PGIM
AAA CLO ETF
PROSPECTUS
— July 19, 2023
INVESTMENT
OBJECTIVE
To
seek to maximize total return, through a combination of current income and
capital appreciation.
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PGIM
AAA CLO ETF | ||||||||
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Ticker
Symbol: PAAA |
Listing
Exchange: NYSE Arca, Inc. |
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The
Securities and Exchange Commission
(“SEC”)
has not approved or disapproved the
Fund's
shares, nor has the SEC determined
that
this prospectus is complete or accurate.
It
is a criminal offense to state otherwise. Exchange-traded
funds are distributed by
Prudential
Investment Management Services
LLC
(“PIMS”), member SIPC. PGIM Fixed
Income
is a unit of PGIM, Inc. (“PGIM”), a
registered
investment adviser. PIMS and
PGIM
are Prudential Financial companies.
©
2023 Prudential Financial, Inc. and its
related
entities. The Prudential logo and the
Rock
symbol are service marks of Prudential
Financial,
Inc. and its related entities,
registered
in many jurisdictions worldwide. |
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To
enroll in e-delivery, go to pgim.com/investments/resource/edelivery
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Management
fee |
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Distribution
and service (12b-1) fees |
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Other
expenses |
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Total
annual Fund operating expenses |
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Number
of Years You Own Shares |
1
Year |
3
Years |
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$ |
$ |
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3
The order of the
below risk factors does not indicate the significance of any particular risk
factor.
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PGIM AAA CLO
ETF
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5
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PGIM AAA CLO
ETF
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PGIM AAA CLO
ETF
MANAGEMENT
OF THE FUND
The following
individuals are jointly and primarily responsible for the day-to-day management
of the Fund.
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Investment
Manager |
Subadvisers |
Portfolio
Managers |
Title |
Service
Date |
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PGIM
Investments LLC |
PGIM
Fixed Income
PGIM
Limited |
Edwin
Wilches, CFA |
Managing
Director
and
Co-Head of PGIM
Fixed
Income’s
Securitized
Products
Team |
July
2023 |
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Gabe
Rivera |
Managing
Director
and
Co-Head of PGIM
Fixed
Income’s
Securitized
Products
Team |
July
2023
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9
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Investment
Manager |
Subadvisers |
Portfolio
Managers |
Title |
Service
Date |
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Connor
Byrnes |
Vice
President on PGIM
Fixed
Income’s
Securitized
Products
Team |
July
2023 |
BUYING
AND SELLING FUND SHARES
Individual shares
of the Fund may only be purchased and sold in secondary market transactions
through brokers or other financial intermediaries at market prices and are not
individually redeemable by the ETF. Shares of the Fund are listed for trading on
the Exchange, and because the shares of the Fund trade at market prices rather
than NAV, shares of the Fund may trade at a price greater than NAV (a “premium”)
or less than NAV (a “discount”). You 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”).
TAX
INFORMATION
Dividends,
Capital Gains and Taxes. The Fund's
dividends and distributions are taxable and will be taxed as ordinary income or
capital gains, unless you are investing through a tax-deferred arrangement, such
as a 401(k) plan or an individual retirement account. Such tax-deferred
arrangements may be taxed later upon withdrawal of monies from those
arrangements.
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), PGIM or other related companies may pay the intermediary for
marketing activities and presentations, educational training programs,
conferences, the development of technology platforms and reporting systems or
other services related to the sale or promotion of the Fund. These payments may
create a conflict of interest by influencing the broker-dealer or other
intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your financial intermediary’s website for more
information.
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PGIM AAA CLO
ETF
MORE ABOUT THE
FUND'S PRINCIPAL AND NON-PRINCIPAL INVESTMENT STRATEGIES, INVESTMENTS AND
RISKS
INVESTMENT
STRATEGIES AND INVESTMENTS
The investment
objective of the Fund is to seek to maximize total return, through a combination
of current income and capital appreciation.
Under normal circumstances, the
Fund invests at least 80% of its investable assets in U.S. dollar-denominated
collateralized loan obligations (“CLOs”) that are, at the time of purchase,
rated AAA (or equivalent) by at least one nationally recognized statistical
rating organization (“NRSRO”) or, if unrated, determined by the subadviser to be
of comparable quality. Up to 20% of the Fund's investable assets may be invested
in CLOs that are rated below AAA but not less that A- by at least one NRSRO (or,
if unrated, determined by the subadviser to be of comparable quality). The term
“investable assets” refers to the Fund’s net assets plus any borrowings for
investment purposes. The Fund’s investable assets will be less than its total
assets to the extent that it has borrowed money for non-investment purposes,
such as to meet anticipated redemptions. The Fund is an actively managed
exchange-traded fund (“ETF”) and therefore does not seek to replicate the
performance of any specific index.
A CLO is a type of
asset backed security supported by interest and principal payments generated
from a pool of loans, which may include, among others, domestic and foreign
senior secured loans, senior unsecured loans, and subordinated corporate loans,
including loans that may be rated below investment grade or equivalent unrated
loans and to a lesser extent, high yield bonds rated below investment grade. A
CLO is a trust that is formed by a process known as securitization, in which
principal and interest payments from multiple corporate loans are pooled
together and packed into a security and issued to investors in two or more
portions, called “tranches,” that vary on risk and yield. Each tranche is a
piece of the CLO that governs what investors will be paid out when the
underlying loan payments are made. The riskiest tranche is called “equity,”
which generally is the first to bear the risk of defaults and mitigates the risk
the more senior tranches will experience a default (although the equity tranche
does not completely protect the senior tranches). The Fund will invest
predominantly in the senior tranches of CLOs which are the tranches in the CLO
structure which ordinarily have the highest ratings, the lowest level of risk
and the lowest yields.
The pools of assets
are managed by a collateral manager appointed by the CLO. The collateral manager
is responsible for selecting assets to be purchased and sold and for determining
the timing of such purchases and sales in accordance with the CLO’s governing
documents. The collateral manager of a CLO typically charges management fees. A
CLO may also be charged other fees and administrative expenses. Neither the
Manager nor the subadviser will serve as the collateral manager for the CLOs in
which the Fund invests.
In managing the
Fund’s assets, the subadviser uses a combination of top-down economic analysis
and bottom-up research in conjunction with proprietary quantitative models and
risk management systems. In the top-down economic analysis, the subadviser
develops views on economic, policy and market trends by continually evaluating
economic data that affect the movement of markets and securities prices. This
top-down macroeconomic analysis is integrated into the subadviser’s bottom-up
research which informs security selection. In its bottom-up research, the
subadviser develops an internal rating and outlook on issuers. The rating and
outlook are determined based on a thorough review of the financial health and
trends of the issuer. The subadviser may also consider investment factors such
as expected total return, yield, spread and potential for price appreciation as
well as credit quality, maturity and risk. The Fund may invest in a security
based upon the expected total return rather than the yield of such
security.
The Fund has no
requirements as to the maturity of the CLOs it may buy or as to market
capitalization of the issuers of the CLOs. The Fund will not invest more than
10% of its net assets in any single CLO. The Fund may invest in floating- and
fixed-rate CLOs, but will not invest more than 10% of its net assets in
fixed-rate CLOs. The Fund may purchase CLOs both in the primary and secondary
markets.
The Fund principally invests in
CLOs rated AAA by at least one NRSRO, such as S&P Global Ratings
(“S&P”), Fitch Ratings, Inc. (“Fitch”) or Moody's Investors Service, Inc.
(“Moody's”), or, if unrated, determined by the subadviser to be of comparable
quality. In the event that a security receives different ratings from different
NRSROs the Fund will
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11
treat the security as being rated
in the highest rating category received from an NRSRO. If the rating of a debt
security is downgraded after the Fund purchases it (or if the debt security is
no longer rated), the Fund will not have to sell the security, but the
subadviser will take this into consideration in deciding whether the Fund should
continue to hold the security. A description of security ratings is an appendix
to the Fund’s Statement of Additional Information (“SAI”).
The Fund may invest in the
aggregate up to 25% of its investable assets non-U.S. dollar denominated instruments.
