2023-11-15ABGLGNaturalResourcesETF_FYE_01_31_PRO_485B
PROSPECTUS
February
1, 2024
| |
|
|
American
Beacon GLG Natural Resources ETF |
MGNR |
This
Prospectus contains important information you should know about investing,
including information about risks. Please read it before you invest
and keep it for future reference.
Fund
shares are not individually redeemable. Fund shares are listed on NYSE Arca,
Inc. (the “Exchange”).
As
with all exchange-traded funds, the Securities and Exchange Commission has not
approved or disapproved these securities or determined if this Prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
| |
American
Beacon GLG
Natural Resources ETFSM
|
|
Investment
Objective
The
Fund’s investment objective is 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. You
may pay other fees, such as brokerage commissions
and other fees to financial intermediaries, which are not reflected in the
tables and examples below.
| |
Annual
Fund Operating Expenses
(Expenses that you pay each year as a percentage of the value of your
investment) |
|
|
|
Management
Fees |
|
Distribution
and/or Service (12b-1) Fees1
|
|
Other
Expenses2
|
|
Total
Annual Fund Operating Expenses |
|
1 |
Pursuant
to a Distribution Plan, the Fund may bear a Rule 12b-1 fee not to exceed
0.25% per year of the Fund’s average daily net assets. However, no such
fee is currently paid by
the Fund, and the Board of Trustees has not currently approved the
commencement of any payments under the Distribution
Plan. |
2 |
Other
Expenses are based on estimated expenses for the 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 redeem all of your shares at
the end of those periods. The Example also assumes that your investment
has a 5% return each year and that the Fund’s operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions, whether you redeem or hold your shares, your costs would
be:
Portfolio
Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or ‘‘turns over’’ its portfolio). A higher portfolio turnover rate
may indicate
higher transaction costs and may result in higher taxes when Fund shares are
held in a taxable account. These costs, which are not reflected in annual
Fund
operating expenses or in the Example, affect the Fund’s performance. The Fund’s
portfolio turnover rate for the Fund’s most recent fiscal year is not
provided
because the Fund had not commenced operations prior to the date of this
Prospectus.
Principal
Investment Strategies
Under
normal circumstances, the Fund invests at least 80% of its net assets (plus the
amount of any borrowings for investment purposes) in equity securities
of
companies primarily
engaged
in natural resources and natural resources-related businesses. The Fund
considers companies primarily
engaged
in natural resources
and natural resources-related businesses to be those with
a majority of assets, revenues or earnings, directly or indirectly through
subsidiaries, from owning,
producing, refining, processing, transporting, distributing, mining, exploring,
storing, or otherwise handling natural resources, or from activities that
directly
rely on or support natural resources, such as producing food, delivering
utilities, selling machines for natural resources uses, and deriving materials
such
as fertilizer, glass, paper and plastic. The Fund considers natural resources to
generally include, but not be limited to, metals, agricultural products,
timber,
water, energy (including fossil fuel and renewable sources), and
chemicals.
The Fund invests more than 25% of its net
assets, in aggregate, in companies
primarily engaged in natural resources and natural resources-related industries.
The Fund’s investments in equity securities may include common stocks,
American depositary receipts (“ADRs”), European depositary receipts (“EDRs”),
global depositary receipts (“GDRs”), non-voting depositary receipts (“NVDRs”),
U.S. dollar-denominated foreign stocks traded on U.S. exchanges, and master
limited partnerships.
Using
a combination of top-down and bottom-up analysis, the Fund’s sub-advisor, GLG
LLC, an indirect wholly owned subsidiary of Man Group plc, invests in
companies
with historical track records of capital appreciation. The sub-advisor may also
invest in companies based upon a belief that they are poised to increase
in value following an anticipated event, such as a merger or acquisition. The
Fund typically sells a security when the reasons for buying it no longer
apply
in the sub-advisor’s view, when the company begins to show deteriorating
fundamentals or poor relative performance, or when the sub-advisor believes
a
security has reached its full market value. The Fund may also sell a security to
secure gains, limit losses or redeploy assets into more promising
opportunities.
The
Fund may have a focused portfolio ranging from 30 to 60 securities. The Fund may
have significant exposure to the Energy and Materials sectors. However,
as the sector composition of the Fund’s portfolio changes over time, the Fund’s
exposure to these sectors may be lower at a future date, and the Fund’s
exposure to other market sectors may be higher. The Fund principally invests in
large and mid-capitalization companies, and to a lesser extent in small-capitalization
companies. The Fund may invest in growth and value stocks. The Fund may invest
without limitation in the United States and foreign developed
and emerging market securities, including significant exposure to companies
located in, or with economic ties to, Australia,
Canada, Europe
and the
United Kingdom. However, as the geographic concentration of the Fund’s portfolio
changes over time, the Fund’s exposure to Australia,
Canada, Europe
and
the United Kingdom may decline, and the Fund’s exposure to other geographic
areas may increase.
The Fund’s investments in equity securities may be denominated
in foreign currencies, and the Fund may invest directly in foreign currencies.
The Fund may invest cash balances in a government money market fund
advised by the Manager, with respect to which the Manager receives a management
fee.
Principal
Risks
There
is no assurance that the Fund will achieve its investment objective, and you
could lose part or all of your investment in the Fund.
The
Fund is not designed
for investors who need an assured level of current income and is intended to be
a long-term investment. The Fund is not a complete investment
program and may not be appropriate for all investors. Investors should carefully
consider their own investment goals and risk tolerance
before investing in the Fund.
The principal risks of investing in the Fund listed below are presented in
alphabetical order and not in order of
Prospectus
– Fund Summary1
importance
or potential exposure. Among other matters, this presentation is intended to
facilitate your ability to find particular risks and compare them with
the
risks of other funds. Each risk summarized below is considered a “principal
risk” of investing in the Fund, regardless of the order in which it
appears.
Currency
Risk
The
Fund may have exposure to foreign currencies.
Foreign currencies may fluctuate significantly over short periods of time, may
be affected unpredictably by intervention,
or the failure to intervene, of the U.S.
or foreign governments or central banks, and may be affected by currency
controls or political developments
in the U.S. or abroad. Foreign currencies may also decline in value relative to
the U.S. dollar and other currencies and thereby affect the Fund’s investments.
Cybersecurity
and Operational Risk
Operational
risks arising from, among other problems, human errors, systems and technology
disruptions or failures, or cybersecurity incidents may negatively impact
the Fund and its service providers as well as the ability of shareholders to
transact in the Fund’s shares, and result in financial losses. Cybersecurity
incidents
may allow an unauthorized party to gain access to Fund assets, shareholder data,
or proprietary information, or cause the Fund or its service providers,
as well as securities trading venues and their service providers, to suffer data
corruption or lose operational functionality. Cybersecurity incidents
can
result from deliberate attacks or unintentional events. It is not possible for
the Fund or its service providers to identify all of the operational risks that
may affect
the Fund or to develop processes and controls to completely eliminate or
mitigate their occurrence or effects. The Fund cannot control the cybersecurity
plans
and systems of its service providers, its counterparties or the issuers of
securities in which the Fund invests. The issuers of the Fund’s investments are
likely
to be dependent on computers for their operations and require ready access to
their data and the internet to conduct their business. Thus, cybersecurity
incidents
could also affect issuers of the Fund’s investments, leading to significant loss
of value.
Emerging
Markets Risk
When
investing in emerging markets, the risks of investing in foreign securities are
heightened. Emerging markets are generally smaller, less developed, less
liquid
and more volatile than the securities markets of the U.S. and other developed
markets. There are also risks of: greater political or economic uncertainties;
an economy’s dependence on revenues from particular commodities or on
international aid or development assistance; currency transfer restrictions;
a limited number of potential buyers for such securities resulting in increased
volatility and limited liquidity for emerging market securities; trading
suspensions
and other restrictions on investment; delays and disruptions in securities
clearing and settlement procedures; and significant limitations on investor
rights and recourse. The governments of emerging market countries may also be
more unstable and more likely to impose capital controls, nationalize
a company or industry, place restrictions on foreign ownership and on
withdrawing sale proceeds of securities from the country, intervene in the
financial
markets, and/or impose burdensome taxes that could adversely affect security
prices. In addition, 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, financial reporting and recordkeeping standards and requirements
comparable to those to which U.S. companies are
subject.
Equity
Investments Risk
Equity
securities are subject to investment risk, issuer risk and market risk. In
general, the values of stocks and other equity securities fluctuate, and
sometimes widely
fluctuate, in response to changes in a company’s financial condition as well as
general market, economic and political conditions and other factors. The
Fund
may experience a significant or complete loss on its investment in an equity
security. In addition, stock prices may be particularly sensitive to rising
interest
rates, which increase borrowing costs and the costs of capital. The Fund may
invest in the following equity securities, which may expose the Fund to
the
following additional risks:
■ |
Common
Stock Risk.
The value of a company’s common stock may fall as a result of factors
affecting the company, companies in the same industry or sector,
or the financial markets overall. Common stock generally is subordinate to
preferred stock upon the liquidation or bankruptcy of the issuing
company. |
■ |
Depositary
Receipts Risk.
Depositary receipts are subject to certain of the risks associated with
investing directly in foreign securities, including, but not limited
to, currency exchange rate fluctuations, political and financial
instability in the home country of a particular depositary receipt, less
liquidity, more volatility,
less government regulation and supervision and delays in transaction
settlement. |
■ |
Master
Limited Partnerships (“MLPs”) Risk.
Investing in MLPs involves certain risks related to investing in the
underlying assets of the MLPs and risks associated
with pooled investment vehicles. Investments held by MLPs may be
relatively illiquid, limiting the MLPs’ ability to change their portfolios
promptly in
response to changes in economic or other conditions. MLPs may have limited
financial resources, their securities may trade infrequently and in
limited volume,
they may be difficult to value, and they may be subject to more abrupt or
erratic price movements than securities of larger or more broadly based
companies.
Holders of units in MLPs have more limited rights to vote on matters
affecting the partnership and may be required to sell their common units
at
an undesirable time or price. The Fund’s investments in MLPs will be
limited to no more than 25% of its assets in order for the Fund to meet
the requirements
necessary to qualify as a “regulated investment company” under the
Internal Revenue Code of 1986, as amended (“Internal Revenue
Code”). |
■ |
U.S.
Dollar-Denominated Foreign Stocks Traded on U.S. Exchanges
Risk.
Foreign
(non-U.S.) companies that list their stocks
on U.S. exchanges may
be exempt
from certain accounting and corporate governance standards that apply to
U.S. companies that list on the same exchange. Performance of these
stocks
can be impacted by
political and financial instability in the home country of a particular
foreign company,
and delisting of these stocks could impact the Fund‘s
ability to transact in such securities and could significantly impact
their liquidity and market price. |
Event-Driven
Investing Risk
The
Fund’s use of event-driven strategies requires the sub-advisor to make
predictions about the likelihood that an event will occur and the impact such
event will
have on the value of a company’s securities. If the event fails to occur or it
does not have the effect foreseen, the Fund can experience
losses.
Exchange-Traded
Funds (“ETFs”) Risk
As
an ETF, the Fund is subject to the following
risks:
■ |
Authorized
Participants Concentration Risk.
The Fund has a limited number of financial institutions that may act as
authorized participants (i.e., large institutions
that have entered into agreements with the distributor of the Fund’s
shares and are authorized to transact in Creation Units (described below)
with
the Fund) (“Authorized Participants”). Only an Authorized Participant may
transact in Creation Units directly with the Fund, and none of those
Authorized
Participants is obligated to engage in creation and/or redemption
transactions. To the extent they exit the business or are otherwise unable
to proceed
in creation and redemption transactions with the Fund and no other
Authorized Participant is able to step forward to create or redeem shares,
then shares
of the Fund may be more likely to trade at a premium or discount to net
asset value (“NAV”) and possibly face trading halts or delisting.
Authorized Participant
concentration risk may be heightened for ETFs that invest in securities or
instruments that have lower trading
volumes. |
■ |
Cash
Transactions Risk.
Like other ETFs, the Fund sells and redeems its shares primarily in large
blocks called “Creation Units” and only to Authorized Participants.
Unlike many other ETFs, however, the Fund expects to effect its creations
and redemptions at least partially for cash, rather than in-kind
securities.
Thus, an investment in the Fund may be less tax-efficient than an
investment in other ETFs as the Fund may recognize a capital gain that it
could have
avoided by making redemptions in-kind. As a result, the Fund may pay out
higher capital gains distributions than ETFs that redeem in-kind. Further,
|
2Prospectus
– Fund Summary
|
paying
redemption proceeds in cash rather than through in-kind delivery of
portfolio securities may require the Fund to dispose of or sell portfolio
investments
to obtain the cash needed to distribute redemption proceeds at an
inopportune time. |
■ |
Premium/Discount
Risk.
There may be times when the market price of the Fund’s shares is more than
its NAV (at a premium) or less than its NAV (at a discount).
As a result, shareholders of the Fund may pay more than NAV when
purchasing shares and receive less than NAV when selling Fund shares. This
risk
is heightened in times of market volatility or periods of steep market
declines. In such market conditions, market or stop loss orders to sell
Fund shares may
be executed at prices well below
NAV. |
■ |
Secondary
Market Trading Risk.
Investors buying or selling shares in the secondary market will normally
pay brokerage commissions, which are often a fixed amount
and may be a significant proportional cost for investors buying or selling
relatively small amounts of shares. In addition, such investors may incur
the
cost of the “spread” also known as the bid-ask spread, which is the
difference between what investors are willing to pay for Fund shares (the
“bid” price)
and the price at which they are willing to sell Fund shares (the “ask”
price). The bid-ask spread varies over time based on, among other things,
trading
volume, market liquidity and market volatility. Trading in Fund shares may
be halted by the Exchange (as defined below) because of market
conditions
or other reasons. If a trading halt occurs, a shareholder may temporarily
be unable to purchase or sell shares of the Fund. In addition, although
the
Fund’s shares are listed on the Exchange, there can be no assurance that
an active trading market for shares will develop or be maintained or that
the Fund’s
shares will continue to be
listed. |
Flexible
Strategy Risk
The
Fund uses a variety of investment strategies to achieve its investment
objective. The sub-advisor does not attempt to keep the portfolio structure or
the Fund’s
performance consistent with any designated stock, bond or market index, and
during times of market rallies, the Fund may not perform as well as other
funds that seek to outperform an index. Over time, the investment performance of
flexible strategies is typically substantially independent of longer
term
movements in the stock and bond market.
Focused
Holdings Risk
Because
the Fund may have a focused portfolio of fewer companies than other diversified
funds, the increase or decrease of the value of a single investment may
have a greater impact on the Fund’s net asset value (“NAV”) and total return
when compared to other diversified funds.
Foreign
Investing Risk
Non-U.S.
investments carry potential risks not associated with U.S. investments. Such
risks include, but are not limited to: (1) currency exchange rate fluctuations,
(2) political and financial instability, (3) less liquidity, (4) lack of uniform
accounting, auditing and financial reporting standards, (5) greater volatility,
(6) different government regulation and supervision of foreign stock exchanges,
brokers and listed companies, and (7) delays or failures in transaction
payment and settlement in some foreign markets. The Fund’s investment in a
foreign issuer may subject the Fund to regulatory, political, currency,
security,
economic and other risks associated with that country. Global economic and
financial markets have become increasingly interconnected and conditions
(including recent volatility, terrorism, war and political instability) and
events (including natural disasters) in one country, region or financial market
may
adversely impact issuers in a different country, region or financial
market.
Geographic
Concentration Risk
From
time to time, based on market or economic conditions, the Fund may invest a
significant portion of its assets in the securities of issuers located in, or
with
significant economic ties to, a single country or geographic region, which could
increase the risk that economic, market, political, business, regulatory,
diplomatic,
social and environmental conditions in that particular country or geographic
region may have a significant impact on the Fund’s performance. Investing
in such a manner could cause the Fund’s performance to be more volatile than the
performance of more geographically diverse funds. A decline in the
economies or financial markets of one country or region may adversely affect the
economies or financial markets of another.
■ |
Australian
Securities Risk.
Investments in Australian issuers will subject the Fund to legal,
regulatory, political, currency, security, and economic risks specific
to
Australia. The Australian economy is heavily dependent on exports from the
energy, agricultural and mining sectors. This makes the Australian economy
susceptible
to fluctuations in the commodity markets. Australia is also dependent on
trading with key trading partners, so interruption or termination of
such
trading relationships may have a negative effect on the companies in which
the Fund
invests. |
■ |
Canadian
Securities Risk.
The United States is Canada’s largest trading and investment partner, and
the Canadian economy is significantly affected by developments
in the U.S. economy. The Canadian economy is also dependent upon external
trade with other key trading partners, including Mexico, China
and
the United Kingdom. Trade policy changes by any of these countries or
regions that reduce Canada’s ability to trade with such regions could have
a significant
impact on the Canadian economy. In addition, Canada is a large supplier of
natural resources (e.g., oil, natural gas and agricultural products). As
a
result, the Canadian economy is sensitive to fluctuations in certain
commodity prices. |
■ |
European
Securities Risk.
