases and redemptions
for cash may increase portfolio transaction costs and may lead to the
realization of capital gains. To minimize these potential consequences of
frequent purchases and redemptions, the Funds employ fair value pricing and may
impose transaction fees on purchases and redemptions of Creation Units to cover
the custodial and other costs incurred by the Funds in effecting trades. In
addition, the Funds and the Adviser reserve the right to reject any purchase
order at any time.
The
Funds’ NAV is calculated by dividing the value of each Fund’s total assets, less
its liabilities, by the number of its shares outstanding. In calculating a
Fund’s NAV, portfolio securities are valued using current market values or
official closing prices, if available. If such information is not available for
a security held by a Fund or is determined to be unreliable, the security will
be valued at fair value estimates under guidelines established by the Board (as
described below). The Funds’ NAV is calculated at the close of regular trading
of the NYSE (which is generally 4:00 p.m., Eastern time). The Funds’ NAV will
not be calculated on days on which the NYSE is closed for trading. If the NYSE
closes early, the Funds will calculate their respective NAV as of the close of
trading on the NYSE on that day. If an emergency exists as permitted by the SEC,
the NAV may be calculated at a different time.
The
International Equity ETF invests in securities listed on foreign exchanges that
trade on weekends or other days when the Fund’s NAV is not priced, which may
cause the Fund’s NAV to change during times when the Fund is not available for
purchase or sale.
The
Adviser, subject to oversight by the Board of Trustees has adopted procedures
and methodologies to fair value Fund securities whose market prices are not
“readily available” or are deemed to be unreliable. For example, such
circumstances may arise when: (i) a security has been de-listed or has had its
trading halted or suspended; (ii) a security’s primary pricing source is unable
or unwilling to provide a price; (iii) a security’s primary trading market is
closed during regular market hours; or (iv) a security’s value is materially
affected by events occurring after the close of the security’s primary trading
market. Generally, when fair valuing a security, the Adviser will take into
account all reasonably available information that may be relevant to a
particular valuation including, but not limited to, fundamental analytical data
regarding the issuer, information relating to the issuer’s business, recent
trades or offers of the security, general and/or specific market conditions and
the specific facts giving rise to the need to fair value the security. Fair
value determinations are made in good faith and in accordance with the Adviser’s
fair value methodologies. Due to the subjective and variable nature of fair
value pricing, there can be no assurance that the Adviser will be able to obtain
the fair value assigned to the security upon the sale of such
security.
The
Funds intend to make distributions of net investment income and net capital
gain, if any, at least annually. The Funds will declare and pay income and
capital gain distributions in cash. Distributions in cash may be reinvested
automatically in additional whole Shares only if the broker through whom you
purchased Shares makes such option available. Your broker is responsible for
distributing the income and capital gain distributions to you.
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Funds. Your investment
in a Fund may have other tax implications. Please consult your tax advisor about
the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws.
The
Intermediate Municipal Bond ETF intends to make distributions to shareholders
that are exempt from federal income tax, in the form of exempt-interest
dividends. However, some of the Fund’s distributions other than exempt-interest
dividends may be taxed as ordinary income or capital gains (or a combination).
The Fund may invest a portion of its assets in securities that generate income
that is not exempt from federal income tax. Income exempt from federal income
tax may be subject to state and local income tax. You may also be subject to tax
on distributions of any net capital gain made by the Fund. The federal income
tax status of all distributions made by the Fund for the preceding year will be
reported annually to shareholders.
The
Funds intend to qualify each year for treatment as a regulated investment
company (a “RIC”) under Section 851 of the Internal Revenue Code of 1986, as
amended. If it meets certain minimum distribution requirements, a RIC is not
subject to federal-income tax at the fund-level on income and gains from
investments that are timely distributed to shareholders. However, a Fund’s
failure to qualify as a RIC or to meet minimum distribution requirements would
result (if certain relief provisions were not available) in fund-level taxation
and, consequently, a reduction in income available for distribution to
shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA plan, you need to be aware of the possible tax
consequences when a Fund makes distributions, when you sell your Shares listed
on the Exchange, and when you purchase or redeem Creation Units (institutional
investors only).