The Fund may invest in derivative
instruments, including futures, forwards, options, swaps, and options on swaps,
to try to enhance return or to try to reduce (“hedge”) investment risks. The
Fund may seek to limit its risk or enhance returns through derivatives designed
to adjust the Fund’s exposure to interest rates, foreign currency, portfolio
duration and specific securities or baskets of securities. In selecting
investments for the Fund, the Fund’s subadviser will evaluate overall investment
opportunities and risks among the types of investments the Fund may hold. The
Fund may also buy when-issued securities and participate in delayed-delivery
transactions.
The Fund engages in
active trading—that is, frequent trading of its securities—in order to take
advantage of new investment opportunities. The Fund expects to be more heavily
involved in active trading during periods of market volatility seeking to
preserve gains or limit losses.
The Fund is
“non-diversified” for purposes of the Investment Company Act of 1940 (the “1940
Act”), which means it may invest in a smaller number of issuers than a
diversified fund.
The
Fund’s investment objective is not a fundamental policy. The Fund’s Board of
Trustees (the “Board”) can change investment policies of the Fund that are not
fundamental without shareholder approval. The Fund's policy of investing at
least 80% of its investable assets in the type of investments suggested by the
Fund's name is not a fundamental investment policy and may be changed by the
Board on 60 days’ written notice to shareholders.
Structured
Product Securities
Structured product
securities include secured loans backed by commercial real estate, residential
real estate, commercial or consumer loans such as agency and non-agency
mortgage-backed securities (“MBS”) (including commercial mortgage-backed
securities (“CMBS”), residential mortgage-backed securities (“RMBS”), and CMOs),
asset-backed securities (“ABS”) (including collateralized debt obligations
(“CDOs”) such as collateralized bond obligations (“CBOs”) and collateralized
loan obligations (“CLOs”)), and other similar securities and related
instruments. The Fund generally may not invest more than 5% of its total assets
in unregistered or privately issued structured product securities (excluding
structured products offered and sold in the U.S. in reliance on Rule 144A or
Regulation S under the Securities Act of 1933) that, at the time of purchase,
(i) are classified as illiquid, and (ii) for which there is no current market
price (“Other Unregistered Structured Products”). If an identifiable market for
the structured product develops after the Fund’s purchase of the security, the
structured product will no longer be subject to this 5% limitation.
Money
Market Instruments
The Fund may hold
cash and/or invest in money market instruments, including commercial paper of a
U.S. or non-U.S. company, non-U.S. government securities, certificates of
deposit, bankers' acceptances, time deposits of domestic and non-U.S. banks, and
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. These obligations may be U.S. dollar-denominated or
denominated in a non-U.S. currency. Money market instruments typically have a
maturity of one year or less as measured from the date of purchase.
Repurchase
Agreements
The Fund may enter
into repurchase agreements, where a party agrees to sell a security to the Fund
and then repurchases it at an agreed-upon price at a stated time. This creates a
fixed return for the Fund, and is, in effect, a loan by the Fund. Repurchase
agreements are used for cash management purposes only.
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PGIM AAA CLO
ETF
Reverse
Repurchase Agreements and Dollar Rolls
The Fund may enter
into reverse repurchase agreements, which involve the sale of a portfolio
security by the Fund coupled with an agreement to repurchase the security, as
well as dollar rolls in which the Fund sells securities for delivery in the
current month and simultaneously agrees to repurchase a substantially similar
security at a future date. Either strategy involves leverage and may magnify
underlying investment gains or losses.
When-Issued
and Delayed-Delivery Securities
The Fund may
purchase securities, including money market obligations, bonds or other
obligations, on a when-issued, delayed-delivery or forward commitment basis.
When the Fund purchases delayed-delivery securities, the price and interest rate
are fixed at the time of purchase. For both when-issued and delayed-delivery
securities, delivery and payment for the obligations take place at a later time.
The Fund does not earn interest income until the date the obligations are
expected to be delivered.
Derivative
Strategies
Derivatives are
financial instruments whose value depends upon, or is derived from, the value of
something else, such as one or more underlying investments, indices or
currencies. The Fund may use various derivative strategies to try to improve the
Fund's returns. The subadviser may also use hedging techniques to try to protect
the Fund's assets. A derivative contract will obligate or entitle the Fund to
deliver or receive an asset or cash payment based on the change in value of one
or more investments, indices or currencies. Derivatives may be traded on
organized exchanges, or in individually negotiated transactions with other
parties (these are known as “over-the-counter” derivatives). The Fund may be
limited in its use of derivatives by rules adopted by the SEC governing
derivatives transactions. Although the Fund has the flexibility to make use of
derivatives, it may choose not to for a variety of reasons, even under very
volatile market conditions.
Futures
Contracts and Related Options. The Fund may
purchase and sell financial futures contracts and related options on financial
futures. A futures contract is an agreement to buy or sell a set quantity of an
underlying asset at a future date, or to make or receive a cash payment based on
the value of a securities index, or some other asset, at a stipulated future
date. The terms of futures contracts are standardized. In the case of a
financial futures contract based upon a broad index, there is no delivery of the
securities comprising the underlying index, margin is uniform, a clearing
corporation or an exchange is the counterparty and the Fund makes daily margin
payments based on price movements in the index. An option gives the purchaser
the right to buy or sell securities or currencies, or in the case of an option
on a futures contract, the right to buy or sell a futures contract in exchange
for a premium.
Swap
Transactions. The Fund may enter
into swap transactions. Swap agreements are two-party contracts entered into
primarily by institutional investors for periods typically ranging from a few
weeks to more than one year. In a standard “swap” transaction, two parties agree
to exchange the returns (or differentials in rates of return) earned or realized
on particular predetermined investments or instruments, which may be adjusted
for an interest factor. There are various types of swaps, including but not
limited to credit default swaps, interest rate swaps, total return swaps and
index swaps.
Swap
Options. The Fund may enter
into swap options. A swap option is a contract that gives a counterparty the
right (but not the obligation) to enter into a new swap agreement or to shorten,
extend, cancel or otherwise modify an existing swap agreement, at some
designated future time on specified terms.
Options
on Securities and Financial Indices. The Fund may
purchase and sell put and call options on securities, and financial indices
traded on U.S. or non-U.S. securities exchanges, on NASDAQ or in the
over-the-counter market. An option gives the purchaser the right to buy or sell
securities in exchange for a premium.
Short
Sales
The Fund may make
short sales of a security. This means that the Fund may sell a security that it
does not own, which it may do, for example, when the subadviser thinks the value
of the security will decline. The Fund generally borrows the security to deliver
to the buyers in a short sale. The Fund must then replace the borrowed security
by purchasing it
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13
at the market price
at the time of replacement. The Fund may make short sales “against the box.” In
a short sale against the box, at the time of sale, the Fund owns or has the
right to acquire the identical security at no additional cost through conversion
or exchange of other securities it owns.
Investments
in Affiliated and Unaffiliated Funds
The Fund may invest
its assets in affiliated or unaffiliated funds, including exchange-traded funds.
The Fund can invest its free cash balances in short-term bond funds and/or money
market funds to obtain income on short-term cash balances while awaiting
attractive investment opportunities, to provide liquidity in preparation for
anticipated redemptions or for defensive purposes. Such an investment could also
allow the Fund to obtain the benefits of a more diversified portfolio available
in the funds than might otherwise be available through direct investments in
those asset classes, and will subject the Fund to the risks associated with the
particular asset class. The investment results of the portions of the Fund’s
assets invested in the other funds will be based in the investment results of
the other funds. As a shareholder in other funds, the Fund will pay its
proportional share of the expenses of the other funds.
The affiliated
short-term bond funds and certain affiliated money market funds do not pay a
management fee to the investment manager, since the investment manager only
receives reimbursement for its expenses. Thus, shareholders of the Fund are not
paying management fees for both the Fund and the affiliated short-term bond
funds and money market funds.
Temporary
Defensive Investments
In response to
adverse market, economic or political conditions, the Fund may take a temporary
defensive position and invest up to 100% of its investable assets in money
market instruments, including short-term obligations of, or securities
guaranteed by, the U.S. Government, its agencies or instrumentalities, or in
high-quality obligations of U.S. or non-U.S. banks and corporations, and may
hold up to 100% of its investable assets in cash or cash equivalents. Although
the subadviser has the ability to take defensive positions, it may choose not to
do so for a variety of reasons, even during volatile market conditions.