The Fund’s performance may be affected by political, social and economic
conditions in Europe, such as growth of economic output
(the gross national product of the countries in the region), the rate of
inflation, the rate at which capital is reinvested into European
economies, the success
of governmental actions to reduce budget deficits, the resource
self-sufficiency of European countries, the monetary exchange rates
between European
countries, and conflict between European countries. The European financial
markets have experienced and may continue to experience volatility
and
adverse trends due to concerns relating to economic downturns; rising
government debt levels and the possible default on government debt;
national unemployment
in several European countries; public health crises; political unrest;
economic sanctions; inflation; energy crises; and war and military
conflict, such
as the Russian invasion of Ukraine. A default or debt restructuring by any
European country could adversely impact holders of that country’s debt and
sellers
of credit default swaps linked to that country’s creditworthiness, which
may be located in other countries. Such a default or debt restructuring
could affect
exposures to European countries. In addition, issuers have faced
difficulties obtaining credit or refinancing existing obligations, and
financial markets have
experienced extreme volatility and declines in asset values and liquidity.
These events have affected the exchange rate of the Euro and may continue
to significantly
affect European countries.
Responses
to financial problems by European governments, central banks, and others,
including austerity measures and other reforms, may not produce the
desired
results, may result in social unrest and may limit future growth and
economic recovery or may have unintended consequences. The Fund makes
investments
in securities of issuers that are domiciled in member states of the
European Union (the “EU”). The economies and markets of European
countries
are often closely connected and interdependent, and events in one country
in Europe can have an adverse impact on other European countries.
One
or more countries may abandon the Euro and/or withdraw from the EU. The
impact of these actions, especially if they occur in a disorderly fashion,
could
be significant and far-reaching. The United Kingdom’s withdrawal from the
EU could be an indication that one or more other countries may withdraw
from
the EU and/or abandon the Euro. These events and actions have affected,
and may in the future affect, the value and exchange rate of the Euro and
may
continue to significantly affect the economies of every country in Europe,
including countries that do not use the Euro and non-EU member
states. The
continuing effects on the economies of European countries of the
Russia/Ukraine war and Russia’s response to sanctions imposed by the U.S.,
EU, UK and
others, are impossible to predict, but have been and could continue to be
significant. For example, exports in Eastern Europe have been disrupted
for certain
key commodities, pushing commodity prices to record highs. Also, both
wholesale energy prices and energy prices charged to consumers in Europe
have
increased
significantly. |
Prospectus
– Fund Summary3
■ |
United
Kingdom Securities Risk. The
Fund’s exposure to issuers located in, or with economic ties to, the
United Kingdom, could expose the Fund to risks associated
with investments in the United Kingdom to a greater extent than more
geographically diverse funds. Investments in United Kingdom issuers may
subject
the Fund to regulatory, political, currency, security, and economic risks
specific to the United Kingdom. The United Kingdom has one of the largest
economies
in Europe, and the United States and other European countries are
substantial trading partners of the United Kingdom. As a result, the
United Kingdom
economy may be impacted by changes to the economic condition of the United
States and other European countries.
Increasing
commodity prices and rising inflation levels caused or exacerbated by the
war between Russia and Ukraine recently prompted the United Kingdom
government to implement significant policy changes. It is difficult to
predict what effects such policies (or the suggestion of such policies)
may have
and the duration of those effects, which may last for extended periods.
These effects may negatively impact broad segments of business and the
population
and have a significant and rapid negative impact on the performance of the
Fund’s investments.
Additionally,
the transitional period following the United Kingdom’s departure from the
European Union (commonly referred to as “Brexit”) ended on December
31, 2020 and European Union law ceased to have effect in the United
Kingdom except to the extent retained by the United Kingdom by
unilateral
act. The United Kingdom and the European Union then reached a trade
agreement that was ratified by all applicable United Kingdom and
European
Union governmental bodies. The economic effects of Brexit, including
certain negative impacts on the ability of the United Kingdom to trade
seamlessly
with the European Union, are becoming clearer but some political,
regulatory and commercial uncertainty in relation to the longer term
impacts nevertheless
remains to be resolved. Accordingly, there remains a risk that the
aftermath of Brexit, including its ongoing effect on the United Kingdom’s
relationships
with other countries, including the United States, and with the European
Union, may negatively impact the value of investments held by the
Fund.
A depreciation of the British pound sterling and/or the Euro in relation
to the U.S. dollar could adversely affect the Fund’s investments
denominated in British
pound sterling or Euros regardless of the performance of the
underlying
issuer. |
Growth
Companies Risk
Growth
companies are expected to increase their earnings at a certain rate. When these
expectations are not met or decrease, the prices of these stocks may
decline,
sometimes sharply, even if earnings showed an absolute increase. The Fund’s
investments in growth companies may be more sensitive to company earnings
and more volatile than the market in general primarily because their stock
prices are based heavily on future expectations. If an assessment of the
prospects
for a company’s growth is incorrect, then the price of the company’s stock may
fall or not approach the value placed on it. Growth company stocks may
also lack the dividend yield that can cushion stock price declines in market
downturns.
Investment
Risk
An
investment in the Fund is not a deposit with a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government
agency.
When you sell your shares of the Fund, they could be worth less than what you
paid for them. Therefore, you may lose money by investing
in the Fund.
Issuer
Risk
The
value of, and/or the return generated by, a security may decline for a number of
reasons that directly relate to the issuer, such as management performance,
financial leverage and reduced demand for the issuer’s goods or services, as
well as the historical and prospective earnings of the issuer and the
value
of its assets.
Large-Capitalization
Companies Risk
The
securities of large market capitalization companies may underperform other
segments of the market because such companies may be less responsive to
competitive
challenges and opportunities and, at times, such companies may be out of favor
with investors. Many larger-capitalization companies also may be unable
to attain the high growth rates of successful smaller companies, especially
during periods of economic expansion.
Market
Risk
The
Fund is subject to the risk that the securities markets will move down,
sometimes rapidly and unpredictably, based on overall economic conditions and
other
factors, which may negatively affect the Fund’s performance. Equity securities
generally have greater price volatility than fixed-income securities,
although
under certain market conditions fixed-income securities may have comparable or
greater price volatility. During a general downturn in the securities
markets,
multiple assets may decline in value simultaneously. Prices in many financial
markets have increased significantly over the last decade, but there have
also
been periods of adverse market and financial developments and cyclical change
during that timeframe, which have resulted in unusually high levels of
volatility
in domestic and foreign financial markets that has caused losses for investors
and may occur again in the future. The value of a security may decline
due
to adverse issuer-specific conditions, general market conditions unrelated to a
particular issuer, such as changes in interest or inflation rates, or factors
that
affect a particular industry or industries. Changes in the financial condition
of a single issuer or market segment also can impact the market as a whole.
Geopolitical
and other events, including war, terrorism, economic uncertainty, trade
disputes, pandemics, public health crises, natural disasters and related
events
have led, and in the future may continue to lead, to instability in world
economies and markets generally and reduced liquidity in equity, credit and
fixed-income
markets, which may disrupt economies and markets and adversely affect the value
of your investment. Changes in value may be temporary or may
last for extended periods.
Policy
changes by the U.S. government and/or Federal Reserve and political events
within the U.S. and abroad, such as changes in the U.S. presidential
administration
and Congress, the U.S. government’s inability at times to agree on a long-term
budget and deficit reduction plan, the threat or occurrence of a federal
government shutdown and threats or the occurrence of a failure to increase the
federal government’s debt limit, which could result in a default on the
government’s
obligations, may affect investor and consumer confidence and may adversely
impact financial markets and the broader economy, perhaps suddenly
and to a significant degree.
Markets
and market participants are increasingly reliant upon both publicly available
and proprietary information data systems. Data imprecision, software or
other
technology malfunctions, programming inaccuracies, unauthorized use or access,
and similar circumstances may impair the performance of these systems
and may have an adverse impact upon a single issuer, a group of issuers, or the
market at large.
The
financial markets generally move in cycles, with periods of rising prices
followed by periods of declining prices. The value of your investment may
reflect these
fluctuations.
■ |
Recent
Market Events Risk.
Both U.S. and international markets have experienced significant
volatility in recent months and years. As a result of such volatility,
investment returns may fluctuate significantly. Moreover, the risks
discussed herein associated with an investment in the Fund may be
increased. Although
interest rates were unusually low in recent years in the U.S. and abroad,
in 2022, the Federal Reserve and certain foreign central banks began to
raise
interest rates as part of their efforts to address rising inflation. It is
difficult to accurately predict the pace at which interest rates may
continue to increase,
the
timing, frequency or magnitude of any such increases,
or when such increases might stop.
Additionally, various economic and political factors could
cause the Federal Reserve or another foreign central bank to change their
approach in the future and such actions may result in an economic
slowdown
in the U.S. and abroad. Unexpected increases in interest rates could lead
to market volatility or reduce liquidity in certain sectors of the market.
Deteriorating
economic fundamentals may, in turn, increase the risk of default or
insolvency of particular issuers, negatively impact market value, cause
credit
spreads to widen, and reduce bank balance sheets. Any of these could cause
an increase in market volatility, reduce liquidity across various markets
|
4Prospectus
– Fund Summary
|
or
decrease confidence in the markets. Additionally, high public debt in the
U.S. and other countries creates ongoing systemic and market risks and
policymaking
uncertainty.
In
March 2023, the shutdown of certain financial institutions in the U.S. and
questions regarding the viability of other financial institutions raised
economic concerns
over disruption in the U.S. and global banking systems. There can be no
certainty that the actions taken by the U.S. or foreign governments will
be
effective in mitigating the effects of financial institution failures on
the economy and restoring public confidence in the U.S. and global banking
systems.
Some
countries, including the U.S., have in recent years adopted more
protectionist trade policies. Slowing global economic growth; risks
associated with a trade
agreement between the United Kingdom and the European Union; the risks
associated with ongoing trade negotiations with China; and
the
possibility
of changes to some international trade agreements; political
or economic dysfunction within some nations, including major producers of
oil; and dramatic
changes in commodity and currency prices could have adverse effects that
cannot be foreseen at the present time.
Tensions,
war,
or open conflict between nations, such as between Russia and Ukraine, in
the Middle East
or in eastern Asia
could affect the economies of many
nations, including the United States. The duration of ongoing hostilities
in the Middle East and between Russia and Ukraine, and any
sanctions and related
events cannot be predicted. Those events present material uncertainty and
risk with respect to markets globally and the performance of the Fund
and
its investments or operations could be negatively impacted.
Regulators
in the U.S. have proposed and recently adopted a number of changes to
regulations involving the markets and issuers, some of which apply to
the
Fund. The full effect of various newly-adopted regulations is not
currently known. Additionally, it is not clear whether the proposed
regulations will be adopted.
However, due to the broad scope of the new and proposed regulations,
certain changes could limit the Fund’s ability to pursue its investment
strategies
or make certain investments, or may make it more costly for the Fund to
operate, which may impact performance.
Economists
and others have expressed increasing concern about the potential effects
of global climate change on property and security values. Certain
issuers,
industries and regions may be adversely affected by the impacts of climate
change, including on the demand for and the development of goods and
services
and related production costs, and the impacts of legislation, regulation
and international accords related to climate change, as well as any
indirect consequences
of regulation or business trends driven by climate
change. |
Mid-Capitalization
Companies Risk
Investing
in the securities of mid-capitalization companies involves greater risk and the
possibility of greater price volatility, which at times can be rapid and
unpredictable,
than investing in larger-capitalization and more established companies. Since
mid-capitalization companies may have narrower commercial markets
and more limited operating history, product lines, and managerial and financial
resources than larger, more established companies, the securities of
these
companies may lack sufficient market liquidity, and they can be particularly
sensitive to changes in overall economic conditions, interest rates, borrowing
costs
and earnings.
Natural
Resources Concentration Risk
The
Fund concentrates its investments in natural resources and natural
resources-related industries and has greater exposure than other funds to
market, economic
and other factors affecting those industries. The Fund’s investments in equity
securities of companies in natural resources and natural resources-related
businesses are more vulnerable to price movements of natural resources and other
factors that particularly affect those types of businesses. Investments
in natural resources-related securities may be affected by numerous factors,
including changes in supply of, or demand for, various natural resources,
changes in energy prices, international political and economic developments,
economic conditions in large importation countries, import controls,
civil
conflict, natural or man-made disasters, actions to address climate change or
other environmental factors, energy conservation, the success of exploration
projects,
fluctuation and changes in commodity or other raw material prices, production
spending, increased competition, technological developments, and tax
and other government regulation and intervention. These factors could adversely
affect the performance of companies in natural resources-related industries,
and the Fund’s performance is likely to be disproportionately affected by these
factors compared to a more broadly diversified
fund.
New
Fund Risk
The
Fund had not commenced operations prior to the date of this Prospectus. The
current performance of the Fund may not represent how it is expected to,
or
may, perform in the long term if and when it becomes larger and has fully
implemented its investment strategies. Investment positions may have a
disproportionate
impact (negative or positive) on the Fund’s performance. The Fund may also
require a period of time before it is invested in securities that meet
its investment objectives and policies and achieves a representative portfolio
composition. Fund performance may be lower or higher during this “ramp-up”
period, and may also be more volatile, than would be the case after the Fund is
fully invested. Similarly, the Fund’s investment strategies may require
a longer period of time to show returns that are representative of the
strategies. As a new ETF, the Fund may experience low trading volume and wide
bid-ask
spreads.
Other
Investment Companies Risk
To
the extent that the Fund invests in shares of other registered investment
companies, the Fund will indirectly bear the fees and expenses charged by those
investment
companies in addition to the Fund’s direct fees and expenses. To the extent the
Fund invests in other investment companies that invest in equity securities,
fixed-income securities and/or foreign securities, or that track an index, the
Fund is subject to the risks associated with the underlying investments
held
by the investment company or the index fluctuations to which the investment
company is subject. The Fund will be subject to the risks associated with
investments
in those companies, including but not limited to the
following:
■ |
Government
Money Market Funds Risk.
Investments in government money market funds are subject to interest rate
risk, credit risk, and market risk. Interest
rate risk is the risk that rising interest rates could cause the value of
such an investment to decline. Credit risk is the risk that the issuer,
guarantor or
insurer of an obligation, or the counterparty to a transaction, may fail
or become less able or unwilling, to make timely payment of interest or
principal or otherwise
honor its obligations, or that it may default
completely. |
Sector
Risk
When
the Fund focuses its investments in certain sectors of the economy, its
performance could fluctuate more widely than if the Fund were invested more
evenly
across sectors. Issuers in the same economic sector may be similarly affected by
economic or market events, making the Fund more vulnerable to unfavorable
developments in that economic sector than funds that invest more broadly.
Additionally, individual sectors may be more volatile, and may perform
differently, than the broader market. As the Fund’s portfolio changes over time,
the Fund’s exposure to a particular sector may become higher or lower.
■ |
Energy
Sector Risk.
The Energy sector is cyclical and is highly dependent on commodity prices,
and prices and supplies of energy may fluctuate significantly over
short and long periods of time. Companies operating in the Energy sector
are subject to risks including, but not limited to: price volatility and
fluctuation
caused by real and perceived inflationary trends and availability of oil
and other resources; political developments such as the enactment or
cessation
of trade sanctions or import controls; political instability, war or other
geopolitical conflicts in the regions that the companies operate; the cost
assumed
in complying with environmental and other safety regulations, including
costs related to the transition to low carbon alternatives or clean
energy; supply
of and demand for energy fuels; depletion of resources; energy
conservation efforts; capital expenditures on and the success of
exploration and production
projects; increased competition and technological advances; and policies
of, and relations between, the Organization of the Petroleum Exporting
Countries
(OPEC) and oil importing nations. In addition, companies in the Energy
sector are at risk of liability from accidents resulting in pollution,
injury, |
Prospectus
– Fund Summary5
|
loss
of life or property, mishandling of materials, or other environmental
damage claims and at risk of loss from terrorism, cyber incidents, natural
disasters, fires
and explosions. Significant oil and gas deposits are located in emerging
markets countries where corruption and security may raise significant
risks, in addition
to the other risks of investing in emerging markets. Entities operating in
the Energy sector are subject to significant regulation of nearly every
aspect
of their operations by federal, state and local governmental agencies,
which can change rapidly or over time in both scope and intensity. There
is growing
political pressure to reduce the use of fossil fuels, which could begin to
impact the securities of companies in that industry and the prices of
related commodities. |
■ |
Materials
Sector Risk.
Companies in the Materials sector may be adversely affected by world
events, social and political unrest, war, energy conservation,
environmental
policies, commodity over-production, commodity price volatility, consumer
preferences, interest rates, exchange rates, product and economic
cycles,
marketing, import controls, technological progress, labor relations,
government regulations, and increased competition and resource depletion,
among
other factors. |
Securities
Selection Risk
Securities
selected for the Fund may not perform to expectations. This could result in the
Fund’s underperformance compared to its performance index(es), or other
funds with similar investment objectives or
strategies.