For
federal income tax purposes, distributions of net investment income are
generally taxable as ordinary income or qualified dividend income. Taxes on
distributions of net capital gains (if any) are determined by how long a Fund
owned the investments that generated them, rather than how long a shareholder
has owned their Shares. Sales of assets held by a Fund for more than one year
generally result in long-term capital gains and losses, and sales of assets held
by a Fund for one year or less generally result in short-term capital gains and
losses. Distributions of a Fund’s net capital gain (the excess of net long-term
capital gains over net short-term capital losses) that are reported by a Fund as
capital gain dividends (“Capital Gain Dividends”) will be taxable as long-term
capital gains. Distributions of short-term capital gain will generally be
taxable as ordinary income. Dividends and distributions are generally taxable to
you whether you receive them in cash or reinvest them in additional
Shares.
Distributions
reported by a Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided certain holding period and other requirements are met. “Qualified
dividend income” generally is income derived from dividends paid by U.S.
corporations or certain foreign corporations that are either incorporated in a
U.S. possession or eligible for tax benefits under certain U.S. income tax
treaties. In addition, dividends that a Fund receives in respect of stock of
certain foreign corporations may be qualified dividend income if that stock is
readily tradable on an established U.S. securities market. Corporate
shareholders may be entitled to a dividends-received deduction
for
the portion of dividends they receive from a Fund that are attributable to
dividends received by a Fund from U.S. corporations, subject to certain
limitations.
Shortly
after the close of each calendar year, you will be informed of the character of
any distributions received from a Fund.
In
addition to the federal income tax, certain individuals, trusts, and estates may
be subject to a Net Investment Income (“NII”) tax of 3.8%. The NII tax is
imposed on the lesser of: (i) a taxpayer’s investment income, net of deductions
properly allocable to such income; or (ii) the amount by which such taxpayer’s
modified adjusted gross income exceeds certain thresholds ($250,000 for married
individuals filing jointly, $200,000 for unmarried individuals and $125,000 for
married individuals filing separately). With the exception of the Intermediate
Municipal Bond ETF’s exempt-interest dividends, the Funds’ distributions are
includable in a shareholder’s investment income for purposes of this NII tax.
Exempt-interest dividends are not includable in a shareholder’s investment
income for purposes of the NII tax. In addition, any capital gain realized by a
shareholder upon a sale or redemption of Fund shares is includable in such
shareholder’s investment income for purposes of this NII tax.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by a Fund before your
investment (and thus were included in the Shares’ NAV when you purchased your
Shares).
You
may wish to avoid investing in the Funds shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your
investment.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
a Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. The Funds may, under certain circumstances,
report all or a portion of a dividend as an “interest-related dividend” or a
“short-term capital gain dividend,” which would generally be exempt from this
30% U.S. withholding tax, provided certain other requirements are
met.
Under
the Foreign Account Tax Compliance Act (“FATCA”), the Funds may be required to
withhold a generally nonrefundable 30% tax on (i) distributions of investment
company taxable income and (ii) distributions of net capital gain and the gross
proceeds of a sale or redemption of Fund shares paid to (A) certain “foreign
financial institutions” unless such foreign financial institution agrees to
verify, monitor, and report to the Internal Revenue Service (“IRS”) the identity
of certain of its account-holders, among other items (or unless such entity is
otherwise deemed compliant under the terms of an intergovernmental agreement
between the United States and the foreign financial institution’s country of
residence), and (B) certain “non-financial foreign entities” unless such entity
certifies to a Fund that it does not have any substantial U.S. owners or
provides the name, address, and taxpayer identification number of each
substantial U.S. owner, among other items. In December 2018, the IRS and
Treasury Department released proposed Treasury Regulations that would eliminate
FATCA withholding on Fund distributions of net capital gain and the gross
proceeds from a sale or redemption of Fund shares. Although taxpayers are
entitled to rely on these proposed Treasury Regulations until final Treasury
Regulations are issued, these proposed Treasury Regulations have not been
finalized, may not be finalized in their proposed form, and are potentially
subject to change. This FATCA withholding tax could also affect a Fund’s return
on its investments in foreign securities or affect a shareholder’s return if the
shareholder holds its Fund shares through a foreign intermediary. You are urged
to consult your tax adviser regarding the application of this FATCA withholding
tax
to your investment in a Fund and the potential certification, compliance, due
diligence, reporting, and withholding obligations to which you may become
subject in order to avoid this withholding tax.