Investing heavily in these securities is inconsistent with and limits the Fund's
ability to achieve its investment objective, but may help to preserve the Fund's
assets.
New
Securities and Other Investment Techniques
New types of
securities and other investment and hedging practices are developed from time to
time. The subadviser expects, consistent with the Fund's investment objective
and policies, to invest in such new types of securities and to engage in such
new types of investment practices if the subadviser believes that these
investments and investment techniques may assist the Fund in achieving its
investment objective. In addition to the strategies and securities discussed
above, the Fund may use other strategies or invest in other types
of securities as described in the Statement of Additional Information
(“SAI”). The Fund might not use all of the strategies or
invest in all of the types of securities as described in the Prospectus or in
the SAI.
The table below
summarizes the investment limits applicable to the Fund’s principal investment
strategies and certain non-principal investment strategies.
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Principal
Strategies: Investment Limits |
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◾U.S.
dollar-denominated CLOs that are, at the time of purchase, rated AAA (or
equivalent): At least 80% of investable assets
under
normal circumstances ◾U.S.
dollar-denominated CLOs that are, at the time of purchase, rated below AAA
but not less that A- (or equivalent): Up to
20% of
Investable assets |
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Certain
Non-Principal Strategies: Investment Limits |
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◾Non-U.S.
dollar denominated instruments: Up to 25% of Investable
assets ◾Derivatives:
Up to 25% of total assets (subject to the Fund’s operation under the
requirements of Rule 18f-4 under 1940
Act) ◾Illiquid
investments: Up to 15% of net assets ◾Money
market instruments: Up to 20% of investable assets under normal
circumstances and up to 100% of investable
assets on
a temporary basis ◾Other
types of debt securities, equity and equity related securities
(principally preferred stocks and convertible securities:
Up to 20%
of investable assets |
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PGIM AAA CLO
ETF
RISKS
OF INVESTING IN THE FUND
The order of the
below risk factors does not indicate the significance of any particular risk
factor.
Active
Trading Risk. The Fund actively
and frequently trades its portfolio securities. High portfolio turnover results
in higher transaction costs, which can affect the Fund’s performance and have
adverse tax consequences. In addition, high portfolio turnover may also mean
that a proportionately greater amount of distributions to shareholders will be
taxed as ordinary income rather than long-term capital gains compared to
investment companies with lower portfolio turnover.
Authorized
Participant Concentration Risk. Only an Authorized
Participant (as defined in “How to Buy and Sell Shares of the Fund” in the
Fund’s Prospectus) may engage in creation or redemption transactions directly
with the Fund. The Fund has a limited number of intermediaries that act as
Authorized Participants and none of these Authorized Participants is or will be
obligated to engage in creation or redemption transactions. To the extent that
these Authorized Participants exit the business or are unable to or choose not
to proceed with creation and/or redemption orders with respect to the Fund and
no other Authorized Participant creates or redeems, shares of the Fund may trade
at a substantial discount or premium to net asset value (“NAV”), may trade at
larger spreads, and possibly face trading halts and/or delisting.
Cash
Transactions Risk.
Unlike ETFs that engage almost exclusively in creations and redemptions in
exchange for a basket of portfolio securities (an “in-kind” transaction), the
Fund may effect its creations and redemptions in cash or partially in cash. To
the extent the Fund engages primarily in cash creation or redemption
transactions, an investment in the Fund may be less tax-efficient than an
investment in ETFs that transact primarily or solely in-kind. Many ETFs
generally make in-kind redemptions and avoid realizing gains in connection with
transactions designed to raise cash to meet redemption requests. If the Fund
effects a portion of redemptions for cash, it may be required to sell portfolio
securities in order to obtain the cash needed to distribute redemption proceeds,
which involves 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 be 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 a different ETF.
CLO
Manager Risk. CLO managers may
have limited operating histories and may be subject to conflicts of interest,
including managing the assets of other clients and other investment vehicles or
holding a significant amount of the equity tranches of a CLO or otherwise
receiving fees that may incentivize maximizing the yield, and indirectly the
risk, of a CLO. Adverse developments with respect to a CLO manager, such as
personnel and resource constraints, regulatory issues or other developments that
may impact the ability and/or performance of the CLO manager, may adversely
impact the performance of the CLOs in which the Fund invests.
Collateralized
Loan Obligations (“CLOs”) Risk. CLOs are subject
to credit, interest rate, valuation, and prepayment and extension risks. These
securities also are subject to risk of default on the underlying asset,
particularly during periods of economic downturn. The market value of CLOs may
be affected by, among other things, changes in the market value of the
underlying assets held by the CLO, changes in the distributions on the
underlying assets, defaults and recoveries on the underlying assets, capital
gains and losses on the underlying assets, prepayments on underlying assets and
the availability, prices and interest rate of underlying assets.
The risks of
investing in CLOs depend on the type of collateral securities and the tranche of
the CLO. It is possible that even senior CLO debt tranches, such as those in
which the Fund will invest, could experience losses due to defaults, downgrades
of ratings of the underlying collateral, forced liquidation of the collateral
pool, increased sensitivity to defaults due to collateral default and the
default of the lower tranches, market anticipation of defaults and investor
aversion to CLOs as an asset class. While the Fund primarily invests in AAA
rated CLO tranches, ratings do not
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15
constitute a
guarantee of credit quality and the tranches may be downgraded. If the Fund
invests in CLO tranches rated below AAA, the risks of investing in a CLO will be
greater. If the Fund invests in unrated CLO tranches, the Fund will depend on
the subadviser’s credit analysis to a greater degree than would be the case for
rated CLO tranches.
Interest on certain
tranches of a CLO may be paid in kind or deferred and capitalized (paid in the
form of obligations of the same type rather than cash). Deferment involves
continued exposure to default risk for the deferred payments. The subadviser may
not be able to accurately predict how specific CLOs or the portfolio of
underlying loans or bonds for CLOs will perform based on financial models, or
may not, or be unable to, react to changes or stresses in the market, including
changes in interest rates.
CLOs, and their
underlying loan obligations, are typically not registered for sale to the public
and therefore are subject to restrictions on transfer and sale, potentially
making them not as liquid as other types of securities. Some unrated CLO
securities may not have an active trading market or may be difficult to value.
When the Fund purchases a newly issued CLO security in the primary market
(rather than from the secondary market), there often will be a delayed
settlement period. Delayed settlement periods may cause, the proceeds from the
sale of CLO securities to not be readily available to make additional
investments or to meet the Fund’s redemption obligations. During a delayed
settlement period, the liquidity of the CLO may be further reduced. During
periods of limited liquidity and higher price volatility, the Fund’s ability to
acquire or dispose of CLO securities at a price and time the subadviser deems
advantageous may be impaired. To the extent the extended settlement process
gives rise to short-term liquidity needs, the Fund may hold additional cash,
sell investments or borrow from banks. CLO securities are generally considered
to be long-term investments and there is no guarantee that an active secondary
market will exist or be maintained for any given CLO.
Because of the
delayed settlement periods that may be associated with CLOs and certain other
securities, the Fund may borrow to meet redemptions and may choose to keep such
borrowings outstanding until portfolio transactions settle or for other extended
periods. During the period when borrowings are outstanding, the Fund will incur
interest expense. The Fund's portfolio may also be subject to greater volatility
during periods of borrowing, which can have an adverse impact on the Fund's net
asset value. The Fund will be required to maintain specified asset coverage by
applicable federal securities laws and the terms of its credit facility with the
lender with respect to its borrowings. The Fund may be required to dispose of
portfolio investments on unfavorable terms if market fluctuations or other
factors cause the Fund to fail to meet its asset coverage
requirements.
“Covenant-Lite”
Risk.
Some of the loans in which an underlying CLO may invest and to which the Fund
may indirectly be exposed to may be “covenant-lite”, which means the loans or
obligations contain fewer financial maintenance covenants than other loans or
obligations (in some cases, none) and do not include terms which allow the
lender to monitor the borrower’s performance and declare a default if certain
criteria are breached. An investment by the Fund in a CLO holding loan may
potentially hinder the ability to reprice credit risk associated with the CLO.