Small-Capitalization
Companies Risk
Investing
in the securities of small-capitalization companies involves greater risk and
the possibility of greater price volatility, which at times can be rapid and
unpredictable,
than investing in larger-capitalization and more established companies. Since
small-capitalization companies may have narrower commercial markets,
and more limited operating history, product lines, and managerial and financial
resources than larger, more established companies, the securities of
these
companies may lack sufficient market liquidity and they can be particularly
sensitive to changes in overall economic conditions, interest rates, borrowing
costs
and earnings.
Value
Stocks Risk
Value
stocks are subject to the risk that their intrinsic or full value may never be
realized by the market, that a stock judged to be undervalued may be
appropriately
priced, or that their prices may decline. Although value stocks tend to be
inexpensive relative to their earnings, they can continue to be inexpensive
for long periods of time. The Fund’s investments in value stocks seek to limit
potential downside price risk over time; however, value stock prices
still
may decline substantially. In addition, the Fund may produce more modest gains
as a trade-off for this potentially lower risk. The Fund’s investment in
value
stocks could cause the Fund to underperform funds that use a growth or non-value
approach to investing or have a broader investment
style.
Fund
Performance
Performance
information for the Fund is not provided because the Fund had not commenced
operations prior to the date of this Prospectus. Performance information
will be available in the Prospectus after the Fund has been in operation for one
full calendar year. When available, performance for the Fund can be
accessed on the Fund’s website at www.americanbeaconfunds.com.
Past
performance (before and after taxes) is not necessarily an indication of how the
Fund
will perform in the future.
Management
The
Manager
The
Fund has retained American Beacon Advisors, Inc. to serve as its
Manager.
Sub-Advisor
The
Fund’s investment sub-advisor is GLG LLC, an indirect wholly owned subsidiary of
Man Group plc.
Portfolio
Managers
|
| |
GLG
LLC |
Albert
Chu Portfolio
Manager Since
Fund Inception (2024) |
|
Purchase
and Sale of Fund Shares
The
Fund is an exchange-traded fund. Individual Fund shares may only be purchased
and sold on a national securities exchange through a broker-dealer and
may
not be purchased or redeemed directly with the Fund. Shares of the Fund are
listed for trading on NYSE Arca, Inc. (“Exchange”). Shares may be purchased
and redeemed from the Fund only in Creation Units of 25,000
shares, or multiples thereof, at NAV. As a practical matter, only institutions
and large investors,
such as market makers or other large broker-dealers, purchase or redeem Creation
Units. Most investors will buy and sell shares of the Fund on the Exchange.
Individual shares can be bought and sold throughout the trading day like other
publicly traded securities through a broker-dealer on the Exchange. These
transactions do not involve the Fund. The price of an individual Fund share is
based on market prices, which may be different from its NAV. As a result,
the
Fund’s shares may trade at a price greater than the NAV (at a premium) or less
than the NAV (at a discount). An investor may incur costs attributable to
the
difference between the highest price a buyer is willing to pay to purchase
shares of the Fund (“bid”) and the lowest price a seller is willing to accept
for shares
of the Fund (“ask”) when buying or selling shares in the secondary market (the
“bid-ask spread”). Most investors will incur customary brokerage commissions
and charges when buying or selling shares of the Fund through a
broker-dealer.
Recent
information regarding the Fund, including its NAV, market price, premiums and
discounts, and bid-ask spreads, is available on the Fund’s website at
www.americanbeaconfunds.com/etfs/MGNR.
Tax
Information
Dividends,
capital gains distributions,
and other distributions, if any, that you receive as a result of your
investment in the Fund are subject to federal income tax
and may also be subject to state and local income taxes, unless you are a
tax-exempt entity or your account is tax-deferred, such as an
individual retirement
account (“IRA”) or a 401(k) plan (in which case you may be taxed later, upon the
withdrawal of your investment from such account or plan).
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial
intermediary (such as a bank), the Fund and the Fund’s distributor, Foreside
Financial
Services, LLC, or the Manager may pay the intermediary for the sale of Fund
shares and related services. These payments may create a conflict of
interest
by influencing the broker-dealer or other intermediary and your individual
financial professional to recommend the Fund over another investment. Ask
your
individual financial professional or visit your financial intermediary’s website
for more information.
6Prospectus
– Fund Summary
Additional
Information About the Fund
To
help you better understand the Fund, this section provides a detailed discussion
of the Fund’s investment policies, its principal strategies and principal risks
and
performance index. However, this Prospectus does not describe all of the Fund’s
investment practices. Capitalized
terms that are not otherwise defined
are defined in Appendix A.
For additional information, please see the Fund’s SAI, which is available at
www.americanbeaconfunds.com or by contacting
us via telephone at 1-833-471-3562, by U.S. mail at the Fund’s Distributor,
Foreside Financial Services, LLC, Three Canal Plaza, Suite 100, Portland,
Maine
04101, or by e-mail at [email protected].
Additional
Information About Investment Policies and Strategies
Investment
Objective
The
Fund’s investment objective is long-term capital appreciation.
The
Fund’s investment objective is “non-fundamental,” which means that it may be
changed by the Fund’s Board without the approval of Fund
shareholders.
80%
Investment Policies
The American
Beacon GLG Natural Resources ETF has a non-fundamental policy to invest under
normal circumstances, at least 80% of its net assets (plus the amount
of any borrowings for investment purposes) in equity securities of companies
primarily
engaged
in natural resources and natural resources-related businesses.
If the Fund changes its 80% investment policy, a notice will be sent to
shareholders at least 60 days in advance of the change and this prospectus
will
be supplemented.
Fundamental
Investment Policy
The
American Beacon GLG Natural Resources ETF has adopted a
fundamental policy to invest more than 25% of its net assets, in
aggregate, in companies primarily engaged in natural resources and natural
resources-related industries. The Fund currently considers
natural resources and natural resources-related industries to be those
industries in the Energy, Materials and Utilities sectors, as well as
agricultural and food industries.
Temporary
Defensive Policy
The
Fund may depart from its principal investment strategy by taking temporary
defensive or interim positions in response to adverse market, economic,
political,
or other conditions. During these times, the Fund may not achieve its investment
objective.
Additional
Information About the Management of the Fund
The
Fund has retained American Beacon Advisors, Inc. to serve as its Manager. The
Manager provides or oversees the provision of all administrative, investment
advisory and portfolio management services to the Fund. The
Manager:
■ |
develops
overall investment strategies for the
Fund, |
■ |
selects
and changes sub-advisors, |
■ |
allocates
assets among sub-advisors, |
■ |
monitors
and evaluates the sub-advisor’s investment
performance, |
■ |
monitors
the sub-advisor’s compliance with the Fund’s investment objectives,
policies and restrictions, |
■ |
oversees
the Fund’s securities lending activities and actions taken by the
securities lending agent to the extent applicable,
and |
■ |
directs
the investment of the portion of Fund assets that the sub-advisor
determines should be allocated to short-term
investments. |
The
assets of the Fund are currently allocated by the Manager to one sub-advisor,
GLG LLC (“Man GLG”), an indirect wholly owned subsidiary of Man Group
plc.
Man GLG has full discretion to purchase and sell securities for the Fund in
accordance with the Fund’s objectives, policies, restrictions and more specific
strategies
provided by the Manager. The Manager oversees the sub-advisor but does not
reassess individual security selections made by the sub-advisor for the
Fund.
The
Fund’s assets may be allocated among one or more additional sub-advisors in the
future by the Manager. The Fund operates in a manager-of-managers structure.
The Fund and the Manager have received an exemptive order from the SEC that
permits the Fund, subject to certain conditions and approval by the Board,
to hire and replace sub-advisors, and materially amend agreements with
sub-advisors, that are unaffiliated with the Manager without approval of the
shareholders.
In the future, the Fund and the Manager may rely on an SEC staff no-action
letter, dated July 9, 2019, that would permit the Fund to expand its
exemptive
relief to hire and replace sub-advisors that are affiliated and unaffiliated
with the Manager without shareholder approval, subject to approval by the
Board
and other conditions. The Manager has ultimate responsibility, subject to
oversight by the Board, to oversee sub-advisors and recommend their hiring,
termination
and replacement. The SEC order also exempts the Fund from disclosing the
advisory fees paid by the Fund to individual sub-advisors in a multi-manager
fund in various documents filed with the SEC and provided to shareholders. In
the future, the Fund may rely on the SEC staff no-action letter to
expand its exemptive relief to individual sub-advisors that are affiliated with
the Manager. Under that no-action letter, the fees payable to sub-advisors
unaffiliated
with or partially-owned by the Manager or its parent company would be
aggregated, and fees payable to sub-advisors that are wholly-owned by
the
Manager or its parent company, if any, would be aggregated with fees payable to
the Manager. Whenever a sub-advisor change is proposed in reliance on
the order, in order for the change to be implemented, the Board, including a
majority of its “non-interested” trustees, must approve the change. In
addition,
the Fund is required to provide shareholders with certain information regarding
any new sub-advisor within 90 days of the hiring of any new sub-advisor.
Additional
Information About Investments
This
section provides more detailed information regarding certain of the Fund’s
principal investment strategies as well as information regarding the Fund’s
strategy
with respect to investment of cash balances.
Cash
Management
To
gain market exposure on cash balances held in anticipation of liquidity needs or
to reduce market exposure in anticipation of liquidity needs, the Fund may
utilize
the following investments:
■ |
Government
Money Market Funds. The
Fund may invest cash balances in government money market funds that are
registered as investment companies under
the Investment Company Act, including a government money market fund
advised by the Manager, with respect to which the Manager also receives
a
management fee. If the Fund invests in government money market funds, the
Fund becomes a shareholder of that investment company. As a result, Fund
shareholders
will bear their proportionate share of the expenses, including, for
example, advisory and administrative fees of the government money market
funds
in which the Fund invests, such as advisory fees charged by the Manager to
any applicable government money market funds advised by the Manager,
in
addition to the fees and expenses Fund shareholders directly bear in
connection with the Fund’s own operations. Shareholders also would be
exposed to |
Prospectus
– Additional Information About the Fund7
|
the
risks associated with government money market funds and the portfolio
investments of such government money market funds, including the risk that
a government
money market fund’s yield will be lower than the return that the Fund
would have received from other investments that provide liquidity.
Investments
in government money market funds are not insured or guaranteed by the
Federal Deposit Insurance Corporation (FDIC) or any other government
agency. |
Currencies
The
Fund may have exposure to foreign currencies by using various instruments. In
order to convert U.S. dollars into the currency needed to buy a foreign
security,
or to convert foreign currency received from the sale of a foreign security into
U.S. dollars, the Fund may enter into spot currency trades. In a spot
trade,
the Fund agrees to exchange one currency for another at the current exchange
rate. Spot trades allow for prompt delivery and settlement at the rate
prevailing
in the currency exchange market. Spot trades may increase or decrease the Fund’s
exposure to currency risks. The instruments in which the Fund may
invest that provide exposure to foreign currencies include the
following:
■ |
Foreign
Currency-Denominated Securities |
Equity
Investments
The Fund’s
equity investments may include:
■ |
Common
Stock.
Common stock generally takes the form of shares in a corporation which
represent an equity or ownership interest. Holders of common stock
generally have voting rights in the issuer and are entitled to receive
common stock dividends when, as and if declared by the company’s board of
directors.
Returns on common stock investments consist of any dividends received plus
the amount of appreciation or depreciation in the value of the stock.
Common
stock normally occupies the most subordinated position in an issuer’s
capital structure. It ranks below preferred stock and debt securities in
claims for
dividends and for assets of the company in a liquidation or bankruptcy.
Common stock may be traded via an exchange or over-the-counter.
Over-the-counter
stock may be less liquid than exchange-traded
stock. |
■ |
Depositary
Receipts.
American Depository Receipts (“ADRs”) are U.S. dollar-denominated receipts
representing interests in the securities of a foreign issuer. ADRs
typically are issued by domestic banks and trust companies and represent
the deposit with the bank of the securities of a foreign issuer.
Depositary receipts
may not be denominated in the same currency as the securities into which
they may be converted. Investing in depositary receipts entails
substantially
the same risks as direct investment in foreign securities. In addition,
the Fund may invest in unsponsored depositary receipts, which are
implemented
by a depositary bank with no direct involvement of the foreign issuers,
and the issuers are not obligated to disclose material information
about
the underlying securities to investors in the United States. Ownership of
unsponsored depositary receipts may not entitle the Fund to the same
benefits
and rights as ownership of the underlying securities or of sponsored
depositary receipts, which are implemented in collaboration with the
foreign issuers. |
■ |
Master
Limited Partnerships.
MLPs are limited partnerships (or similar entities) in which the ownership
units (e.g., limited partnership interests) are publicly traded
and units are freely traded on a securities exchange or in the
over-the-counter market. The majority of MLPs operate in oil and gas
related businesses,
including energy processing and distribution. As partnerships, MLPs may be
subject to less regulation (and less protection for investors) under
state
laws than corporations. An MLP is an investment that combines the tax
benefits of a limited partnership with the liquidity of publicly traded
securities. Many
MLPs are pass-through entities that generally are taxed at the security
holder level and generally are not subject to federal or state income tax
at the partnership
level. Annual income, gains, losses, deductions and credits of an MLP pass
through directly to its security holders. Distributions from an MLP
may
consist in part of a return of capital. A Fund’s investments in MLPs will
be limited by tax considerations. Generally, an MLP is operated under the
supervision
of one or more managing general partners. Limited partners are not
involved in the day-to-day management of the
MLP. |
■ |
U.S.
Dollar-Denominated Foreign Stocks Traded on U.S. Exchanges. Non-U.S.
companies may list their common stock on U.S. exchanges subject to meeting
the
relevant exchange’s listing requirements and U.S. regulatory requirements
applicable to non-U.S. companies that list their shares in the
U.S. |
Other
Investment Companies
The Fund,
at times, may invest in shares of other investment companies. The
Fund may invest in securities of an investment company advised by the Manager,
with
respect to which the Manager also receives a management fee.
Investments in the securities of other investment companies may involve
duplication of advisory
fees and certain other expenses. By investing in another investment company, the
Fund becomes a shareholder of that investment company. As a result,
Fund shareholders indirectly will bear the Fund’s proportionate share of the
fees and expenses paid by shareholders of the other investment company,
in
addition to the fees and expenses Fund shareholders directly bear in connection
with the Fund’s own operations. These other fees and expenses, if applicable,
are reflected as Acquired Fund Fees and Expenses and are included in the Fees
and Expenses Table for the Fund in this Prospectus. Investment in other
investment companies may involve the payment of substantial premiums above the
value of such issuer’s portfolio securities.
■ |
Government
Money Market Funds. The
Fund can invest free cash balances in registered open-end investment
companies regulated as government money market
funds under the Investment Company Act to provide liquidity or for
defensive purposes. The Fund could invest in government money market funds
rather
than purchasing individual short-term investments. If the Fund invests in
government money market funds, shareholders will bear their proportionate
share
of the expenses, including for example, advisory and administrative fees,
of the government money market funds in which the Fund invests, including
advisory
fees charged by the Manager to any applicable government money market
funds advised by the Manager. Although a government money market
fund
is designed to be a relatively low risk investment, it is not free of
risk. Despite the short maturities and high credit quality of a government
money market
fund’s investments, increases in interest rates and deteriorations in the
credit quality of the instruments the government money market fund has
purchased
may reduce the government money market fund’s yield and can cause the
price of a government money market security to decrease. In addition,
a
government money market fund is subject to the risk that the value of an
investment may be eroded over time by
inflation. |
Additional
Information About Risks
The
greatest risk of investing in an ETF is that its returns will fluctuate and you
could lose money. The following section provides additional information
regarding
the Fund’s principal risk factors in light of its principal investment
strategies. The principal risks of investing in the Fund listed below are
presented in alphabetical
order and not in order of importance or potential exposure. Among other matters,
this presentation is intended to facilitate your ability to find particular
risks and compare them with the risks of other funds. Each risk summarized below
is considered a “principal risk” of investing in the Fund, regardless
of the order in which it appears.
Currency
Risk
The
Fund may have exposure to foreign currencies.
Foreign currencies may fluctuate significantly over short periods of time for a
number of reasons, including changes
in interest rates, may be affected unpredictably by intervention, or the failure
to intervene, of the U.S. or foreign governments, central banks, or supranational
entities such as the International Monetary Fund, and may be affected by the
imposition of currency controls or political developments in the
8Prospectus
– Additional Information About the Fund
U.S.
or abroad. As a result, the Fund’s exposure to foreign currencies may
reduce the returns of the Fund. Foreign currencies may decline in value
relative to the
U.S. dollar and other currencies and thereby affect the Fund’s
investments. In addition, changes in currency exchange rates could adversely
impact investment
gains or add to investment losses.