The
Funds (or a financial intermediary, such as a broker, through which a
shareholder owns Shares) generally is required to withhold and remit to the U.S.
Treasury a percentage of the taxable distributions and sale or redemption
proceeds paid to any shareholder who fails to properly furnish a correct
taxpayer identification number, who has underreported dividend or interest
income, or who fails to certify that they are not subject to such
withholding.
Any
capital gain or loss realized upon a sale of Shares generally is treated as a
long-term capital gain or loss if Shares have been held for more than one year
and as a short-term capital gain or loss if Shares have been held for one year
or less. However, any capital loss on a sale of Shares held for six months or
less is treated as long-term capital loss to the extent of capital gain
dividends received or deemed to be received with respect to such Shares and
disallowed to the extent of the amount of exempt-interest dividends, if any,
received by the shareholder with respect to such Shares. The ability to deduct
capital losses may be limited.
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The IRS may
assert, however, that a loss that is realized upon an exchange of securities for
Creation Units may not be currently deducted under the rules governing “wash
sales” (for an AP who does not mark-to-market their holdings) or on the basis
that there has been no significant change in economic position. Persons
exchanging securities should consult their own tax advisor 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 is generally
treated as long-term capital gain or loss if Shares comprising the Creation
Units have been held for more than one year and as a short-term capital gain or
loss if such Shares have been held for one year or less.
The
Funds may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. The Funds may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause the Funds to realize investment income and/or capital
gains or losses that it might not have realized if it had completely satisfied
the redemption in-kind. As a result, the Funds may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
Interest
and other income received by the Funds with respect to foreign securities may
give rise to withholding and other taxes imposed by foreign countries. Tax
treaties or conventions between certain countries and the United States may
reduce or eliminate such taxes. If, as of the close of a taxable year, more than
50% of the value of a Fund’s assets consists of certain foreign stock or
securities, the Fund will be
eligible
to elect to “pass through” to investors the amount of certain qualifying foreign
income and similar taxes paid by the Fund during that taxable year. This means
that investors would be considered to have received as additional income their
respective shares of such foreign taxes, but may be entitled to either a
corresponding tax deduction in calculating taxable income, or, subject to
certain limitations, a credit in calculating federal income tax. If the Fund
does not so elect, the Fund will be entitled to claim a deduction for certain
foreign taxes incurred by the Fund. The Funds (or its administrative agent) will
notify you if it makes such an election and provide you with the information
necessary to reflect foreign taxes paid on your income tax return.
The
foregoing 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 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 “Federal Income Tax Matters” in the SAI.
Information
regarding how often Shares are traded on the Exchange at a price above
(i.e.,
at a premium) or below (i.e.,
at a discount) the NAV of the Funds can be found on the Funds’ website at
www.activepassive.com.
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange is not
responsible for, nor has it participated in the determination of, the timing,
prices, or quantities of Shares to be issued, nor in the determination or
calculation of the equation by which Shares are redeemable. The Exchange has no
obligation or liability to owners of Shares in connection with the
administration, marketing, or trading of Shares.
Without
limiting any of the foregoing, in no event shall the Exchange have any liability
for any lost profits or indirect, punitive, special, or consequential damages
even if notified of the possibility thereof.
The
Adviser and the Funds make no representation or warranty, express or implied, to
the owners of Shares or any member of the public regarding the advisability of
investing in securities generally or in the Funds particularly.
The
following financial highlights tables show each Fund’s financial performance for
the fiscal period from May 2, 2023 (the commencement of operations) through
August 31, 2023. Certain information reflects financial results for a single
share of a Fund. The total return in the tables represents the rate that you
would have earned or lost on an investment in a Fund (assuming you reinvested
all distributions). This information has been derived from the Funds’ financial
statements and financial highlights which have been audited by Cohen &
Company, Ltd., the independent registered public accounting firm of the Funds,
whose report, along with the Funds’ financial statements, are included in the
Funds’ Annual
Report to Shareholders
for the fiscal period ended August 31, 2023, which is available upon
request.