As a result of this risk, the Fund’s exposure to losses may be increased, which
could result in an adverse impact on the Fund’s net income and NAV.
Credit
Risk/Counterparty Risk. The ability, or
perceived ability, of the issuer or guarantor of a debt security, or the
counterparty (the party on the other side of the transaction) to a derivatives
contract or other financial contract to meet its financial obligations will
affect the value of the security or derivative. Counterparty and credit risk are
especially important in the context of privately negotiated instruments. The
Fund expects to enter into certain privately negotiated agreements where the
counterparty assumes the physical settlement obligations of the Fund under such
transactions. Under this type of arrangement, there is a risk that the relevant
counterparty or intermediary would, due to insolvency or other reasons, be
unable to or fail to assume the physical settlement obligations of the Fund, in
which case the Fund could be required to sell portfolio instruments at
unfavorable times or prices or could have insufficient assets to satisfy its
physical settlement obligations.
Credit ratings are
intended to provide a measure of credit risk. However, credit ratings are only
the opinions of the credit rating agency issuing the ratings and are not
guarantees as to quality. The lower the rating of a debt security held by the
Fund, the greater the degree of credit risk that is perceived to exist by the
credit rating agency with respect to
16
PGIM AAA CLO
ETF
that security.
Increasing the amount of Fund assets allocated to lower-rated securities
generally will increase the credit risk to which the Fund is subject. Not all
securities in which the Fund invests are rated.
The
lower the credit quality of a bond, the more sensitive it is to credit
risk.
Cyber
Security Risk. Failures or
breaches of the electronic systems of the Fund, the Fund's manager, subadviser,
distributor, and other service providers, or the issuers of securities in which
the Fund invests have the ability to cause disruptions and negatively impact the
Fund's business operations, potentially resulting in financial losses to the
Fund and its shareholders. While the Fund has established business continuity
plans and risk management systems seeking to address system breaches or
failures, there are inherent limitations in such plans and systems. Furthermore,
the Fund cannot control the cyber security plans and systems of the Fund's
service providers or issuers of securities in which the Fund
invests.
Debt
Obligations Risk. Debt obligations
are subject to credit risk, market risk and interest rate risk. The Fund's
holdings, share price, yield and total return may also fluctuate in response to
bond market movements. The value of bonds may decline for issuer-related
reasons, including management performance, financial leverage and reduced demand
for the issuer’s goods and services. Certain types of fixed income obligations
also may be subject to “call
and redemption risk,”
which
is the risk that the issuer may call a bond held by the Fund for redemption
before it matures and the Fund may not be able to reinvest at the same rate of
interest and therefore would earn less income.
Derivatives
Risk.
Derivatives involve special risks and costs and may result in losses to the
Fund. The successful use of derivatives requires sophisticated management, and,
to the extent that derivatives are used, the Fund will depend on the
subadviser’s ability to analyze and manage derivatives transactions. The prices
of derivatives may move in unexpected ways, especially in abnormal market
conditions. Some derivatives are “leveraged” or may create economic leverage for
the Fund and therefore may magnify or otherwise increase investment losses to
the Fund. The Fund's use of derivatives may also increase the amount of taxes
payable by shareholders.
Other risks arise
from the potential inability to terminate or sell derivatives positions. A
liquid secondary market may not always exist for the Fund's derivatives
positions. In fact, many over-the-counter derivative instruments will not have
liquidity beyond the counterparty to the instrument. Over-the-counter derivative
instruments also involve the risk that the other party will not meet its
obligations to the Fund. The use of derivatives also exposes the Fund to
operational issues, such as documentation and settlement issues, systems
failures, inadequate control and human error.
Derivatives may
also involve legal risks, such as insufficient documentation, the lack of
capacity or authority of a counterparty to execute or settle a transaction, and
the legality and enforceability of derivatives contracts. The U.S. Government
and foreign governments have adopted (and may adopt further) regulations
governing derivatives markets, including mandatory clearing of certain
derivatives, margin and reporting requirements and risk exposure limitations.
Regulation of derivatives may make derivatives more costly, limit their
availability or utility to the Fund, or otherwise adversely affect their
performance or disrupt markets.
Dollar
Rolls Risk. Dollar rolls
involve the risk that the market value of the securities that the Fund is
committed to buy may decline below the price of the securities the Fund has
sold. If the buyer of securities under a dollar roll files for bankruptcy or
becomes insolvent, the Fund's right to purchase or repurchase securities under a
dollar roll may be restricted. Successful use of dollar rolls depends on the
ability to correctly predict interest rates and prepayments, depending on the
underlying security. These transactions may involve leverage.
Economic
and Market Events Risk. Events in the U.S.
and global financial markets, including actions taken by the U.S. Federal
Reserve or foreign central banks to stimulate or stabilize economic growth or
the functioning of the securities markets, or otherwise reduce inflation may at
times result in unusually high market volatility, which could negatively impact
performance. Governmental efforts to curb inflation often have negative effects
on the level of economic activity. Relatively reduced liquidity in credit and
fixed income markets could adversely affect issuers worldwide.
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17
Emerging
Markets Risk. The risks of
foreign investments are greater for investments in or exposed to emerging
markets. Emerging market countries typically have economic and political systems
that are less fully developed, and can be expected to be less stable, than those
of more developed countries. For example, the economies of such countries can be
subject to rapid and unpredictable rates of inflation or deflation. Low trading
volumes may result in a lack of liquidity and price volatility. Emerging market
countries may have policies that restrict investment by non-U.S. investors, or
that prevent non-U.S. investors from withdrawing their money at
will.
The Fund may invest
in some emerging markets that subject it to risks such as those associated with
illiquidity, custody of assets, different settlement and clearance procedures
and asserting legal title under a developing legal and regulatory regime to a
greater degree than in developed markets or even in other emerging
markets.
Equity
and Equity-Related Securities Risk. Equity and
equity-related securities may be subject to changes in value, and their values
may be more volatile than those of other asset classes. In addition to an
individual security losing value, the value of the equity markets or a sector in
which the Fund invests could go down. Different parts of a market can react
differently to adverse issuer, market, regulatory, political and economic
developments.
ETF
Shares Trading Risk. Fund shares are
listed for trading on an exchange (the “Exchange”) and the shares are bought and
sold in the secondary market at market prices. The market prices of the shares
of the Fund are expected to fluctuate in response to changes in the Fund’s NAV,
the intraday value of the Fund’s holdings and supply and demand for shares of
the Fund. We cannot predict whether shares of the Fund will trade above, below
or at their NAV. Trading on the Exchange, including trading of Fund shares, may
be halted in certain circumstances and shareholders may not be able to sell Fund
shares at the time or price desired. During periods of stressed market
conditions, the market for the shares of the Fund may become less liquid in
response to deteriorating liquidity in the markets for the Fund’s portfolio
investments. This adverse effect on the liquidity of the Fund’s shares could
lead to differences between the market price of the Fund’s shares and the NAV of
those shares. There can be no assurance that the requirements of the Exchange to
maintain the listing of shares of the Fund will continue to be met. At times,
trading in the securities of ETFs has become volatile and unpredictable and the
price of ETF shares has diverged from market driven fundamentals.
Disruptions to
creations and redemptions, the existence of significant market volatility or
potential lack of an active trading market for the shares of the Fund (including
through a trading halt), as well as other factors, may result in the Fund’s
shares trading on the Exchange significantly above (at a premium) or below (at a
discount) to NAV or to the intraday value of the Fund’s holdings. Premiums and
discounts relate to differences between the market price and NAV of the Fund’s
shares. During such periods, you may incur significant losses if you sell your
shares of the Fund.
The securities held
by the Fund may be traded in markets that close at a different time than the
Exchange and may trade outside of a collateralized settlement system. Liquidity
in those securities may be reduced after the applicable closing times.