Cybersecurity
and Operational Risk
Operational
risks arising from, among other problems, human errors, systems and technology
disruptions or failures, or cybersecurity incidents may negatively impact
the Fund, its service providers, and third-party fund distribution platforms, as
well as the ability of shareholders to transact in the Fund’s shares, and
result
in financial losses. Cybersecurity incidents may allow an unauthorized party to
gain access to Fund assets, shareholder data, or proprietary information,
or
cause the Fund or its service providers, as well as the securities trading
venues and their service providers, to suffer data corruption or lose
operational functionality.
Cybersecurity incidents can result from deliberate attacks or unintentional
events. A cybersecurity incident could, among other things, result in
the
loss or theft of shareholder data or funds, shareholders or service providers
being unable to access electronic systems (also known as “denial of services”),
loss
or theft of proprietary information or financial data, the inability to process
Fund transactions, interference with the Fund’s ability to calculate its NAV,
impediments
to trading, physical damage to a computer or network system, or remediation
costs associated with system repairs. The occurrence of any of these
problems could result in a loss of information, violations of applicable privacy
and other laws, regulatory scrutiny, penalties, fines, reputational damage,
additional
compliance requirements, and other consequences, any of which could have a
material adverse effect on the Fund or its shareholders. The Manager,
through its monitoring and oversight of Fund service providers, endeavors to
determine that service providers take appropriate precautions to avoid
and
mitigate risks that could lead to such problems. While the Manager has
established business continuity plans and risk management systems seeking to
address
these problems, there are inherent limitations in such plans and systems, and it
is not possible for the Manager, other Fund service providers, or third-party
fund distribution platforms to identify all of the operational risks that may
affect the Fund or to develop processes and controls to completely eliminate
or mitigate their occurrence or effects. Recent geopolitical tensions may
increase the scale and sophistication of deliberate attacks, particularly those
from
nation-states or from entities with nation-state backing. The Fund cannot
control the cybersecurity plans and systems of its service providers, its
counterparties
or the issuers of securities in which the Fund invests. The issuers of the
Fund’s investments are likely to be dependent on computers for their
operations
and require ready access to their data and the internet to conduct their
business. Thus, cybersecurity incidents could also affect issuers of the
Fund’s
investments, leading to significant loss of value.
Emerging
Markets Risk
When
investing in emerging markets, the risks of investing in foreign securities are
heightened. Emerging markets have unique risks that are greater than, or
in
addition to, the risks associated with investing in developed markets because
emerging markets are generally smaller, less developed, less liquid and more
volatile
than the securities markets of the U.S. and other developed markets. There are
also risks of: greater political and economic uncertainties; an economy’s
dependence on revenues from particular commodities or on international aid or
development assistance; currency transfer restrictions; a limited number
of potential buyers for such securities, resulting in increased volatility and
limited liquidity for emerging market securities; trading suspensions and
other
restrictions on investment; delays and disruptions in securities clearing and
settlement procedures; and significant limitations on investor rights and
recourse.
The economies and political environments of emerging market countries tend to be
more unstable than those of developed countries, resulting in more
volatile rates of return than the developed markets and substantially greater
risk to investors. The governments of emerging market countries may also
be
more unstable and more likely to impose capital controls, nationalize a company
or industry, place restrictions on foreign ownership and on withdrawing
sale
proceeds of securities from the country, intervene in the financial markets,
and/or impose burdensome taxes that could adversely affect security prices.
Emerging
market countries often have less uniformity in accounting, auditing, financial
reporting and recordkeeping requirements and less reliable clearance
and
settlement, registration, and custodial procedures. In addition, there may be
less publicly available or less reliable information about issuers in emerging
markets
than would be available about issuers in more developed capital markets, which
can impede the sub-advisor’s ability to accurately evaluate foreign securities.
Such issuers may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those to which U.S. companies
are subject. In certain emerging market countries, fraud and corruption may be
more prevalent than in developed market countries, and investor protections
may be more limited than those in other countries. It may be difficult to obtain
or enforce legal judgments against non-U.S. companies and non-U.S.
persons in foreign jurisdictions, either through the foreign judicial system or
through a private arbitration process. These matters have the potential
to
impact the Fund’s investment objective and performance.
Equity
Investments Risk
Equity
securities are subject to investment risk, issuer risk and market risk. In
general, the values of stocks and other equity securities fluctuate, and
sometimes widely
fluctuate, in response to changes in a company’s financial condition as well as
general market, economic and political conditions and other factors. The
Fund
may experience a significant or complete loss on its investment in an equity
security. In addition, stock prices may be particularly sensitive to rising
interest
rates, which increase borrowing costs and the costs of capital. The Fund may
invest in the following equity securities, which may expose the Fund to
the
following additional risks:
■ |
Common
Stock Risk.
The value of a company’s common stock may fall as a result of factors
directly relating to that company, such as decisions made by its
management
or decreased demand for the company’s products or services. A stock’s
value may also decline because of factors affecting not just the
company,
but also companies in the same industry or sector. The price of a
company’s stock may also be affected by changes in financial markets that
are relatively
unrelated to the company, such as changes in interest rates, exchange
rates or industry regulation. Companies that pay dividends on their
common
stock generally only do so after they invest in their own business and
make required payments to bondholders and on other debt and preferred
stock.
Therefore, the value of a company’s common stock will usually be more
volatile than its bonds, other debt and preferred stock. Common stock
generally
is subordinate to preferred stock upon the liquidation or bankruptcy of
the issuing company. In the event of an issuer’s bankruptcy, there is
substantial
risk that there will be nothing left to pay common stockholders after
payments, if any, to bondholders and preferred stockholders have been
made. |
■ |
Depositary
Receipts Risk. The
Fund may invest in securities issued by foreign companies through ADRs.
These securities are generally subject to many of the same
risks of investing in the foreign securities that they evidence or into
which they may be converted, including, but not limited to, currency
exchange rate
fluctuations, political and financial instability in the home country of a
particular depositary receipt, less liquidity, more volatility, less
government regulation
and supervision and delays in transaction settlement. There may be an
imperfect correlation between the market value of depositary receipts and
the
underlying foreign securities. |
■ |
Master
Limited Partnerships (“MLPs”) Risk.
Investing in MLPs involves certain risks related to investing in the
underlying assets of the MLPs and risks associated
with pooled investment vehicles. Investments held by MLPs may be
relatively illiquid, limiting the MLPs’ ability to change their portfolios
promptly in
response to changes in economic or other conditions. MLPs may have limited
financial resources, their securities may trade infrequently and in
limited volume,
they may be difficult to value, and they may be subject to more abrupt or
erratic price movements than securities of larger or more broadly based
companies.
Holders of units in MLPs have more limited rights to vote on matters
affecting the partnership and may be required to sell their common units
at
an undesirable time or price. The Fund invests as a limited partner, and
normally would not be liable for the debts of an MLP beyond the amounts
the Fund
has contributed but it would not be shielded to the same extent that a
shareholder of a corporation would be. In certain instances, creditors of
an MLP
would have the right to seek a return of capital that had been distributed
to a limited partner. The right of an MLP’s creditors would continue even
|
Prospectus
– Additional Information About the Fund9
|
after
the Fund had sold its investment in the partnership. MLPs typically invest
in real estate, oil and gas equipment leasing assets, but they also
finance entertainment,
research and development, and other projects. The Fund’s investments in
MLPs will be limited to no more than 25% of its assets in order for
the
Fund to meet the requirements necessary to qualify as a “regulated
investment company” under the Internal Revenue Code of 1986, as amended.
Distributions
from an MLP may consist in part of a return of the amount originally
invested, which would not be taxable to the extent the distributions do
not
exceed the investor’s adjusted basis on its MLP interest. These reductions
in the Fund’s adjusted tax basis in the MLP securities will increase the
amount of
gain (or decrease the amount of loss) recognized by the Fund on a
subsequent sale of the securities. MLPs holding credit-related investments
are subject to
interest rate risk and the risk of default on payment obligations by debt
issuers. MLPs that concentrate in a particular industry or a particular
geographic region
are subject to risks associated with such industry or
region. |
■ |
U.S.
Dollar-Denominated Foreign Stocks Traded on U.S. Exchanges
Risk. Foreign
(non-U.S.) companies that list their stocks on U.S. exchanges may be
exempt
from certain accounting and corporate governance standards that apply to
U.S. companies that list on the same exchange. Foreign stocks traded on
U.S.
exchanges transact and settle in U.S. dollars, but performance of these
stocks can be impacted by political and financial instability in the home
country of
a particular foreign company. To the extent the Fund invests
in U.S. dollar-denominated foreign stocks traded on U.S. exchanges,
delisting of these stocks
could impact the Fund‘s ability to transact in such securities and
could significantly impact their liquidity and market price. In addition,
the Fund would
have to seek other markets in which to transact in such securities which
would also increase the Fund’s costs. |
Event-Driven
Investing Risk
The
Fund’s use of event-driven strategies requires the sub-advisor to make
predictions about the likelihood that an event will occur and the impact such
event will
have on the value of a company’s securities. An event may not be completed as
anticipated, may take an excessive amount of time to be completed, or
may
not have the effect foreseen, in which case losses can result. For example, an
anticipated merger, acquisition or spinoff transaction may not occur, or if it
occurs,
it may not be valued as highly by the market as the sub-advisor had
anticipated, resulting in losses.
ETFs
Risk
As
an ETF, the Fund is subject to the following risks:
■ |
Authorized
Participants Concentration Risk. The
Fund has a limited number of financial institutions that may act as
Authorized Participants. Only an Authorized
Participant may transact in Creation Units directly with the Fund,
and none of those Authorized Participants is obligated to engage in
creation and/or
redemption transactions. To the extent they exit the business or are
otherwise unable to proceed in creation and redemption transactions with
the Fund
and no other Authorized Participant is able to step forward to create or
redeem shares, then shares of the Fund may be more likely to trade
at a premium
or discount to NAV and possibly face trading halts or delisting.
Authorized Participant concentration risk may be heightened for ETFs, such
as the Fund,
that invest in securities issued by non-U.S. issuers or other securities
or instruments that have lower trading
volumes. |
■ |
Cash
Transactions Risk.
Like other ETFs, the Fund sells and redeems its shares primarily in
large blocks called Creation Units and only to Authorized Participants.
Unlike most other ETFs, however, the Fund expects to effect its
creations and redemptions at least partially for cash, rather than
in-kind securities.
Other ETFs generally are able to make in-kind redemptions and avoid
realizing gains in connection with redemption requests. Effecting
redemptions
for cash may cause the Fund to sell portfolio securities in order to
obtain the cash needed to distribute redemption proceeds. Such
dispositions may
occur at an inopportune time, resulting in potential losses to the Fund or
difficulties in meeting shareholder redemptions, and involve transaction
costs. If
the Fund recognizes gain on these sales, this generally will cause the
Fund to recognize gain it might not otherwise have recognized if it were
to distribute portfolio
securities in-kind or to recognize such gain sooner than would otherwise
have been required. The Fund generally intends to distribute these
gains to
shareholders to avoid being taxed on this gain at the Fund level and
otherwise comply with the special tax rules that apply to it. This
strategy may cause shareholders
to be subject to tax on gains they would not otherwise be subject to, or
at an earlier date than, if they had made an investment in another
ETF.
In addition, cash transactions may have to be carried out over several
days if the securities market in which the Fund is trading is less liquid
and may involve
considerable transaction expenses and taxes. These brokerage fees and
taxes, which will be higher than if the Fund sold and redeemed its shares
entirely
in-kind, may be passed on to purchasers and redeemers of Creation Units in
the form of creation and redemption transaction fees. However,
the Fund
has capped the total fees that may be charged in connection with the
redemption of Creation Units at 2% of the value of the Creation Units
redeemed.
To the extent transaction and other costs associated with a redemption
exceed that cap, those transaction costs will be borne by the Fund’s
remaining
shareholders. These factors may result in wider spreads between the bid
and the offered prices of the Fund’s shares than for other
ETFs. |
■ |
Premium/Discount
Risk.
The NAV of the Fund’s shares will generally fluctuate with changes in the
market value of the Fund’s securities holdings. The market prices
of Fund shares will generally fluctuate in accordance with changes in the
Fund’s NAV and supply and demand of shares on the secondary market. It
cannot
be predicted whether Fund shares will trade below their NAV (at a
discount), at their NAV, or above their NAV (at a premium). As a result,
shareholders
of the Fund may pay more than NAV when purchasing shares and receive less
than NAV when selling Fund shares. This risk is heightened in times
of market volatility or periods of steep market declines. In such market
conditions, market or stop-loss orders to sell the Fund shares may be
executed at
market prices that are significantly below NAV. Price differences may be
due, in part, to the fact that supply and demand forces at work in the
secondary trading
market for shares may be closely related to, but not identical to, the
same forces influencing the prices of the Fund’s holdings. The market
prices of Fund
shares may deviate significantly from the NAV of the shares during periods
of market volatility or if the Fund’s holdings are or become more
illiquid. Disruptions
to creations and redemptions may result in trading prices that differ
significantly from the Fund’s NAV. In addition, market prices of Fund
shares may
deviate significantly from the NAV if the number of Fund shares
outstanding is smaller or if there is less active trading in Fund shares.
Investors purchasing
and selling Fund shares in the secondary market may not experience
investment results consistent with those experienced by those creating and
redeeming
directly with the Fund. |
■ |
Secondary
Market Trading Risk.
Investors buying or selling shares in the secondary market will normally
pay brokerage commissions, which are often a fixed amount
and may be a significant proportional cost for investors buying or selling
relatively small amounts of shares. In addition, such investors may incur
the
cost of the “spread” also known as the bid-ask spread, which is the
difference between what investors are willing to pay for Fund shares (the
“bid” price)
and the price at which they are willing to sell Fund shares (the “ask”
price). The bid-ask spread varies over time based on, among other things,
trading
volume, market liquidity and market volatility, and is generally lower if
the Fund’s shares have more trading volume and market liquidity and higher
if
the Fund’s shares have little trading volume and market liquidity.
Increased market volatility may cause increased bid-ask
spreads. Shares of the Fund may trade
in the secondary market at times when the Fund does not accept orders to
purchase or redeem shares. At such times, shares may trade in the
secondary
market with more significant premiums or discounts than might be
experienced at times when the Fund accepts purchase and redemption
orders.
Although Fund shares are listed for trading on the Exchange, there can be
no assurance that an active trading market for such shares will develop or
be
maintained or that the Fund’s shares will continue to be listed. If the
Fund is delisted, any resulting liquidation of the Fund could create
transaction costs for
the Fund and adverse federal income tax consequences for investors.
Trading in Fund shares may be halted due to market conditions or for
reasons that, in
the view of the Exchange, make trading in shares inadvisable. In addition,
trading in shares is subject to trading halts caused by extraordinary
market volatility
pursuant to Exchange “circuit breaker” rules. There can be no assurance
that the requirements of the Exchange necessary to maintain the listing of
the
Fund will continue to be met or will remain unchanged or that the shares
will trade with any volume, or at all. Shares of the Fund, similar to
shares of |
10Prospectus
– Additional Information About the Fund
|
other
issuers listed on a stock exchange, may be sold short and are therefore
subject to the risk of increased volatility and price decreases associated
with being
sold short. In addition, trading activity in derivative products based on
the Fund may lead to increased trading volume and volatility in the
secondary market
for the shares of the Fund. |
Flexible
Strategy Risk
The Fund
may use a variety of investment strategies to achieve its investment objective.
There is no attempt to keep the portfolio structure or the Fund’s
performance
consistent with any designated stock, bond or market index, and during times of
market rallies, the Fund may not perform as well as other funds
that
seek to outperform an index. Over time, the investment performance of flexible
strategies is typically substantially independent of longer term movements
in the stock and bond market. Interest rate levels and currency valuations will
not always respond as expected and portfolio securities may remain over-
or under-valued.
Focused
Holdings Risk
Because
the Fund may have a focused portfolio of fewer companies, the increase or
decrease of the value of a single stock may have a greater impact on
the Fund’s
NAV and total return when compared to other funds. Although a focused portfolio
has the potential to generate attractive returns over time, it also
may increase the Fund’s volatility.
Foreign
Investing Risk
Non-U.S.
investments carry potential risks not associated with U.S. investments. Such
risks include, but are not limited to: (1) currency exchange rate fluctuations,
(2) political and financial instability, (3) less liquidity, (4) lack of uniform
accounting, auditing and financial reporting standards, (5) greater volatility;
(6) different government regulation and supervision of foreign banks, stock
exchanges, brokers and listed companies, and (7) delays in transaction
settlement
in some foreign markets. There may be very limited oversight of certain foreign
banks or securities depositories that hold foreign securities and currency,
and the laws of certain countries may limit the ability to recover such assets
if a foreign bank, depository, or their agents goes bankrupt. Additionally,
in certain markets, the Fund may not receive timely payment for securities or
other instruments it has delivered or receive delivery of securities
paid
for and may be subject to increased risk that the counterparty will fail to make
payments or delivery when due or default completely. To the extent the
Fund
invests a significant portion of its assets in securities of a single country or
region, it is more likely to be affected by events or conditions of that country
or
region. The Fund’s investment in a foreign issuer may subject the Fund to
regulatory, political, currency, security, economic and other risks associated
with that
country.