|
|
|
|
| |
ActivePassive
Core Bond ETF |
Per
Share Data for a Share Outstanding Throughout Each Period |
|
|
Period
Ended
August
31, 2023(1) |
Net
asset value, beginning of period |
$30.00 |
| |
Income
from investment operations: |
|
Net
investment income(2) |
0.35 |
Net
realized and unrealized gain (loss)(5) |
(0.93) |
| |
Total
from investment operations |
(0.58) |
| |
Less
distributions paid: |
|
Dividends
from net investment income |
(0.24) |
| |
Total
distributions paid |
(0.24) |
| |
Net
asset value, end of period |
$29.18 |
| |
Total
return(3)(6) |
-1.96% |
| |
Ratios/supplemental
data |
|
Net
assets, end of period (000’s) |
$99,933 |
Ratio
of expenses to average net assets(4) |
0.35% |
Ratio
of net investment income to average net assets(4) |
3.58% |
Portfolio
turnover rate(3) |
12.7% |
(1)Fund
commenced operations on May 2, 2023.
(2)Per
share net investment income was calculated using average shares
outstanding.
(3)Not
annualized for periods less than one year.
(4)Annualized
for periods less than one year.
(5)Realized
gains and losses per share in the caption are balancing amounts necessary to
reconcile the change in net asset value per share for the period, and may not
reconcile with the aggregate gains and losses in the Statement of Operations
included in the annual report to shareholders due to share transactions for the
period.
(6)Total
return represents the rate that investor would have earned or lost on an
investment in the Fund, assuming reinvestment of dividends. Total return for a
period less than one year is not annualized. Total return represented is total
return of Net Asset Value. Total return of the Market Value is
-1.80%.
|
|
|
|
| |
ActivePassive
Intermediate Municipal Bond ETF |
Per
Share Data for a Share Outstanding Throughout Each Period |
|
|
Period
Ended
August
31, 2023(1) |
Net
asset value, beginning of period |
$25.00 |
| |
Income
from investment operations: |
|
Net
investment income(2) |
0.17 |
Net
realized and unrealized gain (loss)(5) |
(0.66) |
| |
Total
from investment operations |
(0.49) |
| |
Less
distributions paid: |
|
Dividends
from net investment income |
(0.12) |
| |
Total
distributions paid |
(0.12) |
| |
Net
asset value, end of period |
$24.39 |
| |
Total
return(3)(6) |
-1.94% |
| |
Ratios/supplemental
data |
|
Net
assets, end of period (000’s) |
$30,490 |
Ratio
of expenses to average net assets(4) |
0.35% |
Ratio
of net investment income to average net assets(4) |
2.14% |
Portfolio
turnover rate(3) |
0.0% |
(1)Fund
commenced operations on May 2, 2023.
(2)Per
share net investment income was calculated using average shares
outstanding.
(3)Not
annualized for periods less than one year.
(4)Annualized
for periods less than one year.
(5)Realized
gains and losses per share in the caption are balancing amounts necessary to
reconcile the change in net asset value per share for the period, and may not
reconcile with the aggregate gains and losses in the Statement of Operations
included in the annual report to shareholders due to share transactions for the
period.
(6)Total
return represents the rate that investor would have earned or lost on an
investment in the Fund, assuming reinvestment of dividends. Total return for a
period less than one year is not annualized. Total return represented is total
return of Net Asset Value. Total return of the Market Value is
-1.93%.
|
|
|
|
| |
ActivePassive
International Equity ETF |
Per
Share Data for a Share Outstanding Throughout Each Period |
|
|
Period
Ended
August
31, 2023(1) |
Net
asset value, beginning of period |
$24.73 |
| |
Income
from investment operations: |
|
Net
investment income(2) |
0.20 |
Net
realized and unrealized gain (loss)(5) |
0.32 |
| |
Total
from investment operations |
0.52 |
| |
Net
asset value, end of period |
$25.25 |
| |
Total
return(3)(6) |
2.12% |
| |
Ratios/supplemental
data |
|
Net
assets, end of period (000’s) |
$77,022 |
Ratio
of expenses to average net assets(4) |
0.45% |
Ratio
of net investment income to average net assets(4) |
2.39% |
Portfolio
turnover rate(3) |
15.1% |
(1)Fund
commenced operations on May 2, 2023.
(2)Per
share net investment income was calculated using average shares
outstanding.
(3)Not
annualized for periods less than one year.