Accordingly, during the time when the Exchange is open but after the applicable
market closing, fixing or settlement times, bid-ask spreads for the Fund’s
shares on the Exchange and the corresponding premium or discount between the
market price for Fund shares and their NAV may widen. Additionally, during times
when the Exchange is open but after the applicable market is closed, there may
be changes between the last quote from the closed foreign market and the value
of such security during the Fund’s trading day on the Exchange and this may lead
to differences between the market price of the Fund’s shares and the underlying
value of those shares.
Cost
of Buying or Selling Shares. When you buy or
sell shares of the Fund through a broker, you will likely incur a brokerage
commission or other charges imposed by brokers. In addition, the market price of
shares of the Fund, like the price of any exchange-traded security, includes a
“bid-ask spread” charged by the market makers or other participants that trade
the particular security. The spread of the Fund’s shares varies over time based
on the Fund’s trading volume, the spread of the Fund’s underlying securities,
and market liquidity and may increase if the Fund’s trading volume, the spread
of the Fund’s underlying securities, or market liquidity decreases. In times of
severe market disruption, including when trading of the Fund’s holdings may be
halted, the bid-ask spread may increase significantly. This means that the
shares may trade at a discount to the Fund’s NAV, and the discount is likely to
be greatest during significant market volatility.
18
PGIM AAA CLO
ETF
No
Guarantee of Active Trading Market Risk. While shares of
the Fund are listed on the Exchange, there can be no assurance that active
trading markets for the shares will develop or be maintained by market makers or
by Authorized Participants. The distributor of the Fund’s shares does not
maintain a secondary market in the shares.
Foreign
Securities Risk. Investments in
securities of non-U.S. issuers (including those denominated in U.S. dollars) may
involve more risk than investing in securities of U.S. issuers. Foreign
political, economic and legal systems, especially those in developing and
emerging market countries, may be less stable and more volatile than in the
United States. Foreign legal systems generally have fewer regulatory
requirements than the U.S. legal system, particularly those of emerging markets.
In general, less information is publicly available with respect to non-U.S.
companies than U.S. companies. Non-U.S. companies generally are not subject to
the same accounting, auditing, and financial reporting standards as are U.S.
companies. Additionally, the changing value of foreign currencies and changes in
exchange rates could also affect the value of the assets the Fund holds and the
Fund's performance. Certain foreign countries may impose restrictions on the
ability of issuers of foreign securities to make payment of principal and
interest or dividends to investors located outside the country, due to blockage
of foreign currency exchanges or otherwise. Investments in emerging markets are
subject to greater volatility and price declines.
In addition, the
Fund's investments in non-U.S. securities may be subject to the risks of
nationalization or expropriation of assets, imposition of currency exchange
controls or restrictions on the repatriation of non-U.S. currency, confiscatory
taxation and adverse diplomatic developments. Special U.S. tax considerations
may apply.
Interest
Rate Risk. The value of your
investment may go down when interest rates rise. A rise in rates tends to have a
greater impact on the prices of longer term or duration debt securities. For
example, a fixed income security with a duration of three years is expected to
decrease in value by approximately 3% if interest rates increase by 1%. This is
referred to as “duration
risk.”
When
interest rates fall, the issuers of debt obligations may prepay principal more
quickly than expected, and the Fund may be required to reinvest the proceeds at
a lower interest rate. This is referred to as “prepayment
risk.”
For premium bonds (bonds acquired at prices that exceed their par or principal
value) purchased by the Fund, prepayment risk may be enhanced. When interest
rates rise, debt obligations may be repaid more slowly than expected, and the
value of the Fund's holdings may fall sharply. This is referred to as
“extension
risk.”
The Fund may lose money if short-term or long-term interest rates rise sharply
or in a manner not anticipated by the subadviser.
Large
Shareholder and Large Scale Redemption Risk. Certain
individuals, accounts, funds (including funds affiliated with the Manager) or
institutions, including the Manager and its affiliates, may from time to time
own or control a substantial amount of the Fund’s shares. There is no
requirement that these entities maintain their investment in the
Fund.
Certain of these
entities may use predetermined, nondiscretionary mathematical formulas in their
investment process that may result in large-scale asset flows into and out of
the Fund. These shareholders may also pledge or loan Fund shares (to secure
financing or otherwise), which may result in the shares becoming concentrated in
another party. There is a risk that such large shareholders or that the Fund’s
shareholders generally may redeem all or a substantial portion of their
investments in the Fund in a short period of time, which could have a
significant negative impact on the Fund’s NAV, liquidity, and brokerage costs.
Such redemptions may cause the Fund to have to sell securities at inopportune
times or prices. These transactions may adversely affect the Fund’s performance
and increase transaction costs. In addition, large redemption requests may
exceed the cash balance of the Fund and result in credit line borrowing fees
and/or overdraft charges to the Fund until the sales of portfolio securities
necessary to cover the redemption request settle. To the extent a large
shareholder in the Fund is an entity subject to domestic and/or international
regulations governing banking, insurance,
or
other financial institutions, changes in those regulations (e.g., capital
requirements) or in the shareholder’s financial status may cause or require the
shareholder to redeem its investment in the Fund when it otherwise would not
choose to redeem that investment. It is also possible that a significant
redemption could result in an increase in Fund expenses on account of being
spread over a smaller asset base, and therefore make it more difficult for the
Fund to implement its investment strategy. Large redemptions could also result
in tax consequences to shareholders. The Fund’s ability to pursue its investment
objective after one or more large scale redemptions may be impaired and, as a
result, the Fund may invest a larger portion of its assets in cash or cash
equivalents.
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19
Liquidity
Risk.
The Fund may invest in instruments that trade in lower volumes and are more
illiquid than other investments. If the Fund is forced to sell these investments
to pay redemption proceeds or for other reasons, the Fund may lose money. In
addition, when there is no willing buyer and investments cannot be readily sold
at the desired time or price, the Fund may have to accept a lower price or may
not be able to sell the instrument at all. An inability to sell a portfolio
position can adversely affect the Fund's value or prevent the Fund from being
able to take advantage of other investment opportunities.
Management
Risk. Actively managed
funds are subject to management risk. The subadviser will apply investment
techniques and risk analyses in making investment decisions for the Fund, but
the subadviser's judgments about the attractiveness, value or market trends
affecting a particular security, industry or sector or about market movements
may be incorrect. Additionally, the investments selected for the Fund may
underperform the markets in general, the Fund's benchmark and other funds with
similar investment objectives.
Market
Disruption and Geopolitical Risks. Market disruption
can be caused by economic, financial or political events and factors, including
but not limited to, international wars or conflicts (including Russia’s military
invasion of Ukraine), geopolitical developments (including trading and tariff
arrangements, sanctions and cybersecurity attacks), instability in regions such
as Asia, Eastern Europe and the Middle East, terrorism, natural disasters and
public health epidemics (including the outbreak of COVID-19
globally).
The extent and
duration of such events and resulting market disruptions cannot be predicted,
but could be substantial and could magnify the impact of other risks to the
Fund. These and other similar events could adversely affect the U.S. and foreign
financial markets and lead to increased market volatility, reduced liquidity in
the securities markets, significant negative impacts on issuers and the markets
for certain securities and commodities and/or government intervention. They may
also cause short- or long-term economic uncertainties in the United States and
worldwide. As a result, whether or not the Fund invests in securities of issuers
located in or with significant exposure to the countries directly affected, the
value and liquidity of the Fund’s investments may be negatively impacted.
Further, due to closures of certain markets and restrictions on trading certain
securities, the value of certain securities held by the Fund could be
significantly impacted, which could lead to such securities being valued at
zero.
COVID-19 and the
related governmental and public responses or future public health epidemics and
any corresponding responses may have an impact on the Fund’s investments and net
asset value, and may lead to increased market volatility and the potential for
illiquidity in certain classes of securities and sectors of the market. Future
public health epidemics may result in periods of business disruption, business
closures, inability to obtain raw materials, supplies and component parts, and
reduced or disrupted operations for the issuers in which the Fund invests. The
occurrence, reoccurrence and pendency of public health epidemics could adversely
affect the economies and financial markets either in specific countries or
worldwide.
Market
Risk.