There
may be restrictions on the flow of international capital, including the possible
seizure or nationalization of the securities issued by non-U.S. issuers held
by
the Fund. In addition, the repatriation of investment income, capital or the
proceeds of sales of securities from certain of the countries may require
advance government
notification or authority, and if a deterioration occurs in a country’s balance
of payments, the country could impose temporary restrictions on foreign
capital remittances. The Fund also could be adversely affected by delays in, or
a refusal to grant, any required governmental approval for repatriation,
as
well as by the application to it of other restrictions on investment. Global
economic and financial markets have become increasingly interconnected and
conditions
(including recent volatility, terrorism, war and political instability) and
events (including natural disasters) in one country, region or financial market
may
adversely impact issuers in a different country, region or financial
market.
Securities
of issuers traded on foreign exchanges may be suspended, either by the issuers
themselves, by an exchange or by governmental authorities. Trading suspensions
may be applied from time to time to the securities of individual issuers for
reasons specific to that issuer, or may be applied broadly by exchanges
or
governmental authorities in response to market events. In the event that the
Fund holds material positions in such suspended securities, the Fund’s ability
to
liquidate its positions or provide liquidity to investors may be compromised and
the Fund could incur significant losses.
Geographic
Concentration Risk
From
time to time, based on market or economic conditions, the Fund may invest a
significant portion of its assets in the securities of issuers located in, or
with
significant economic ties to, a single country or geographic region, which could
increase the risk that economic, political, business, regulatory, diplomatic,
social and environmental conditions in that particular country or geographic
region may have a significant impact on the Fund’s performance. Investing
in such a manner could cause the Fund’s performance to be more volatile
than the performance of more geographically diverse funds. The economies
and financial markets of certain countries or regions can be highly
interdependent. Therefore, a decline in the economies or financial markets of
one
country or region may adversely affect the economies or financial markets of
another.
■ |
Australian
Securities Risk.
Investments in Australian issuers will subject the Fund to legal,
regulatory, political, currency, security, and economic risks specific
to
Australia. The Australian economy is heavily dependent on exports from the
energy, agricultural and mining sectors. As a result, the Australian
economy is
susceptible to fluctuations in the commodity markets, and, in particular,
in the price and demand for agricultural products and natural resources.
The Australian
economy is dependent on trading with key trading partners, including the
U.S., China, Japan, South Korea, Singapore, and other Asian and
certain
European countries. Economic events in the U.S., Asia, or other key
trading countries can have a significant economic effect on the Australian
economy.
Reduction in spending on Australian products and services or changes in
any of these countries’ or regions’ economies may cause an adverse
impact
on the Australian economy and companies to which the Fund has
exposure. |
■ |
Canadian
Securities Risk. The
United States is Canada’s largest trading and investment partner, and the
Canadian economy is significantly affected by developments
in the U.S. economy. The Canadian economy is also dependent upon external
trade with other key trading partners, including Mexico, China
and
the United Kingdom. Trade policy changes by any of these countries or
regions that reduce Canada’s ability to trade with such regions could have
a significant
impact on the Canadian economy. In particular, political developments such
as the implementation of tariffs by the U.S. and the implementation
of
the Agreement Between the United States of America, Mexico and Canada
(USMCA), which went into effect in 2020, could have an adverse impact on
the
Canadian economy.
In
addition, Canada is a large supplier of natural resources (e.g., oil,
natural gas and agricultural products). As a result, the Canadian economy
is sensitive to fluctuations
in certain commodity prices. Any negative changes in commodity markets
that may be due to changes in supply and demand for commodities,
market
events, regulatory developments or other factors could have an adverse
impact on the Canadian economy. |
■ |
European
Securities Risk. The
Fund’s performance may be affected by political, social and economic
conditions in Europe, such as growth of economic output
(the gross national product of the countries in the region), the rate of
inflation, the rate at which capital is reinvested into European
economies, the success
of governmental actions to reduce budget deficits, the resource
self-sufficiency of European countries, interest rates in European
countries, monetary
exchange rates between European countries, and conflict between European
countries. Most developed countries in Western Europe are members
of the European Union (“EU”) and many are also members of the Economic and
Monetary Union (“EMU” or “Eurozone”).
European countries can
be significantly affected by the tight fiscal and monetary controls that
the EMU imposes on its members and with which candidates for EMU
membership
are required to comply.
While
certain EU countries continue to use their own currency, Eurozone
countries use the Euro as their currency. Changes in imports or exports,
changes in governmental
or EU regulations on trade, changes in the exchange rate of the Euro and
the currencies of other EU countries which are not in the Eurozone,
the
threat of default or actual default by one or more EU member states on its
sovereign debt, and/or an economic recession in one or more EU member
|
Prospectus
– Additional Information About the Fund11
|
states
may have a significant adverse effect on the economies of other EU member
states and their trading partners, including non-EU European countries.
A
breakup of the Eurozone, particularly a disorderly breakup, would pose
special challenges for the financial markets and could lead to exchange
controls and/or
market closures. The economies and markets of European countries are often
closely connected and interdependent, and events in one country in
Europe
can have an adverse impact on other European
countries.
The
European financial markets have experienced and may continue to experience
volatility and adverse trends due to concerns relating to economic
downturns;
rising government debt levels and the possible default on government debt;
national unemployment in several European countries; public health
crises; political unrest; economic sanctions; inflation; energy crises;
the future of the Euro as a common currency; and war and military
conflict, such as
the Russian invasion of Ukraine. These events have affected the exchange
rate of the Euro and may continue to significantly affect European
countries. Responses
to financial problems by European governments, central banks, and others,
including austerity measures, interest rate rises and other reforms,
may
not produce the desired results, may result in social unrest and may limit
future growth and economic recovery or may have unintended consequences.
Many
European nations are susceptible to economic risks associated with high
levels of debt. Non-governmental issuers, and even certain governments,
have
defaulted on, or been forced to restructure, their debts, and other
issuers have faced difficulties obtaining credit or refinancing existing
obligations. A default
or debt restructuring by any European country could adversely impact
holders of that country’s debt and sellers of credit default swaps linked
to that country’s
creditworthiness, which may be located in other countries. Such a default
or debt restructuring could affect exposures to other European countries
and
their companies as well. In addition, issuers have faced difficulties
obtaining credit or refinancing existing obligations, and financial
markets have experienced
extreme volatility and declines in asset values and liquidity.
Furthermore, certain European countries have had to accept assistance from
supranational
agencies such as the International Monetary Fund, the European Stability
Mechanism or others. There can be no assurance that any creditors
or
supranational agencies will continue to intervene or provide further
assistance, and markets may react adversely to any expected reduction in
the financial
support provided by these creditors.
The
United Kingdom has withdrawn from the EU, and one or more other countries
may withdraw from the EU and/or abandon the Euro. These events and
actions
have affected, and may in the future affect, the value and exchange rate
of the Euro and may continue to significantly affect the economies of
every country
in Europe, including countries that do not use the Euro and non-EU member
states. The impact of these actions, especially if they occur in a
disorderly
fashion, is not clear but could be significant and far
reaching.
The
national politics of European countries have been unpredictable and
subject to influence by disruptive political groups and ideologies.
European governments
may be subject to change and such countries may experience social and
political unrest. Unanticipated or sudden political or social developments
may result in sudden and significant investment losses. Russia’s war with
Ukraine has negatively impacted European economic activity. The
effects
on the economies of European countries of the Russia/Ukraine war and
Russia’s response to sanctions imposed by the U.S., the EU, UK and others
are
impossible to predict but have been and could continue to be significant
and have a severe adverse impact on the region, including significant
impacts on
the regional, European, and global economies and the markets for certain
securities and commodities, such as oil and natural gas. For example,
exports in
Eastern Europe have been disrupted for certain key commodities, pushing
certain commodity prices to record highs. Also, both wholesale energy
prices and
energy prices charged to consumers in Europe have increased
significantly. |
■ |
United
Kingdom Securities Risk.
Exposure to issuers located in, or with economic ties to, the United
Kingdom, could expose the Fund to risks associated with
investments in the United Kingdom to a greater extent than more
geographically diverse funds, including regulatory, political, currency,
security, and economic
risks specific to the United Kingdom. The United Kingdom has one of the
largest economies in Europe, and the United States and other European
countries
are substantial trading partners of the United Kingdom. As a result, the
United Kingdom economy may be impacted by changes to the economic
condition
of the United States and other European countries.
Increasing
commodity prices and rising inflation levels caused or exacerbated by the
war between Russia and Ukraine recently prompted the United Kingdom
government to implement significant policy changes. It is difficult to
predict what effects such policies (or the suggestion of such policies)
may have
and the duration of those effects, which may last for extended periods.
These effects may negatively impact broad segments of business and the
population
and have a significant and rapid negative impact on the performance of the
Fund’s investments. In September 2022, the unexpected announcement
by the United Kingdom government to propose spending pledges and tax cuts
as part of the mini-budget, caused government bond prices to
fall sharply, sparking a liquidity and valuation crisis among certain
pension funds, and a fear that interest rates might rise at a faster rate
than had been anticipated.
The Bank of England subsequently launched an emergency intervention to
stabilize the United Kingdom’s economy. The uncertainty also resulted
in the British pound sterling falling to a historic low against the
dollar, though there was some recovery shortly thereafter. The United
Kingdom’s government
subsequently reversed proposing some of the spending pledges and tax cuts;
however, there continues to be considerable uncertainty surrounding
these plans, which may continue to have a destabilizing effect on the
United Kingdom economy.
Additionally,
the transitional period following the United Kingdom’s departure from the
European Union (commonly referred to as “Brexit”) ended on December
31, 2020 and European Union law ceased to have effect in the United
Kingdom except to the extent retained by the United Kingdom by
unilateral
act. The United Kingdom and the European Union then reached a trade
agreement that was ratified by all applicable United Kingdom and
European
Union governmental bodies. The economic effects of Brexit, including
certain negative impacts on the ability of the United Kingdom to trade
seamlessly
with the European Union, are becoming clearer but some political,
regulatory and commercial uncertainty in relation to the longer term
impacts nevertheless
remains to be resolved. Accordingly, there remains a risk that the
aftermath of Brexit, including its ongoing effect on the United Kingdom’s
relationships
with other countries, including the United States and the European Union,
may negatively impact the value of investments held by the Fund. A
depreciation
of the British pound sterling and/or the Euro in relation to the U.S.
dollar could adversely affect Fund investments denominated in British
pound
sterling or Euros regardless of the performance of the underlying
issuer. |
Growth
Companies Risk
Growth
companies are those that are expected to have the potential for above-average or
rapid growth. Growth companies are expected to increase their earnings
at a certain rate. When these expectations are not met or decrease, the prices
of these stocks may decline, sometimes sharply, even if earnings showed
an absolute increase. The Fund’s investments in growth companies may be more
sensitive to company earnings and more volatile than the market in general
primarily because their stock prices are based heavily on future expectations.
If an assessment of the prospects for a company’s growth is incorrect,
then
the price of the company’s stock may fall or not approach the value placed on
it. Growth company stocks may lack the dividend yield that can cushion
stock
price declines in market downturns. Growth companies may have limited operating
histories and greater business risks, and their potential for profitability
may be dependent on regulatory approval of their products or regulatory
developments affecting certain sectors, which could have an adverse impact
upon growth companies’ future growth and profitability. Different investment
styles tend to shift in and out of favor, depending on market conditions
and
investor sentiment. The Fund’s growth style could cause it to underperform funds
that use a value or non-growth approach to investing or have a broader
investment
style.
Investment
Risk
An
investment in the Fund is not a deposit with a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government
agency. The Fund should not be relied upon as a complete investment
program. The market price of the Fund fluctuates, which means that
when
you sell your shares of the Fund, they could be worth less than what you
paid for them. Therefore, you may lose money by investing in
the Fund.
12Prospectus
– Additional Information About the Fund
Issuer
Risk
The
value of, and/or the return generated by, a security may decline for a number of
reasons that directly relate to the issuer, such as management performance,
financial leverage and reduced demand for the issuer’s goods or services, as
well as the historical and prospective earnings of the issuer and the
value
of its assets. When the issuer of a security implements strategic initiatives,
including mergers, acquisitions and dispositions, there is the risk that the
market
response to such initiatives will cause the share price of the issuer’s
securities to fall. An individual security may be more volatile, and may perform
differently,
than the market as a whole.
Large-Capitalization
Companies Risk
The
securities of large market capitalization companies may underperform other
segments of the market, in some cases for extended periods of time, because
such
companies may be less responsive to competitive challenges and opportunities,
such as changes in technology and consumer tastes, and, at times, such
companies
may be out of favor with investors. Large market capitalization companies
generally are expected to be less volatile than companies with smaller
market
capitalizations. However, large market capitalization companies may be unable to
attain the high growth rates of successful smaller companies, especially
during periods of economic expansion, and may instead focus their competitive
efforts on maintaining or expanding their market share.
Market
Risk
The Fund
is subject to the risk that the securities markets will move down, sometimes
rapidly and unpredictably, based on overall economic conditions and other
factors, which may negatively affect the Fund’s performance. Equity securities
generally have greater price volatility than fixed-income securities,
although
under certain market conditions fixed-income securities may have comparable or
greater price volatility. During a general downturn in the securities
markets,
multiple asset classes may decline in value simultaneously. In some cases,
traditional market participants have been less willing to make a market in
some
types of debt instruments, which has affected the liquidity of those
instruments. During times of market turmoil, investors tend to look to the
safety of securities
issued or backed by the U.S. Treasury, causing the prices of these securities to
rise and the yields to decline. Reduced liquidity in fixed-income and
credit
markets may negatively affect many issuers worldwide. Prices in many financial
markets have increased significantly over the last decade, but there have
also
been periods of adverse market and financial developments and cyclical change
during that timeframe, which have resulted in unusually high levels of
volatility
in domestic and foreign financial markets that has caused losses for investors
and may occur again in the future, particularly if markets enter a period
of
uncertainty or economic weakness. Periods of unusually high volatility in the
financial markets and restrictive credit conditions, sometimes limited to a
particular
sector or geographic region, continue to recur. The value of a security may
decline due to adverse issuer-specific conditions or general market conditions
unrelated to a particular issuer, such as real or perceived adverse
geopolitical, regulatory, market, economic or other developments that may cause
broad
changes in market value, changes in the general outlook for corporate earnings,
changes in interest, currency or inflation rates, lack of liquidity in the
markets,
public perceptions concerning these developments or adverse market sentiment
generally. The value of a security may also decline due to factors that
affect a particular industry or industries, such as tariffs, labor shortages or
increased production costs and competitive conditions within an industry.
Changes
in the financial condition of a single issuer or market segment also can impact
the market as a whole.
Geopolitical
and other events, including war, terrorism, economic uncertainty, trade
disputes, pandemics, public health crises, natural disasters and related
events
have led, and in the future may continue to lead, to instability in world
economies and markets generally and reduced liquidity, which may adversely
affect
the value of your investment. Such market disruptions have caused, and may
continue to cause, broad changes in market value, negative public perceptions
concerning these developments, a reduction in the willingness and ability of
some lenders to extend credit, difficulties for some borrowers in obtaining
financing on attractive terms, if at all, and adverse investor sentiment or
publicity. Changes in value may be temporary or may last for extended
periods.
Adverse market events may also lead to increased shareholder redemptions, which
could cause the Fund to sell investments at an inopportune time to
meet redemption requests by shareholders and may increase the Fund’s portfolio
turnover, which could increase the costs that the Fund incurs and lower
the
Fund’s performance. Even when securities markets perform well, there is no
assurance that the investments held by the Fund will increase in value along
with
the broader market.
Policy
changes by the U.S. government and/or Federal Reserve and political events
within the U.S. and abroad, such as changes in the U.S. presidential
administration
and Congress, the U.S. government’s inability at times to agree on a long-term
budget and deficit reduction plan, the threat or occurrence of a federal
government shutdown and threats or the occurrence of a failure to increase the
federal government’s debt limit, which could result in a default on the
government’s
obligations, may affect investor and consumer confidence and may adversely
impact financial markets and the broader economy, perhaps suddenly
and to a significant degree. The severity or duration of adverse economic
conditions may also be affected by policy changes made by governments
or
quasi-governmental organizations. Global economies and financial markets are
becoming increasingly interconnected, which increases the possibility of
many
markets being affected by events in a single country or events affecting a
single or small number of issuers.
Markets
and market participants are increasingly reliant upon both publicly available
and proprietary information data systems. Data imprecision, software or
other
technology malfunctions, programming inaccuracies, unauthorized use or access,
and similar circumstances may impair the performance of these systems
and may have an adverse impact upon a single issuer, a group of issuers, or the
market at large. In certain cases, an exchange or market may close or
issue
trading halts on either specific securities or even the entire market, which may
result in the Fund being, among other things, unable to buy or sell certain
securities
or financial instruments or accurately price its investments. These fluctuations
in securities prices could be a sustained trend or a drastic movement.