(4)Annualized
for periods less than one year.
(5)Realized
gains and losses per share in the caption are balancing amounts necessary to
reconcile the change in net asset value per share for the period, and may not
reconcile with the aggregate gains and losses in the Statement of Operations
included in the annual report to shareholders due to share transactions for the
period.
(6)Total
return represents the rate that investor would have earned or lost on an
investment in the Fund, assuming reinvestment of dividends. Total return for a
period less than one year is not annualized. Total return represented is total
return of Net Asset Value. Total return of the Market Value is
2.16%.
|
|
|
|
| |
ActivePassive
U.S. Equity ETF |
Per
Share Data for a Share Outstanding Throughout Each Period |
|
|
Period
Ended
August
31, 2023(1) |
Net
asset value, beginning of period |
$24.75 |
| |
Income
from investment operations: |
|
Net
investment income(2) |
0.12 |
Net
realized and unrealized gain (loss)(5) |
2.55 |
| |
Total
from investment operations |
2.67 |
| |
Net
asset value, end of period |
$27.42 |
| |
Total
return(3)(6) |
10.78% |
| |
Ratios/supplemental
data |
|
Net
assets, end of period (000’s) |
$180,280 |
Ratio
of expenses to average net assets(4) |
0.30% |
Ratio
of net investment income to average net assets(4) |
1.39% |
Portfolio
turnover rate(3) |
8.9% |
(1)Fund
commenced operations on May 2, 2023.
(2)Per
share net investment income was calculated using average shares
outstanding.
(3)Not
annualized for periods less than one year.
(4)Annualized
for periods less than one year.
(5)Realized
gains and losses per share in the caption are balancing amounts necessary to
reconcile the change in net asset value per share for the period, and may not
reconcile with the aggregate gains and losses in the Statement of Operations
included in the annual report to shareholders due to share transactions for the
period.
(6)Total
return represents the rate that investor would have earned or lost on an
investment in the Fund, assuming reinvestment of dividends. Total return for a
period less than one year is not annualized. Total return represented is total
return of Net Asset Value. Total return of the Market Value is
10.95%.
Investment
Adviser
Envestnet
Asset Management, Inc.
One
North Wacker Drive, Suite 1925
Chicago,
Illinois 60606
Independent
Registered Public Accounting Firm
Cohen
& Company, Ltd.
342
North Water Street, Suite 830
Milwaukee,
Wisconsin 53202
Legal
Counsel
Godfrey
& Kahn, S.C.
833
East Michigan Street, Suite 1800
Milwaukee,
Wisconsin 53202
Custodian
U.S.
Bank National Association
Custody
Operations
1555
North River Center Drive, Suite 302
Milwaukee,
Wisconsin 53212
Transfer
Agent, Fund Accountant and Fund Administrator
U.S.
Bancorp Fund Services, LLC
615
East Michigan Street
Milwaukee,
Wisconsin 53202
Distributor
Foreside
Fund Services, LLC
Three
Canal Plaza, Suite 100
Portland,
Maine 04101
ActivePassive
ETFs
Each
a Series of Trust for Professional Managers
You
may find more information about the Funds in the following
documents:
Statement
of Additional Information
The
SAI provides additional details about the investments and techniques of the
Funds and certain other additional information. The current SAI on file with the
SEC is incorporated into this Prospectus by reference. This means that the SAI
is legally considered a part of this Prospectus even though it is not physically
within this Prospectus.
Annual
and Semi-Annual Reports
The
Funds’ annual and semi-annual reports provide the most recent financial reports
and portfolio holdings. The Funds’ annual report contains a discussion of the
market conditions and investment strategies that significantly affected the
Funds’ performance during the Funds’ prior fiscal period.
You
may obtain a free copy of these documents, request other information or make
general inquiries about the Funds by calling the Funds at 1-800-617-0004
(toll-free), by visiting www.activepassive.com
or
by writing to:
ActivePassive
ETFs
c/o
U.S. Bank Global Fund Services
P.O.
Box 701
Milwaukee,
WI 53201-0701
Shareholder
reports and other information about the Funds are also available:
•free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
•for
a fee, by electronic request at the following e-mail address:
[email protected].
_______________________________________________
(The
Trust’s SEC Investment Company Act of 1940 file number is
811‑10401.)