Securities markets may be volatile and the market prices of the Fund’s
securities may decline. Securities fluctuate in price based on changes in an
issuer’s financial condition and overall market and economic conditions. If the
market prices of the securities owned by the Fund fall, the value of your
investment in the Fund will decline.
Money
Market Instruments Risk. The value of money
market instruments may be affected by changing interest rates and by changes in
the credit ratings of those instruments. If a significant amount of the Fund's
assets are invested in money market instruments, it will be more difficult for
the Fund to achieve its investment objective.
New/Small
Fund Risk. The Fund recently
commenced operations and has a limited operating history. As a new and
relatively small fund, the Fund's performance may not represent how the Fund 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 performance in new and smaller
funds. New and smaller funds may also require a period of time before they are
invested in securities that meet their 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, a new or smaller fund's
investment strategy may require a longer period of time to show returns that are
representative of
20
PGIM AAA CLO
ETF
the strategy. New
funds have limited performance histories for investors to evaluate and new and
smaller funds may not attract sufficient assets to achieve investment and
trading efficiencies. If the Fund were to fail to successfully implement its
investment strategies or achieve its investment objective, performance may be
negatively impacted, and any resulting liquidation could create negative
transaction costs for the Fund and tax consequences for investors. Since the
Fund is new, an active secondary market for the shares of the Fund may not
develop or may not continue once developed. Shareholders holding large blocks of
shares of the Fund, including the Manager and its affiliates, may hold their
shares for long periods of time, which may lead to reduced trading volumes,
wider trading spreads and impede the development or maintenance of an active
secondary trading market for Fund shares. These large shareholders may also loan
or sell all or a portion of their Fund shares, which may result in increasing
concentration of Fund shares in a small number of holders, and the potential for
large redemptions, decreases in Fund assets and increased expenses for remaining
shareholders.
Non-Diversified
Investment Company Risk. The Fund is
non-diversified for purposes of the 1940 Act. This means that the Fund may
invest a greater percentage of its assets in the securities of a single company
or other issuer than a diversified fund. Investing in a non-diversified fund
involves greater risk than investing in a diversified fund because a loss
resulting from the decline in value of any one security may represent a greater
portion of the total assets of a non-diversified fund.
Reference Rate
Risk. The Fund may be
exposed to financial instruments that recently transitioned from using or
continue to use the London Interbank Offered Rate (“LIBOR”) to determine payment
obligations, financing terms, hedging strategies or investment
value.
The United Kingdom's Financial
Conduct Authority (the “FCA”) announced a phase out of LIBOR such that after
June 30, 2023, the overnight, 1-month, 3-month, 6-month and 12-month U.S. dollar
LIBOR settings ceased to be published or are no longer representative. All other
LIBOR settings and certain other interbank offered rates, such as the Euro
Overnight Index Average (“EONIA”), ceased to be published after December 31,
2021. On December 16, 2022, the Federal Reserve Board adopted regulations
implementing the Adjustable Interest Rate Act by identifying benchmark rates
based on the Secured Overnight Financing Rate that replaced LIBOR in different
categories of financial contracts after June 30, 2023. These regulations apply
only to contracts governed by U.S. law, among other limitations. The FCA will
permit the use of synthetic U.S. dollar LIBOR rates for non-U.S.
contracts through September 30, 2024, but any such rates would be considered
non-representative of the underlying market.
Neither the effect
of the LIBOR transition process nor its ultimate success can yet be known. Not
all existing LIBOR-based instruments may have alternative rate-setting
provisions and there remains uncertainty regarding the willingness and ability
of issuers to add alternative rate-setting provisions in certain existing
instruments. Parties to contracts, securities or other instruments using LIBOR
may disagree on transition rates or the application of applicable transition
regulation, potentially resulting in uncertainty of performance and the
possibility of litigation. The Fund may have instruments linked to other
interbank offered rates that may also cease to be published in the
future.
Repurchase
Agreements Risk. Repurchase
agreements could involve certain risks in the event of default or insolvency of
the seller, including losses and possible delays or restrictions upon the Fund’s
ability to dispose of the underlying securities. To the extent that, in the
meantime, the value of the securities that the Fund has purchased has decreased,
the Fund could experience a loss.
Reverse
Repurchase Agreements Risk. Reverse repurchase
agreements involve the risk that the other party may fail to return the
securities in a timely manner or at all. The Fund could lose money if it is
unable to recover the securities and the value of the collateral held by the
Fund, including the value of investments made with cash collateral, is less than
the value of the securities. These events could also trigger adverse tax
consequences to the Fund. Reverse repurchase agreements also involve leverage,
which may exaggerate the increase or decrease of the value of the Fund’s assets
during the term of the agreement.
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Short
Sales Risk. Short sales
involve costs and risks. The Fund must pay the lender interest on the security
it borrows, and the Fund will lose money to the extent that the price of the
security increases between the time of the short sale and the date when the Fund
replaces the borrowed security. Although the Fund’s gain is limited to the price
at which it sold the securities short, its potential loss is limited only by the
maximum attainable price of the securities, less the price at which the security
was sold and may, theoretically, be unlimited. The Fund may also make short
sales “against the box.” When selling short against the box, the Fund gives up
the opportunity for capital appreciation in the security.
Structured
Products Risk. Holders of
structured product securities bear risks of the underlying investments, index or
reference obligation. Certain structured products may be thinly traded or have a
limited trading market, and as a result may be characterized as illiquid. The
possible lack of a liquid secondary market for structured securities and the
resulting inability of the Fund to sell a structured security could expose the
Fund to losses and could make structured securities more difficult for the Fund
to value accurately, which may also result in additional costs. Structured
products are also subject to credit risk; the assets backing the structured
product may be insufficient to pay interest or principal. In addition to the
general risks associated with investments in fixed income, structured products
carry additional risks, including, but not limited to: the possibility that
distributions from collateral securities will not be adequate to make interest
or other payments; the quality of the collateral may decline in value or
default; and the possibility that the structured products are subordinate to
other classes. Structured securities are generally privately negotiated debt
obligations where the principal and/or interest or value of the structured
security is determined by reference to the performance of a specific asset,
benchmark asset, market or interest rate (“reference instrument”), and changes
in the reference instrument or security may cause significant price
fluctuations, or could cause the interest rate on the structured security to be
reduced to zero. Holders of structured products indirectly bear risks associated
with the reference instrument, are subject to counterparty risk and typically do
not have direct rights against the reference instrument. Structured products may
also entail structural complexity and documentation risk and there is no
guarantee that the courts or administrators will interpret the priority of
principal and interest payments as expected.
When-Issued
and Delayed-Delivery Transactions Risk. When-issued and
delayed-delivery securities involve the risk that the security the Fund buys
will lose value prior to its delivery. There also is the risk that the security
will not be issued or that the other party to the transaction will not meet its
obligation. If this occurs, the Fund may lose both the investment opportunity
for the assets it set aside to pay for the security and any gain in the
security’s price.
Please note that,
in addition to the risks discussed above, there are many other factors that may
impact the Fund’s ability to achieve its investment objective and which could
result in a loss of all or a part of your investment.
More information
about the Fund’s investment strategies and risks appears in the SAI.
22
PGIM AAA CLO
ETF
PRIOR HISTORICAL
PERFORMANCE OF SIMILARLY MANAGED ACCOUNTS
The Fund’s
investment objective, investment policies and strategies are substantially
similar to the investment objectives, strategies, and policies of one other
account (a separately managed account) managed by the subadviser. The
performance of that account (the “Composite”) is summarized below. The Composite
(inception date January 1, 2017) includes all discretionary accounts managed by
the subadviser with substantially similar investment objectives, strategies, and
policies to those of the Fund.
The performance of the Composite is
compared to the performance of the ICE BofA Libor 3 Month Average Index, which
is the performance benchmark for the Composite, and the JP Morgan CLOIE AAA
Index, which will be the performance benchmark of the Fund. The ICE BofA Libor 3
Month Average Index is the stated rate of interest at which banks in the London
wholesale money markets may borrow funds from one another for three months. The
daily rate set by the Intercontinental Exchange Benchmark Administration Ltd
(“IBA”) on the last day of each calendar month is used to derive the return for
the upcoming month. The JP Morgan CLOIE AAA Index covers securities in the
U.S. dollar-denominated CLO market. Index constituents consist of AAA rated
floating-rate CLO securities. The index utilizes a market-weighted methodology
and is rebalanced monthly. Returns do not include the effect of sales charges or
taxes.