The
financial markets generally move in cycles, with periods of rising prices
followed by periods of declining prices. The value of your investment may
reflect these
fluctuations.
■ |
Recent
Market Events Risk.
Both U.S.
and international markets have experienced significant volatility in
recent months and years. As a result of such volatility,
investment returns may fluctuate significantly. Moreover, the risks
discussed herein associated with an investment in the Fund may be
increased. Deteriorating
economic fundamentals may increase the risk of default or insolvency of
particular issuers, negatively impact market value, increase market
volatility,
cause credit spreads to widen, reduce bank balance sheets and cause
unexpected changes in interest rates. Any of these could cause an increase
in
market volatility, reduce liquidity across various sectors or markets or
decrease confidence in the markets.
Historical patterns of correlation among asset classes
may break down in unanticipated ways during times of high volatility,
disrupting investment programs and potentially causing
losses.
Although
interest rates were unusually low in recent years in the U.S. and abroad,
in 2022, the U.S. Federal Reserve and certain foreign central banks began
to
raise interest rates as part of their efforts to address rising inflation.
In addition, ongoing inflation pressures could
continue to cause an increase in interest
rates and/or negatively impact issuers. It is difficult to accurately
predict the pace at which interest rates may increase, the
timing, frequency or magnitude
of any such increases in interest rates,
or when such increases might stop.
Additionally, various economic and political factors, such as rising
inflation
rates, could cause the Federal Reserve or other foreign banks to change
their approach in the future as such actions may result in an economic
slowdown
both in the U.S. and abroad. Unexpected increases in interest rates could
lead to market volatility or reduce liquidity in certain sectors of the
market.
Also, regulators have expressed concern that rate increases may cause
investors to sell fixed income securities faster than the market can
absorb them,
contributing to price volatility. Over the longer term, rising interest
rates may present a greater risk than has historically been the case due
to the prior
period of relatively low rates and the effect of government fiscal and
monetary policy initiatives and potential market reaction to those
initiatives, or their
alteration or cessation. It
is
difficult to predict the impact on various markets of significant rate
increases or other significant policy changes.
In
March 2023, the shutdown of certain financial institutions in the U.S. and
questions regarding the viability of other financial institutions raised
economic |
Prospectus
– Additional Information About the Fund13
|
concerns
over disruption in the U.S. and global banking systems. There can be no
certainty that the actions taken by the U.S. or foreign governments will
be effective in mitigating the effects of financial institution failures
on the economy and restoring public confidence in the U.S. and global
banking systems. Some countries, including the U.S., have in recent years
adopted more protectionist trade policies. Slowing global economic growth;
the rise in protectionist trade policies; changes to international trade
agreements; risks associated with the trade
agreement between the United Kingdom and the European Union and
the
risks associated with ongoing trade negotiations with China; political or
economic dysfunction within some nations, including major producers of
oil; and dramatic changes in commodity and currency prices could have
adverse effects that cannot be foreseen at the present time.
Tensions, war
or open conflict between nations, such as between Russia and Ukraine, in
the Middle East or in eastern Asia could affect the economies of
many nations,
including the United States. The duration of ongoing hostilities and any
sanctions and related events cannot be predicted. Those events present
material uncertainty and risk with respect to markets globally and the
performance of the Fund and its investments or operations could be
negatively impacted.
Regulators
in the U.S. have proposed and recently adopted a number of changes to
regulations involving the markets and issuers, some of which apply to the
Fund. The full effect of various newly-adopted regulations is not
currently known. Additionally, it is not clear whether the proposed
regulations will be adopted. However, due to the broad scope of the new
and proposed regulations, certain changes could limit the Fund’s ability
to pursue its investment strategies or make certain investments, or may
make it more costly for the Fund to operate, which may impact performance.
Further, advancements in technology may also adversely impact market
movements and liquidity and may affect the overall performance of the
Fund. For example, the advanced development and increased regulation of
artificial intelligence may impact the economy and the performance of the
Fund. As artificial intelligence is used more widely, the value of the
Fund’s holdings may be impacted, which could impact the overall
performance of the Fund.
High
public debt in the U.S. and other countries creates ongoing systemic and
market risks and policymaking uncertainty. There is no assurance that the
U.S. Congress will act to raise the nation’s debt ceiling; a failure to do
so could cause market turmoil and substantial investment risks that cannot
now be fully predicted. Unexpected political, regulatory and diplomatic
events within the U.S. and abroad may affect investor and consumer
confidence and may adversely impact financial markets and the broader
economy.
Certain
illnesses spread rapidly and have the potential to significantly and
adversely affect the global economy. The impact of epidemics and/or
pandemics that may arise in the future could negatively affect the
economies of many nations, individual companies and the global securities
and commodities markets, including their liquidity, in ways that cannot
necessarily be foreseen at the present time and could last for an extended
period of time. China’s
economy, which has been sustained through debt-financed
spending on housing and infrastructure, appears
to be experiencing a significant slowdown
and growing at a lower rate than prior
years. Due to the size of China’s economy, such a slowdown could impact
financial markets and the broader economy.
Economists
and others have expressed increasing concern about the potential effects
of global climate change on property and security values. Impacts from
climate change may include significant risks to global financial assets
and economic growth. A rise in sea levels, an increase in powerful
windstorms and/or a climate-driven increase in sea levels or flooding
could cause coastal properties to lose value or become unmarketable
altogether. Certain issuers, industries and regions may be adversely
affected by the impacts of climate change, including on the demand for and
the development of goods and services and related production costs, and
the impacts of legislation, regulation and international accords related
to climate change, as well as any indirect consequences of regulation or
business trends driven by climate change. Regulatory changes and
divestment movements tied to concerns about climate change could adversely
affect the value of certain land and the viability of industries whose
activities or products are seen as accelerating climate change. Losses
related to climate change could
adversely affect, among others, corporate issuers and mortgage lenders,
the value of mortgage-backed securities, the bonds of municipalities that
depend on tax or other revenues and tourist dollars generated by affected
properties, and insurers of the property and/or of corporate, municipal or
mortgage-backed securities. |
Mid-Capitalization
Companies Risk
Investments
in mid-capitalization companies generally involve greater risks and the
possibility of greater price volatility, which at times can be rapid and
unpredictable,
than investments in larger, more established companies. Mid-capitalization
companies often have narrower commercial markets and more limited
operating history, product lines, and managerial and financial resources than
larger, more established companies. As a result, performance can be more
volatile and they may face greater risk of business failure, which could
increase the volatility of the Fund’s portfolio. Generally, the smaller the
company size,
the greater these risks. Additionally, mid-capitalization companies may have
less market liquidity than large-capitalization companies, and they can be
sensitive
to changes in overall economic conditions, interest rates, borrowing costs and
earnings.
Natural
Resources Concentration Risk
The
Fund concentrates its investments in natural resources and natural
resources-related industries and has greater exposure than other funds to
market, economic
and other factors affecting those industries. The Fund’s investments in equity
securities of companies in natural resources and natural resources-related
businesses are subject to the risks associated with natural resources
investments in addition to the general risk of the stock market. This
means
the Fund is more vulnerable to price movements of natural resources and factors
that particularly affect the metals and mining, agriculture, energy,
refining
and chemicals, energy transition and other industries than a more broadly
diversified fund. There is a risk that the Fund will perform poorly when the
stock
market is otherwise performing well. Investments in natural-resources related
securities can be affected by numerous factors, including changes in
supply
of, or demand for, various natural resources, changes in energy prices,
international political and economic developments, economic conditions in large
importation
countries, import controls, civil conflict, actions to address climate change or
other environmental factors, energy conservation, the success of exploration
projects, fluctuation and changes in commodity or other raw material prices,
production spending, changes in exchange rates, interest rates or inflation
rates and/or investor expectations concerning such rates, increased competition,
technological developments, labor relations, and tax and other government
regulation and intervention.
Companies
in natural resources-related industries often have limited pricing power over
supplies or the products they sell, which can affect such companies’
profitability,
and they are often capital-intensive and use significant leverage. The
securities of companies in natural resources-related industries may experience
more price volatility than securities of companies in other industries,
particularly those companies that have a high percentage of debt relative to
equity
in their capital structures. In addition, companies in natural resources-related
industries may be subject to the risks generally associated with extraction
of
natural resources, such as the risks of mining and oil drilling, and the risks
of the hazards associated with natural resources, such as natural or man-made
disasters,
fire, explosion, drought, liability for environmental damage claims, and
increased regulatory and environmental costs, including mandated expenditures
for safety and pollution control. Prices of precious metals and precious metal
related securities have historically been volatile due to various economic,
financial, social and political factors and may adversely affect the financial
condition of companies involved with precious metals. Actions to address
climate change could result in new laws and regulations to control or restrict
emissions of greenhouse gases, including taxes or other charges, which
could
adversely affect the performance of companies in natural resources-related
industries. A number of political leaders have pledged to restrict greenhouse
gas
emissions, ban hydraulic fracturing of oil and natural gas wells and ban new
leases for production of oil and natural gas on federal lands. Any such bans
could
result in material economic harm to those companies, and in turn, the
Fund.
New
Fund Risk
The Fund
had not commenced operations prior to the date of this Prospectus. The current
performance of the Fund may not represent how it is expected to,
or
may, perform in the long term if and when it becomes larger and has fully
implemented its investment strategies. Investment positions may have a
14Prospectus
– Additional Information About the Fund
disproportionate
impact (negative or positive) on the Fund’s performance. The Fund may also
require a period of time before it is invested in securities that meet
its investment objectives and policies and achieve a representative portfolio
composition. Fund performance may be lower or higher during this “ramp-up”
period, and may also be more volatile, than would be the case after
the Fund is fully invested. Similarly, the Fund’s investment
strategies may require
a longer period of time to show returns that are representative of the
strategies. The Fund has a limited performance history for investors to evaluate
and
may not attract sufficient assets to achieve investment and trading
efficiencies. If the Fund fails to successfully implement its investment
strategies or achieve
its investment objective, performance may be negatively impacted. Any resulting
liquidation could create transaction costs for the Fund and adverse
federal
income tax consequences for investors. As a new ETF, the Fund may
experience low trading volume and wide bid-ask spreads.
Other
Investment Companies Risk
To
the extent that the Fund invests in shares of other registered investment
companies, the Fund will indirectly bear the fees and expenses, including,
for example,
advisory and administrative fees, charged by those investment companies in
addition to the Fund’s direct fees and expenses. If the Fund invests in
other
investment companies, the Fund may receive distributions of taxable gains from
portfolio transactions by that investment company and may recognize taxable
gains from transactions in shares of that investment company, which could be
taxable to the Fund’s shareholders when distributed to them. The Fund
must
rely on the investment company in which it invests to achieve its investment
objective. If the investment company fails to achieve its investment
objective,
the value of the Fund’s investment may decline, adversely affecting
the Fund’s performance. To the extent the Fund invests in other
investment companies
that invest in equity securities, fixed-income securities and/or foreign
securities, or that track an index, the Fund is subject to the risks
associated with
the underlying investments held by the investment company or the index
fluctuations to which the investment company is subject. The Fund will be
subject
to the risks associated with investments in those companies, including but not
limited to the following:
■ |
Government
Money Market Funds Risk.
Investments in government money market funds are subject to interest rate
risk, credit risk, and market risk. Interest
rate risk is the risk that rising interest rates could cause the Fund’s
investment to lose value. A decline in short-term interest rates or a low
interest rate
environment would lower a government money market fund’s yield and the
return on the Fund’s investment. Credit risk is the risk that the issuer,
guarantor
or insurer of an obligation, or the counterparty to a transaction, may
fail or become less able or unwilling, to make timely payment of interest
or principal
or otherwise honor its obligations, or that it may default completely.
There is the risk that the issuers or guarantors of securities owned by a
government
money market fund, including securities issued by U.S. Government
agencies, which are not backed by the full faith and credit of the U.S.
Government,
will default on the payment of principal or interest or the obligation to
repurchase securities from the government money market fund. This
could
cause the government money market fund’s NAV to decline below $1.00 per
share, which would cause the Fund’s investment to lose
value. |
Sector
Risk
Sector
risk is the risk associated with the Fund holding a significant amount of
investments in issuers conducting business in a related group of industries
within
the same economic sector, which may be similarly affected by particular economic
or market events. To the extent the Fund has substantial holdings within
a particular sector, the risks to the Fund associated with that sector increase
and the Fund may perform poorly during a downturn in one or more of the
industries within that sector. In addition, when the Fund focuses its
investments in certain sectors of the economy, its performance may be driven
largely by
sector performance and could fluctuate more widely than if the Fund were invested
more evenly across sectors. Individual sectors may be more volatile,
and
may perform differently, than the broader market. The industries that constitute
a sector may all react the same way to economic, political or regulatory
events.
The Fund’s performance could also be adversely affected if the sectors do not
perform as expected. The lack of exposure to one or more industries within
a sector may adversely affect performance. As the Fund’s portfolio changes over
time, the Fund’s exposure to a particular sector may become higher or
lower.
■ |
Energy
Sector Risk.
The Energy sector is cyclical and is highly dependent on commodity prices,
and prices and supplies of energy may fluctuate significantly over
short and long periods of time. Companies operating in the Energy sector
are subject to risks including, but not limited to: price volatility and
fluctuation
caused by real and perceived inflationary trends and availability of oil
and other resources; political developments such as the enactment or
cessation
of trade sanctions or import controls; political instability, war or other
geopolitical conflicts in the regions that the companies operate;
environmental
and safety regulations and the cost assumed in complying with such
regulations, including costs related to the transition to low carbon
alternatives
or clean energy; taxes; supply of and demand for energy fuels; depletion
of resources; energy conservation efforts; capital expenditures on and
the
success of exploration and production projects; energy infrastructure
service failures; increased competition and technological advances;
negative perception
of companies in the Energy sector; and policies of, and relations between,
the Organization of the Petroleum Exporting Countries (OPEC) and oil
importing
nations. In addition, companies in the Energy sector are at risk of
liability from accidents resulting in pollution, injury, loss of life or
property, mishandling
of materials, or other environmental damage claims and at risk of loss
from terrorism, cyber incidents, natural disasters, fires and
explosions. Disruptions
in the oil industry or shifts in fuel consumption may significantly impact
companies in this sector. Energy companies may have relatively high
levels
of debt and may be more likely than other companies to restructure their
businesses if there are downturns in energy markets or in the global
economy.
Such restructuring may permit the revocation or renegotiation of contracts
that may have an impact on the ability of such companies to pay
distributions
to investors. Significant oil and gas deposits are located in emerging
markets countries where corruption and security may raise significant
risks,
in addition to the other risks of investing in emerging markets. Entities
operating in the Energy sector are subject to significant regulation of
nearly every
aspect of their operations by federal, state and local governmental
agencies. Such regulation can change rapidly or over time in both scope
and intensity.
Stricter laws, regulations or enforcement policies could be enacted in the
future which would likely increase compliance costs and may materially
adversely
affect the financial performance of companies in the Energy sector.
Companies in this sector may be subject to contractual fixed pricing,
which may
increase the cost of doing business and limit the earnings of these
companies. Because a significant portion of revenues of companies in this
sector is derived
from a relatively small number of customers that are largely comprised of
governmental entities and utilities, governmental budget constraints may
have
a significant impact on the stock prices of companies in this sector.
There is growing political pressure to reduce the use of fossil fuels,
which could begin
to impact the securities of companies in that industry and the prices of
related commodities. |
■ |
Materials
Sector Risk.
Companies in the Materials sector may be adversely affected by world
events, social and political unrest, war, energy conservation,
environmental
policies, commodity over-production, commodity price volatility, consumer
preferences, interest rates, exchange rates, product and economic
cycles,
marketing, import controls, technological progress, labor relations,
government regulations, and increased competition and resource depletion,
among
other factors. Production of industrial materials may exceed demand as a
result of market imbalances or economic downturns, leading to poor
investment
returns. Issuers in the Materials sector also are at risk for
environmental damage and product liability claims, as well as mandated
expenditures for
safety and pollution control. |
Securities
Selection Risk
Securities
selected for the Fund may decline substantially in value or may not perform to
expectations. Judgments about the attractiveness, value and anticipated
price movements of a security or asset class may be incorrect, and there is no
guarantee that securities will perform as anticipated. The
value of a security
can be more or less volatile than the market as a whole, and the Fund’s
strategy may fail to produce the intended results.
This could result in the Fund’s
underperformance compared to other funds with similar investment
objectives.
Prospectus
– Additional Information About the Fund15
Small-Capitalization
Companies Risk
Investments
in small-capitalization companies generally involve greater risks and the
possibility of greater price volatility, which at times can be rapid and
unpredictable,
than investments in larger capitalization and more established companies.
Small-capitalization companies often have narrower commercial markets
and more limited operating history, product lines, and managerial and financial
resources than larger, more established companies. As a result, performance
of small-capitalization companies can be more volatile and these companies may
face greater risk of business failure, which could increase the volatility
of the Fund’s portfolio. Generally, the smaller the company size, the
greater these risks. Additionally, small-capitalization companies may have less
market
liquidity than larger capitalization companies, and they can be sensitive to
changes in overall economic conditions, interest rates, borrowing costs and
earnings.