In addition, the
portfolio holdings of the Fund may differ from those of the other accounts in
the Composite. Such differences do not alter the conclusion that the Fund’s
strategy and the strategy represented in the Composite are substantially similar
in all material respects.
All historical
returns shown below reflect the reinvestment of dividends and other earnings.
Historical investment performance is shown net of fees and gross of fees. Gross
returns do not reflect the deduction of investment advisory fees but does
include transaction expenses that may be incurred in the management of the
account. Net of fee performance data is calculated on a monthly basis and
reflects the deduction of the highest investment advisory fee paid by the
account in the Composite and transaction expenses, but does not reflect the
deduction of custodial fees. The account included in the Composite may incur
other fees charged by third parties. Net performance data does not reflect the
deduction of any such other fees paid to third parties in which the subadviser
is not involved.
The net and gross of fee
performance has not been adjusted to reflect any fees or expenses that will be
payable by the Fund, which may be lower than the fees payable by an account
included in the Composite depending on its fee structure. If the net and gross
of fee performance for the Composite has been adjusted to reflect fees and
expenses payable by the Fund, the returns of the Composite could have been
different than those shown.
Investors
should not rely on the historical performance data shown below as an indication
of the future performance of the Fund. The historical performance information
set forth below does not represent the performance of the Fund.
|
Annualized
Returns | ||||
|
as
of June 30, 2023 |
Net |
Gross |
ICE
BofA Libor 3 Month
Average
Index |
JP
Morgan CLOIE AAA
Index |
|
1
Year |
6.43% |
6.74% |
4.38% |
6.71% |
|
3
Year |
2.89% |
3.19% |
1.67% |
3.03% |
|
5
Year |
2.61% |
2.91% |
1.86% |
2.87% |
|
Since
Inception (1/1/2017) |
2.65% |
2.95% |
1.78% |
2.79% |
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23
|
Calendar
Year Returns | ||||
|
Year |
Net |
Gross |
ICE
BofA Libor 3 Month
Average
Index |
JP
Morgan CLOIE AAA
Index |
|
2023
(1/1/2023 – 6/30/2023) |
3.84% |
3.99% |
2.55% |
3.83% |
|
2022 |
0.76% |
1.05% |
2.20% |
1.05% |
|
2021 |
1.44% |
1.74% |
0.16% |
1.40% |
|
2020 |
2.49% |
2.79% |
0.74% |
2.54% |
|
2019 |
3.95% |
4.25% |
2.40% |
4.61% |
|
2018 |
1.96% |
2.26% |
2.29% |
2.07% |
|
2017 |
2.84% |
3.14% |
1.24% |
2.62% |
The above
historical performance data is provided solely to illustrate the subadviser’s
experience in managing an account with an investment objective, strategy, and
policies substantially similar to the investment objective, strategy, and
policies of the Fund. Investors should not rely on this information as an
indication of actual performance of any account or future performance of the
Fund. The account that currently makes up the Composite is not subject to the
investment limitations, diversification requirements and other restrictions
imposed on the Fund under the Investment Company Act of 1940 and the Internal
Revenue Code, which, if applicable, might have adversely affected the
performance results of the Composite.
Composite gross rates of return are
calculated by asset weighting the individual portfolio returns monthly using the
beginning of period values and includes certain transaction expenses borne by
the account. Composite portfolio monthly returns are calculated using the daily
time weighted rate of return methodology. Composite net rates of return are
calculated by geometrically linking 1/12th of the highest advisory fee (but not
including custody fees or other fees paid to third parties) in effect for the
respective period (currently 0.29%) to the gross composite. Annual rates of
return are calculated by geometrically linking the monthly returns. The
annualized rate of return is equivalent to the annual rate of return which, if
earned in each year of the indicated multi-year period, would produce the actual
cumulative rate of return over the time period. Performance for the Composite
has been calculated in a manner that differs from the performance calculations
the SEC requires for registered funds. The Composite has been calculated
consistent with the requirements of the Global Investment Performance Standards
(GIPS®).
The historical
performance information presented is current as of the date indicated, but may
not be current as of the date you are reviewing this information. Performance
results fluctuate, and there can be no assurance that objectives will always be
achieved. Other methods of computing returns may produce different results, and
the results for different periods will vary.
24
PGIM AAA CLO
ETF
HOW THE FUND IS
MANAGED
BOARD
OF TRUSTEES
The Fund is
overseen by a Board of Trustees (hereafter referred to as “Trustees”, or the
“Board”). The Board oversees the actions of the Manager, subadviser and
distributor and decides on general policies. The Board also oversees the Fund's
officers, who conduct and supervise the daily business operations of the
Fund.
MANAGER
PGIM
Investments LLC (“PGIM Investments”)
655 Broad Street
Newark, NJ 07102-4410
655 Broad Street
Newark, NJ 07102-4410
As manager, PGIM
Investments manages the Fund's investment operations and administers its
business affairs and is responsible for supervising the Fund's subadviser.
Pursuant to the management agreement relating to the Fund, PGIM Investments is
responsible for substantially all expenses of the Fund, except taxes, brokerage
expenses, interest expenses, distribution fees or expenses, expenses incident to
shareholder meetings and extraordinary expenses. The Fund may also pay for any
costs or expenses of investing in other funds. The Fund pays PGIM Investments
management fees at the rate of 0.19% of the Fund's average daily net
assets.
PGIM Investments and its
predecessors have served as a manager or administrator to investment companies
since 1987. As of June 30, 2023, PGIM Investments, a wholly-owned subsidiary of
Prudential Financial, Inc. (“Prudential”), served as the investment manager to
all of the Prudential U.S. and offshore open-end investment companies, and as
the manager or administrator to closed-end investment companies, with aggregate
assets of approximately $291.1 billion.
Subject to the
supervision of the Board, PGIM Investments is responsible for conducting the
initial review of prospective subadvisers for the Fund. In evaluating a
prospective subadviser, PGIM Investments considers many factors, including the
firm's experience, investment philosophy and historical performance. Subject to
the Board’s oversight, PGIM Investments is also responsible for monitoring the
performance of the Fund's subadviser and recommending its termination and
replacement when deemed appropriate. PGIM Investments may provide a subadviser
with additional investment guidelines consistent with the Fund's investment
objective and restrictions.
PGIM Investments
and the Fund operate under an exemptive order (the “Order”) from the SEC that
generally permits PGIM Investments to enter into or amend agreements with
unaffiliated subadvisers and certain subadvisers that are affiliates of PGIM
Investments without obtaining shareholder approval. This authority is subject to
certain conditions, including the requirement that the Board must approve any
new or amended agreements with a subadviser. Shareholders of the Fund still have
the right to terminate these agreements at any time by a vote of the majority of
the outstanding shares of the Fund. The Fund will notify shareholders of any new
subadvisers engaged or material amendments to subadvisory agreements made
pursuant to the Order. Any new subadvisory agreement or amendment to the Fund’s
management agreement or current subadvisory agreement that directly or
indirectly results in an increase in the aggregate management fee rate payable
by the Fund will be submitted to the Fund’s shareholders for their approval.
PGIM Investments does not currently intend to retain unaffiliated
subadvisers.
A discussion of the
basis for the Board's approvals of the management and subadvisory agreements
will be available in the Fund's Annual Report to shareholders dated August
31.
SUBADVISERS
PGIM,
Inc. (“PGIM”) is an indirect,
wholly-owned subsidiary of Prudential that was organized in 1984. Its address is
655 Broad Street, Newark, New Jersey 07102. As of March 31, 2023, PGIM managed
approximately $1.27 trillion in assets.
Visit our website
at www.pgim.com/investments
25
PGIM Fixed
Income is the primary
public fixed income asset management unit of PGIM, with $793 billion in assets
under management as of March 31, 2023 and is the unit of PGIM that provides
investment advisory services to the Fund.*
PGIM Fixed Income
is organized into groups specializing in different sectors of the fixed income
market: U.S. and non-U.S. government bonds, mortgage-backed and asset-backed
securities, U.S. and non-U.S. investment grade corporate bonds, high-yield
bonds, emerging markets bonds, municipal bonds, and money market
securities.