Value
Stocks Risk
Investments
in value stocks are subject to the risk that their intrinsic or full value may
never be realized by the market, that a stock judged to be undervalued
may
be appropriately priced, or that their prices may decline. This may result in
the value stocks’ prices remaining undervalued for extended periods of time
and
they may not ever realize their intrinsic or full value. While the Fund’s
investments in value stocks seek to limit potential downside price risk over
time, value
stock prices still may decline substantially. In addition, the Fund may produce
more modest gains as a trade-off for this potentially lower risk. Different
investment
styles tend to shift in and out of favor, depending on market conditions and
investor sentiment. The Fund’s performance also may be affected adversely
if value stocks become unpopular with, or lose favor among, investors. The
Fund’s value style could cause it to underperform funds that use a growth
or non-value approach to investing or have a broader investment
style.
Additional
Information About Performance Index
The
Fund’s performance will be compared to the S&P 500 Index.
■ |
The
S&P 500 Index is an unmanaged index of common stocks publicly traded
in the United States. |
Notice Regarding Index
Data
The
“S&P 500 Index” is a product of S&P Dow Jones Indices LLC, a division of
S&P Global, or its affiliates (“SPDJI”), and has been licensed for use by
the Fund.
Standard & Poor’s®
and S&P®
are registered trademarks of Standard & Poor’s Financial Services LLC, a
division of S&P Global (“S&P”); Dow Jones®
is a registered
trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). The Fund is not
sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P,
their respective affiliates and none of such parties make any representation
regarding the advisability of investing in such product(s) nor do they have any
liability
for any errors, omissions, or interruptions of the S&P 500
Index.
Portfolio
Holdings Information
Each
day the Fund is open for business, the Trust publicly disseminates the Fund’s
full portfolio holdings as of the close of the previous day through the
website.
A description of the Fund’s policies and procedures with respect to the
disclosure of the Fund’s portfolio holdings is available in the Fund’s
SAI. The holdings
of the Fund can be found on the Fund’s website at
www.americanbeaconfunds.com/etfs/MGNR.
Fund
Management
The
Manager
AMERICAN
BEACON ADVISORS, INC. (the “Manager”)
serves as the Manager and administrator of the Fund. The Manager, located at 220
East Las Colinas
Boulevard, Suite 1200, Irving, Texas 75039, is an indirect wholly-owned
subsidiary of
Resolute Topco,
Inc. (“Topco”),
which is owned primarily by various
institutional investment funds that are managed by financial institutions and
other investment advisory firms. No owner of Topco owns 25% or more of
the outstanding equity or voting interests of Topco.
The
Manager was organized in 1986 to provide investment management, advisory, and
administrative services. The Manager is registered as an investment adviser
under the Advisers Act. The Manager, on behalf of the Fund, has filed a notice
claiming the CFTC Regulation 4.5 exclusion from registration as a CPO
under
the Commodity Exchange Act, and the Manager is also exempt from registration as
a commodity trading advisor under CFTC Regulation 4.14(a)(8) with respect
to the Fund.
Under
the Fund’s management agreement with the Manager (the “Management Agreement”),
the Manager has agreed to pay all expenses of the Fund, except
for the management fee payments to the Manager under the Management Agreement
(also known as a “unitary advisory fee”), acquired fund fees and
expenses, brokerage commissions and issue and transfer taxes relating to the
purchase and sale of portfolio holdings, securities lending fees, expenses
associated
with securities sold short, costs, expenses or losses arising out of any
liability or claim asserted against the Trust or Fund for violation of any law,
distribution
and service fees pursuant to a Rule 12b-1 plan (if any), costs of holding
shareholder meetings, except meetings related to changes to the Management
Agreement, the election of any Board member who is an “interested person” of the
Trust as defined in Section 2(a)(19) of the 1940 Act, and/or other
matters that directly benefit the Manager, taxes and governmental fees, and
extraordinary expenses.
The
Fund’s Management Agreement with the Manager provides for the Fund to pay the
Manager an annualized management fee equal to 0.75% of the Fund’s
average daily net assets that is calculated and accrued daily. As of the date of
this Prospectus, the Fund had not commenced operations and has not paid
management fees to the Manager.
As
compensation for services provided by the Manager in connection with securities
lending activities conducted by the Fund,
the lending Fund pays
to the Manager,
with respect to cash collateral posted by borrowers, a fee of 10% of the net
monthly investment income (the income earned in the form of interest,
dividends
and realized capital gains from the investment of cash collateral, plus any
negative rebate fees paid by borrowers, less the rebate amount paid to
borrowers
as well as related expenses) and, with respect to collateral other than cash, a
fee up to 10% of loan fees and demand premiums paid by borrowers. The
SEC has granted exemptive
relief that permits the Fund to invest cash collateral received from securities
lending transactions in shares of one or more private
or registered investment companies managed by the Manager.
As
of the date of this Prospectus, the Fund does not intend to engage in securities
lending activities.
A
discussion of the Board’s consideration and approval of the Management Agreement
between the Trust, on behalf of the Fund, and the Manager, and the Investment
Advisory Agreement between the Manager and the sub-advisor will be available in
the Fund’s Semi-Annual Shareholder Report for the fiscal period ending
July 31, 2024.
The
Sub-Advisor
Set
forth below is a brief description of the sub-advisor and the portfolio manager
with primary responsibility for the day-to-day management of the Fund.
The
Fund’s SAI provides additional information about the portfolio manager,
including other accounts he manages, his ownership in the Fund and his
compensation.
16Prospectus
– Fund Management
GLG
LLC (“Man GLG”), an indirect wholly owned subsidiary of Man Group plc,
is located at 1345 Avenue of the Americas, 21st Floor, New York, NY 10105. Man
GLG is an investment management firm. The firm managed approximately $5.4
billion in
assets as of September 30, 2023.
Man GLG is registered with the SEC as an investment adviser under the Investment
Advisers Act of 1940, as amended.
Albert
Chu,
CFA
is a Portfolio Manager at Man GLG. Prior to joining Man GLG Mr. Chu worked as a
portfolio manager for Newton Investment Management North
America, LLC (“NIMNA”) or a predecessor company of NIMNA since April 2019. Prior
to joining NIMNA, Mr. Chu worked as a senior analyst at Precocity Capital
from 2018 to 2019, and as an energy portfolio manager at Caxton Associates from
2016 to 2017.
The
Distributor
Foreside
Financial Services, LLC, a wholly owned subsidiary of Foreside Financial Group,
LLC (doing business as ACA Group) (“Distributor”) serves as the Fund’s
distributor.
The
Distributor distributes Creation Units for the Fund on a best efforts basis.
Shares in less than Creation Units are not distributed by the Distributor, and
the Distributor
does not maintain a secondary market in the shares of the Fund. The Distributor
has no role in determining the policies of the Fund or the securities
that are purchased or sold by the Fund. The Distributor’s principal address is
Three Canal Plaza, Suite 100, Portland, ME 04101.
Valuation
of Shares
The
Fund’s NAV per share is computed by adding total assets, subtracting all of the
Fund’s liabilities, and dividing the result by the total number of shares
outstanding,
which may differ from the Fund’s market price. Investors that purchase and sell
the Fund in the secondary market will transact at market prices, which
may be lower or higher than the NAV per share.
The
NAV per share of the Fund’s shares is determined based on a pro rata allocation
of the Fund’s investment income, expenses and total capital gains and
losses.
The Fund’s NAV per share is determined each business day as of the regular close
of trading on the NYSE, which is typically 4:00 p.m. Eastern Time. However,
if trading on the NYSE closes at a time other than 4:00 p.m. Eastern Time, the
Fund’s NAV per share typically would still be determined as of the regular
close of trading on the NYSE. The Fund does not price its shares on days that
the NYSE is closed. Foreign exchanges may permit trading in foreign securities
on days when the Fund is not open for business, which may result in the value of
the Fund’s portfolio investments being affected at a time when you
are unable to buy or sell shares.
Equity
securities and certain derivative instruments that are traded on an exchange are
valued based on market value. Certain derivative instruments (other than
short-term securities) usually are valued on the basis of prices provided by a
pricing service. The price of debt securities generally is determined using
pricing
services or quotes obtained from broker/dealers who may consider a number of
inputs and factors, such as comparable characteristics, yield curve,
credit
spreads, estimated default rates, coupon rates, underlying collateral and
estimated cash flow. Investments in mutual funds are valued at the closing
NAV
per share of the mutual funds on the day of valuation. Equity securities,
including shares of closed-end funds and ETFs, are valued at the last sale price
or official
closing price.
The
valuation of securities traded on foreign markets and certain fixed-income
securities will generally be based on prices determined as of the earlier
closing time
of the markets on which they primarily trade, unless a significant event has
occurred. When the Fund holds securities or other assets that are denominated
in a foreign currency, the exchange rates as of 4:00 p.m. Eastern Time will
normally be used.
Rule
2a-5 under the Investment Company Act (the “Valuation Rule”) establishes
requirements for determining fair value in good faith for purposes of the
Investment
Company Act, including related oversight and reporting requirements. The rule
also defines when market quotations are “readily available” for purposes
of the Investment Company Act, the threshold for determining whether the Fund
must fair value a security.
The
Valuation Rule permits the Fund’s board to designate the Fund’s primary
investment adviser as “valuation designee” to perform the Fund’s fair value
determinations
subject to board oversight and certain reporting and other requirements intended
to ensure that the registered investment company’s board receives
the information it needs to oversee the investment adviser’s fair value
determinations. The Board has designated the Manager as valuation designee
under
the Valuation Rule to perform fair value functions in accordance with the
requirements of the Valuation Rule.
Securities
may be valued at fair value, as determined in good faith and pursuant to the
Manager’s procedures. For example, fair value pricing will be used when
market quotations are not readily available or reliable, as determined by the
Manager, such as for fixed income securities and when: (i) trading for a
security
is restricted or stopped; (ii) a security’s trading market is closed (other than
customary closings); or (iii) a security has been de-listed from a national
exchange.
A security with limited market liquidity may require fair value pricing if the
Manager determines that the available price does not reflect the security’s
true market value. In addition, if a significant event that the Manager
determines to affect the value of one or more securities held by the Fund
occurs
after the close of a related exchange but before the determination of the Fund’s
NAV per share, fair value pricing may be used on the affected security
or
securities. Securities of small-capitalization companies are also more likely to
require a fair value determination using these procedures because they are
more
thinly traded and less liquid than the securities of larger capitalization
companies. Securities may be fair valued as a result of significant events
occurring after
the close of the foreign markets in which it invests. In addition, the Fund may
invest in illiquid securities requiring these procedures.
Attempts
to determine the fair value of securities introduce an element of subjectivity
to the pricing of securities. As a result, the price of a security determined
through fair valuation techniques may differ from the price quoted or published
by other sources and may not accurately reflect the market value of
the security when trading resumes. If a reliable market quotation becomes
available for a security formerly valued through fair valuation techniques, the
Manager
compares the new market quotation to the fair value price to evaluate the
effectiveness of the Fund’s fair valuation procedures. You may view the
Fund’s
most recent NAV per share at www.americanbeaconfunds.com by clicking on ‘‘Quick
Links’’ and then ‘‘Daily NAVs.’’
About
Your Investment
Purchase
and Redemption of Shares
Shares
of the Fund may be purchased or redeemed directly from the Fund only in Creation
Units or multiples thereof. Only a broker-dealer that enters into an
Authorized
Participant agreement with the Distributor (an “Authorized Participation
Agreement”) may engage in creation and redemption transactions directly
with the Fund. Purchases and redemptions directly with the Fund must follow the
Fund’s procedures, and are subject to transaction fees, which are described
in the SAI. Orders for such transactions may be rejected or delayed if they are
not submitted in good order and subject to the other conditions set forth
in this Prospectus and the SAI. Please see the SAI for more information about
purchases and redemptions of Creation Units.
Once
purchased (i.e., created) by an Authorized Participant, shares are listed on the
Exchange and trade in the secondary market. When you buy or sell the
Fund’s
shares in the secondary market, you will pay or receive the market price. The
price at which you buy or sell shares (i.e., the market price) may be more
or
less than the NAV of the shares. Unless imposed by your broker, there is no
minimum dollar amount you must invest in the Fund and no minimum number
Prospectus
– About Your Investment17
of
Shares you must buy. Shares can be bought and sold throughout the trading day
like other publicly traded securities. Most investors will buy and sell shares
through
a broker and, thus, will incur customary brokerage commissions and charges when
buying or selling shares. Except when aggregated in Creation Units,
shares are not redeemable by the Fund.
The
secondary markets are closed on weekends and also are generally closed on the
following holidays: New Year’s Day, Martin Luther King Jr. Day, Presidents’
Day, Good Friday, Memorial Day, Juneteenth National Independence Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day, but
may be closed at other times. When a holiday observed by the
Exchange falls on a Saturday, the Exchange will not be open for business on the
preceding Friday
unless unusual business conditions exist, such as the ending of a monthly or
yearly accounting period.
For
more information on how to buy and sell shares of the Fund, call 1-833-471-3562
or visit www.americanbeaconfunds.com.
Premium/Discount
Information
Information
showing the number of days the market price of the Fund’s shares was greater
than the Fund’s NAV per share (i.e., at a premium) and the number
of days it was less than the Fund’s NAV per share (i.e., at a discount) for
various time periods will be available by visiting the Fund’s website at
www.americanbeaconfunds.com/etfs/MGNR.
The premium and discount information contained on the website will represent
past performance and cannot be
used to predict future results.
Investments
by Registered Investment Companies
Section
12(d)(1) of the Investment Company Act restricts investments by investment
companies in the securities of other investment companies, including
shares
of the Fund. Registered investment companies are permitted to invest in the Fund
beyond the limits set forth in Section 12(d)(1) subject to compliance
with
Rule 12d1-4 under the Investment Company Act, including that such investment
companies enter into an agreement with the Fund.
Continuous
Offering
The
method by which Creation Units of Fund shares are created and traded may raise
certain issues under applicable securities laws. Because new Creation
Units
of shares are issued and sold by the Fund on an ongoing basis, a “distribution,”
as such term is used in the Securities Act of 1933 (the “Securities Act”),
may
occur at any point. Broker-dealers and other persons are cautioned that some
activities on their part may, depending on the circumstances, result in their
being
deemed participants in a distribution in a manner which could render them
statutory underwriters and subject them to the prospectus delivery requirement
and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Units after placing an order with the
Distributor, breaks
them down into constituent shares and sells the shares directly to customers or
if it chooses to couple the creation of a supply of new shares with an
active
selling effort involving solicitation of secondary market demand for shares. A
determination of whether one is an underwriter for purposes of the Securities
Act must take into account all the facts and circumstances pertaining to the
activities of the broker-dealer or its client in the particular case, and the
examples
mentioned above should not be considered a complete description of all the
activities that could lead to a characterization as an underwriter.
Broker-dealer
firms should also note that dealers who are not “underwriters” but are effecting
transactions in shares, whether or not participating in the distribution
of shares, are generally required to deliver a prospectus. This is because the
prospectus delivery exemption in Section 4(3) of the Securities Act is
not
available in respect of such transactions as a result of Section 24(d) of the
1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters”
but are participating in a distribution (as contrasted with engaging in ordinary
secondary market transactions) and thus dealing with the shares
that are part of an overallotment within the meaning of Section 4(3)(C) of the
Securities Act, will be unable to take advantage of the prospectus delivery
exemption provided by Section 4(3) of the Securities Act. For delivery of
prospectuses to exchange members, the prospectus delivery mechanism of
Rule
153 under the Securities Act is only available with respect to transactions on a
national exchange.
Dealers
effecting transactions in the Fund’s shares, whether or not participating in
this distribution, are generally required to deliver a prospectus.
This is in addition to any obligation of dealers to deliver a prospectus when
acting as underwriters.
Beneficial
Ownership
The
Depository Trust Company (“DTC”) serves as securities depository for the Fund’s
shares. DTC, or its nominee, is the owner of record for all outstanding
shares.
Beneficial owners of the Fund’s shares are not entitled to have shares
registered in their names, will not receive or be entitled to receive physical
delivery
of certificates in definitive form and are not considered the registered holder
thereof. Accordingly, to exercise any rights of a holder of shares, each
beneficial
owner must rely on the procedures of: (i) DTC; (ii) the securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations,
some of whom (and/or their representatives) own DTC (“DTC Participants”), and
(iii) brokers, dealers, banks and trust companies that clear through
or maintain a custodial relationship with a DTC Participant, either directly or
indirectly, through which such beneficial owner holds its interests (“Indirect
Participants”). The Trust understands that, under existing industry practice, in
the event the Fund requests any action of holders of shares, or a beneficial
owner desires to take any action that DTC, as the record owner of all
outstanding shares, is entitled to take, DTC would authorize the DTC
Participants
to take such action and that the DTC Participants would authorize the Indirect
Participants and beneficial owners acting through such DTC Participants
to take such action and would otherwise act upon the instructions of beneficial
owners owning through them. For more detailed information, see “Book
Entry Only System” in the Fund’s Statement of Additional
Information.
Payments
to Financial Intermediaries
The
Manager and/or the Manager’s affiliates (at their own expense) may pay
compensation to financial intermediaries for shareholder-related services and,
if applicable,
distribution-related services, including administrative, sub-transfer agency
type, recordkeeping and shareholder communication services. Such payments,
which may be significant to the intermediary, are not made by the Fund. Rather,
such payments are made by the Manager or its affiliates from their own
resources, and constitute what it sometimes referred to as “revenue
sharing.”
The
amount of compensation paid to different financial intermediaries may differ.
The compensation paid to a financial intermediary may be based on a variety
of factors, including average assets under management in accounts distributed
and/or serviced by the financial intermediary, gross sales by the financial
intermediary and/or the number of accounts serviced by the financial
intermediary that invest in the Fund.
Compensation
received by a financial intermediary from the Manager or an affiliate of the
Manager may include payments for marketing and/or training expenses
incurred by the financial intermediary, including expenses incurred by the
financial intermediary in educating (itself and) its salespersons with respect
to
Fund shares. For example, such compensation may include reimbursements for
expenses incurred in attending educational seminars regarding the Fund,
including
travel and lodging expenses. It may also cover the development of technology
platforms and reporting systems, data provision services, financial intermediaries
making shares of the Fund available to sales representatives and/or customers of
a fund supermarket platform or similar program sponsor, services
provided in connection with such fund supermarket platforms and programs, or
costs incurred by financial intermediaries in connection with their efforts
to sell Fund shares, including costs incurred compensating (registered) sales
representatives, preparing, printing and distributing sales
literature.
18Prospectus
– About Your Investment
Any
compensation received by a financial intermediary and the prospect of receiving
it may create conflicts of interest between the intermediary and its
customers
and may provide the financial intermediary with an incentive to recommend the
shares of the Fund or another fund in the American Beacon Funds Complex
over other potential investments, and may cause it to make decisions about the
level of services provided to its customers based on the payments or
other
financial incentives it is eligible to receive. Similarly, the compensation may
cause financial intermediaries to elevate the prominence of the Fund within
their
organization by, for example, placing it on a list of preferred funds. You can
contact your financial intermediary for details about any such payments it
receives
from the Manager or its affiliates, or any other fees, expenses, or commissions
your financial intermediary may charge you in addition to those disclosed
in this Prospectus.
Frequent
Trading and Market Timing
The
Trust’s Board of Trustees has determined not to adopt policies and procedures
designed to prevent or monitor for frequent purchases and redemptions of
the
Fund’s shares because the Fund sells and redeems its shares at NAV only in
Creation Units pursuant to the terms of an Authorized Participant Agreement
between
the Authorized Participant and the Distributor, and such direct trading between
the Fund and Authorized Participants is critical to ensuring that the
Fund’s
shares trade at or close to NAV. Further, the vast majority of trading in Fund
shares occurs on the secondary market, which does not involve the Fund
directly
and therefore does not cause the Fund to experience many of the harmful effects
of market timing, such as dilution and disruption of portfolio management.
In addition, the Fund imposes a transaction fee on Creation Unit transactions,
which is designed to offset transfer and other transaction costs incurred
by the Fund in connection with the issuance and redemption of Creation Units and
may employ fair valuation pricing to minimize potential dilution from
market timing. The Fund reserves the right to reject any purchase order at
any time and reserves the right to impose restrictions on disruptive, excessive,
or
short-term trading.
Distributions
and Taxes
The
Fund distributes most or all of its net earnings and realized gains, if any,
each taxable year in the form of dividends from net investment income
(“dividends”)
on a
quarterly
basis and distributions of realized net capital gains (“capital gains
distributions”) and net gains from foreign currency transactions
(sometimes referred to below collectively as “other distributions”) on an annual
basis (and dividends, capital gains distributions, and other distributions
are sometimes referred to below collectively as “distributions”). Different tax
treatment applies to different types of distributions (as described in
the
table below).
The
Fund does not have a fixed dividend rate and does not guarantee that it will pay
any distributions in any particular period. Any dividends are paid quarterly,
and capital gains distributions and other distributions are paid
annually.
No
dividend reinvestment service is provided by the Fund. Financial intermediaries
may make available the DTC book-entry Dividend Reinvestment Service for
use
by beneficial owners of Fund shares for reinvestment of their dividend
distributions. Beneficial owners should contact their financial intermediary to
determine
the availability and costs of the service and the details of participation
therein. Financial intermediaries may require beneficial owners to adhere to
specific
procedures and timetables. If this service is available and used, dividend
distributions of both income and net capital gains will be automatically
reinvested
in additional whole shares of the Fund purchased in the secondary
market.
Distributions
of Fund income are generally taxable to you regardless of the manner in which
received or reinvested.
Taxes
Fund
distributions are taxable to shareholders other than tax-qualified retirement
plans and accounts and other tax-exempt investors. However, the portion of
the
Fund’s dividends derived from its investments in U.S. Government obligations, if
any, is generally exempt from state and local income taxes. Fund dividends,
except those that are “qualified dividend income” (as described below), are
subject to federal income tax at the rates for ordinary income contained
in the Internal Revenue Code. The following table outlines the typical status of
transactions in taxable accounts:
| |
Type
of Transaction |
Federal
Tax Status |
Dividends
from net investment income* |
Ordinary
income** |
Distributions
of the excess of net short-term capital gain over net long-term capital
loss* |
Ordinary
income |
Distributions
of net gains from certain foreign currency transactions* |
Ordinary
income |
Distributions
of the excess of net long-term capital gain over net short-term capital
loss
(“net capital gain”)* |
Long-term
capital gains |
Sales
of shares owned for more than one year |
Long-term
capital gains or losses |
Sales
of shares owned for one year or less |
Net
gains are taxed at the same rate as ordinary income; net losses
are
subject to special rules |
* |
Whether
reinvested or taken in cash. |
** |
Except
for dividends that are attributable to ‘‘qualified dividend income,’’ if
any. |
To
the extent distributions are attributable to net capital gain that the Fund
recognizes they are subject to a 15% maximum federal income tax rate for
individual
and certain other non-corporate shareholders (each, an ‘‘individual’’) (20% for
individuals with taxable income exceeding certain thresholds, which are
indexed for inflation annually), regardless of how long the shareholder held his
or her Fund shares. A portion of the dividends the Fund pays to individuals
may
be ‘‘qualified dividend income’’ (‘‘QDI’’) and thus eligible for the
preferential rates, mentioned above, that apply to net capital gain. QDI
is the aggregate of
dividends the Fund receives on shares of most domestic corporations (excluding
most distributions from REITs) and certain foreign corporations with respect
to
which the Fund satisfies certain holding period and other restrictions. To be
eligible for those rates, a shareholder must meet similar restrictions with
respect to
his or her Fund shares.
A
portion of the dividends the Fund pays may also be eligible for the
dividends-received deduction allowed to corporations (“DRD”), subject to similar
holding period
and other restrictions, but the eligible portion may not exceed the aggregate
dividends the Fund receives from domestic corporations only.
A
shareholder may realize a taxable gain or loss when selling shares. That gain or
loss is treated as a short-term or long-term capital gain or loss, depending
on
how long the shares were held. Any capital gain an individual shareholder
recognizes on a sale of Fund shares that have been held for more than one year
will
qualify for the 15% and 20% tax rates mentioned above.
Prospectus
– About Your Investment19
An
individual must pay a 3.8% tax on the lesser of (1) the individual’s ‘‘net
investment income,’’ which generally includes distributions the Fund pays and
net gains
realized on the sale or exchange of Fund shares, or (2) the excess of the
individual’s ‘‘modified adjusted gross income’’ over a threshold amount
($250,000
for married persons filing jointly and $200,000 for single taxpayers). This tax
is in addition to any other taxes due on that income. A similar tax applies
to estates and trusts. Shareholders should consult their own tax advisers
regarding the effect, if any, this tax may have on their investment in Fund
shares.
Each
year, the Fund’s shareholders will receive tax information regarding Fund
distributions and dispositions of Fund shares to assist them in preparing their
income
tax returns.
The
foregoing is only a summary of some of the important federal income tax
considerations that may affect Fund shareholders, who should consult their tax
advisers
regarding specific questions as to the effect of federal, state and local income
taxes on an investment in the Fund.
Taxes
on Creations and Redemptions of Creation Units
A
person who purchases a Creation Unit by exchanging securities in-kind generally
will recognize a gain or loss equal to the difference between (i) the sum of
the
market value of the Creation Units at the time of the exchange and any net
amount of cash received by the Authorized Participant in the exchange and (ii)
the
sum of the purchaser’s aggregate basis in the securities surrendered and any net
amount of cash paid for the Creation Units. A person who redeems Creation
Units and receives securities in-kind from the Fund will generally recognize a
gain or loss equal to the difference between the redeemer’s basis in the
Creation
Units, and the aggregate market value of the securities received and any net
cash received. The IRS, however, may assert that a loss realized upon an
in-kind
exchange of securities for Creation Units or an exchange of Creation Units for
securities cannot be deducted currently under the rules governing “wash
sales,” or on the basis that there has been no significant change in economic
position. Persons effecting in-kind creations or redemptions should consult
their own tax adviser with respect to these matters.
The
Fund has the right to reject an order for Creation Units if the purchaser (or a
group of purchasers) would, upon obtaining the shares so ordered, own
80%
or more of the outstanding shares of the Fund and if, pursuant to section 351 of
the Internal Revenue Code, the Fund would have a basis in the deposit
securities
different from the market value of such securities on the date of deposit. The
Fund also has the right to require information necessary to determine
beneficial
share ownership for purposes of the 80% determinations.
Additional
Information
The
Fund’s Board oversees generally the operations of the Fund. The Trust enters
into contractual arrangements with various parties, including among others,
the
Fund’s manager, sub-advisor(s), custodian, transfer agent, and accountants, who
provide services to the Fund. Shareholders are not parties to any such
contractual
arrangements, and those contractual arrangements are not intended to create in
any shareholder any right to enforce them directly against the service
providers or to seek any remedy under them directly against the service
providers.
This
Prospectus provides information concerning the Fund that you should consider in
determining whether to purchase Fund shares. Neither this Prospectus
nor
the SAI is intended, or should be read, to be or create an agreement or contract
between the Trust or the Fund and any investor, or to create any rights in
any
shareholder or other person other than any rights under federal or state law
that may not be waived. Nothing in this Prospectus, the SAI or the Fund’s
reports
to shareholders is intended to provide investment advice and should not be
construed as investment advice.
Distribution
Plan
The
Fund has adopted a Distribution Plan in accordance with Rule 12b-1 under the
Investment Company Act, which allows the Fund to pay distribution and
other
fees for the sale of Fund shares and for other services provided to
shareholders. The Plan also authorizes the use of any fees received by the
Manager in accordance
with the Management Agreement, and any fees received by the sub-advisor pursuant
to its Investment Advisory Agreement, to be used for the sale
and distribution of Fund shares. The Plan provides that the shares of the Fund
may pay up to 0.25% per annum of the average daily net assets attributable
to the shares, to the Manager (or another entity approved by the Board). Because
these fees would be paid out of the Fund’s assets on an ongoing
basis, over time these fees would increase the cost of your investment and may
cost you more than paying other types of sales charges. There is no present
intention of Fund shares paying, accruing, or incurring any Rule 12b-1 fees and
Fund shares will not pay, accrue or incur any Rule 12b-1 fees until such
time as approved by the Fund’s Board of Trustees.
Portfolio
Holdings
Each
day the Fund is open for business, the Trust publicly disseminates the Fund’s
full portfolio holdings as of the close of business on the previous day
through
the Fund’s website at www.americanbeaconfunds.com. A description of the Fund’s
policies and procedures regarding the disclosure of portfolio holdings
is available in the Fund’s SAI, which you may also access on the Fund’s website
at www.americanbeaconfunds.com or by calling 1-833-471-3562 to request
a free copy.
Delivery
of Documents
The
summary prospectus is available, and the Annual Shareholder Reports and
Semi-Annual Shareholder Reports (“Shareholder Reports”) will be available
online
at www.americanbeaconfunds.com/reports. If you are interested in electronic
delivery of the Fund’s summary prospectus, please go to www.americanbeaconfunds.com
and click on ‘‘Quick Links’’ and then ‘‘Register for E-Delivery.’’ You can also
request to receive paper Shareholder Reports by calling
1-866-345-5954 with the unique ID number that is provided in the notification
you receive, or you may directly inform your financial intermediary of
your
wish.
To
reduce expenses, your financial institution may mail only one copy of the
summary prospectus and Shareholder Reports to those addresses shared by two
or
more accounts. If you wish to receive individual copies of these documents,
please contact your financial institution. Delivery of individual copies will
commence
thirty days after receiving your request.
Financial
Highlights
The
financial highlights tables are intended to help you understand the Fund’s
financial performance for the period of the Fund’s operation. Financial
highlights
are not provided because the Fund had not commenced operations prior to the date
of this Prospectus.
20Prospectus
– Additional Information
Additional
Information
Additional
information about the Fund is found in the documents listed below. Request a
free copy of these documents by calling 1-833-471-3562
or you may access them on the Fund’s website at
www.americanbeaconfunds.com.
Annual
Shareholder Report/Semi-Annual Shareholder Report
The
Fund’s Annual and Semi-Annual Shareholder Reports will list the Fund’s actual
investments as of the report’s date. They also will include a
discussion by the Manager of market conditions and investment strategies that
significantly affected the Fund’s performance. The report of the
Fund’s independent registered public accounting firm will be included in the
Annual Shareholder Report. Reports will be available approximately
60 days after the Fund passes its first annual and semi-annual reporting
periods.
SAI
The
SAI contains more details about the Fund and its investment policies. The SAI is
incorporated in this Prospectus by reference (it is legally part
of this Prospectus). A current SAI is on file with the SEC.
To
obtain more information about the Fund or to request a copy of the documents
listed above:
| |
By
Telephone: |
Call 1-833-471-3562 |
By
Mail: |
American
Beacon Select Funds c/o
Foreside Financial Services, LLC Three
Canal Plaza, Suite 100 Portland,
Maine 04101 |
By
E-mail: |
|
On
the Internet: |
Visit
our website at www.americanbeaconfunds.com Visit
the SEC website at www.sec.gov |
The
SAI and other information about the Fund are available on the EDGAR Database on
the SEC’s Internet site at www.sec.gov. Copies of this
information may be obtained, after paying a duplicating fee, by electronic mail
to [email protected], or by writing to the SEC’s Public Reference
Section, 100 F Street, NE, Washington, D.C. 20549-1520. The SAI and other
information about the Fund may also be reviewed and
copied at the SEC’s Public Reference Room. Information on the operation of the
SEC’s Public Reference Room may be obtained by calling
the SEC at (202) 551-8090.
| |
American
Beacon is a registered service mark of American Beacon Advisors, Inc.
American Beacon Select Funds and
American Beacon GLG Natural Resources ETF are service marks of American
Beacon Advisors, Inc. |
|
SEC
File Number 811-09603
Appendix
A
GLOSSARY
|
| |
Advisers
Act |
Investment
Advisers Act of 1940, as amended |
American
Beacon or Manager |
American
Beacon Advisors, Inc. |
Board |
Board
of Trustees |
Brexit |
The
United Kingdom’s departure from the European Union |
Capital
Gains Distributions |
Distributions
of realized net capital gains |
CFTC |
Commodity
Futures Trading Commission |
CPO |
Commodity
Pool Operator |
Denial
of Services |
A
cybersecurity incident that results in shareholders or service providers
being unable to access electronic
systems |
Distributor |
Foreside
Financial Services, LLC |
Dividends |
Distributions
from the Fund’s net investment income |
DRD |
Dividends-received
deduction |
EU |
European
Union |
Exchange |
NYSE
Arca, Inc., a national securities exchange on which shares of the Fund are
listed |
Forwards |
Foreign
Currency Forward Contracts |
Internal
Revenue Code |
Internal
Revenue Code of 1986, as amended |
Investment
Company Act |
Investment
Company Act of 1940, as amended |
IRA |
Individual
Retirement Account |
IRS |
Internal
Revenue Service |
Management
Agreement |
The
Fund’s Management Agreement with the Manager |
NAV |
Fund’s
net asset value |
NDF |
Non-deliverable
foreign currency forward contract |
NYSE |
New
York Stock Exchange |
Other
Distributions |
Distributions
of net gains from foreign currency transactions |
OTC |
Over-the-Counter |
QDI |
Qualified
Dividend Income |
REIT |
Real
Estate Investment Trust |
RIC |
Regulated
Investment Company |
SAI |
Statement
of Additional Information |
SEC |
Securities
and Exchange Commission |
Select
Funds or Trust |
American
Beacon Select Funds |
State
Street |
State
Street Bank and Trust Company |
UK |
United
Kingdom |