*PGIM Fixed
Income’s assets under management includes PGIM Limited’s assets under
management, an operating division of PGIM Fixed Income.
PGIM
Limited is an indirect
wholly-owned subsidiary of PGIM. PGIM Limited is located at Grand Buildings, 1-3
Strand, Trafalgar Square, London WC2N 5HR. PGIM Limited provides investment
advisory services with respect to securities in certain foreign markets. As of
March 31, 2023, PGIM Limited managed approximately $51.9 billion in
assets.
PORTFOLIO
MANAGERS
Edwin Wilches, CFA,
Gabe Rivera and Connor Byrnes are jointly and primarily responsible for the
day-to-day management of the Fund.
Edwin
Wilches, CFA, is a Managing
Director and Co-Head of PGIM Fixed Income’s Securitized Products team. Mr.
Wilches is also a portfolio manager for dedicated CLO Tranche portfolios as well
other dedicated securitized products funds. Mr. Wilches oversees securitized
product security selection across the firm’s multi-sector, investment grade,
high yield, LDI, money market and general account strategies. He plays an active
leadership role in PGIM’s Racial Equity Initiative via participation in multiple
workstreams, and is a member of the Latinx Executive Leadership Team for both
PGIM and PGIM Fixed Income. Mr. Wilches is an active member in multiple trade
associations across the US and European markets seeking to represent our
client’s best interests and to help promote a functioning market structure.
Prior to assuming his current responsibilities, Mr. Wilches was responsible for
managing and trading the Firm's investments in CLO tranches, supporting the
Dryden CLO platform's business development and investor relations efforts, and
analyzing off-the-run alternative fixed income opportunities. Earlier, Mr.
Wilches was a member of PGIM Fixed Income’s CDO analyst team, Business and
Product Development Team and Fixed Income Operations team. Mr. Wilches joined
the Firm in 2003. He received a BA in Economics from Rutgers University and an
MBA from New York University. He holds the Chartered Financial Analyst (“CFA”)
designation.
Gabe
Rivera is a Managing
Director and Co-Head of PGIM Fixed Income’s Securitized Products Team. Mr.
Rivera is a portfolio manager of dedicated securitized products portfolios and
is also responsible for overseeing securitized product security selection across
all of the firm's strategies. Additionally, Mr. Rivera is an active member of
the Latinx Executive Leadership team at PGIM. Prior to joining the Firm in 2016,
Mr. Rivera headed the Commercial Mortgage-Backed Securities (“CMBS”) trading
desk at Barclays Capital where he oversaw trading in all conduit, single asset
single borrower (“SASB”), and synthetics. Mr. Rivera began his career as an
analyst within Blackrock's Mortgage Research Group focusing on the development
and implementation of non-agency mortgage models and analytics. Later at
Blackrock, he transitioned into the portfolio management group where he focused
on non-agency RMBS investing. Mr. Rivera earned a BS in Electrical and Computer
Engineering from Cornell University and a MS from Columbia University in
Operations Research and Industrial Engineering.
Connor
Byrnes is a Vice President
on PGIM Fixed Income’s Securitized Products team. He is a portfolio manager
focused on CLO tranche investing across the US and Europe. Mr. Byrnes is
responsible for CLO security selection in dedicated separate accounts as well as
the firm’s multi-sector, investment grade, high yield, LDI, money market, and
general account strategies. Prior to assuming his current responsibilities, Mr.
Byrnes was responsible for supporting PGIM’s Dryden CLO platform in structuring,
business development, client management, and analysis functions. Mr. Byrnes
joined the Firm in 2012. He received a dual BS in Business Administration
Finance and Economics from Susquehanna University and an MBA from Indiana
University.
26
PGIM AAA CLO
ETF
Additional
information about portfolio manager compensation, other accounts managed, and
portfolio manager ownership of Fund securities may be found in the
SAI.
DISTRIBUTOR
The Fund's
Distributor is Prudential Investment Management Services LLC (“PIMS” or the
“Distributor”). The Distributor is a broker-dealer registered with the SEC. The
Distributor distributes Creation Units (as defined below in the section “How to
Buy and Sell Shares”) for the Fund and does not maintain a secondary market in
shares of the Fund.
Distribution
and Service Plan
The Fund has
adopted a Distribution and Service Plan (the “12b-1 Plan”) pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended (the “1940 Act”). The
12b-1 Plan permits compensation in connection with the distribution and
marketing of Fund shares and/or the provision of certain shareholder services.
The 12b-1 Plan permits the Fund to pay compensation at an annual rate of up to
0.25% of the Fund's average daily net assets. However, the Board has determined
not to authorize payment of a 12b-1 Plan fee at this time.
The 12b-1 fee may
only be imposed or increased when the Board determines that it is in the best
interests of shareholders to do so. Because these fees, when and if authorized,
will be paid out of the Fund's assets on an ongoing basis, over time they will
increase the cost of an investment in the Fund.
PGIM or its
affiliates make payments to broker-dealers, registered investment advisers,
banks or other intermediaries (together, “intermediaries”) related to marketing
activities and presentations, educational training programs, conferences, the
development of technology platforms and reporting systems, or their making Fund
shares available to their customers generally and in certain investment
programs. Such payments, which may be significant to the intermediary, are not
made by the Fund. Rather, such payments are made by PGIM or its affiliates from
their own resources, which come directly or indirectly in part from fees paid by
the Fund. A financial intermediary may make decisions about which investment
options it recommends or makes available, or the level of services provided, to
its customers based on the payments it is eligible to receive. Therefore, such
payments to an intermediary create conflicts of interest between the
intermediary and its customers and may cause the intermediary to recommend the
funds over another investment. More information regarding these payments is
contained in the Fund’s SAI.
Please contact your
salesperson or other investment professional for more information regarding any
such payments his or her firm may receive from PGIM or its
affiliates.
DISCLOSURE
OF PORTFOLIO HOLDINGS
Fund policies and
procedures with respect to the disclosure of the Fund's portfolio securities are
described in the Fund's SAI. On each business day, before commencement of
trading on the Exchange, the Fund will disclose on pgim.com/investments the Fund's
portfolio holdings that will form the basis for the Fund's calculation of NAV at
the end of the business day.
Visit our website
at www.pgim.com/investments
27
FUND
DISTRIBUTIONS AND TAX ISSUES
DISTRIBUTIONS
The Fund
distributes dividends out of any net investment income to shareholders. For
example, if the Fund owns an ACME Corp. bond and the bond pays interest, the
Fund will pay out a portion of this interest as a dividend to its shareholders,
assuming the Fund’s income is more than its costs and expenses.
The Fund also
distributes any realized net capital gains to shareholders. Capital gains are
generated when the Fund sells its assets for a profit. For example, if the Fund
bought 100 bonds of ACME Corp. for a total of $1,000 and more than one year
later sold the bonds for a total of $1,500, the Fund has net long-term capital
gains of $500, which it will pass on to shareholders (assuming the Fund’s
remaining total gains are greater than any losses it may have).
Dividends and other
distributions on shares of the Fund are distributed on a pro rata basis to
beneficial owners of such shares.
Dividend payments
are made through DTC participants and indirect participants to beneficial owners
then of record with proceeds received from the Fund.
Dividend
Reinvestment Service. No dividend
reinvestment service is provided by the Fund. Broker-dealers may make available
the DTC book-entry Dividend Reinvestment Service for use by beneficial owners of
the Fund for reinvestment of their dividend distributions. Beneficial owners
should contact their broker to determine the availability and costs of the
service and the details of participation therein. Brokers may require beneficial
owners to adhere to specific procedures and timetables. If this service is
available and used, dividend distributions of both income and realized gains
will be automatically reinvested in additional whole shares of the Fund
purchased in the secondary market. Dividend distributions of both income and
realized gains will be subject to taxation whether or not they are reinvested in
the Fund.
The chart below
sets forth the expected frequency of dividend and capital gains distributions to
shareholders. Various factors may impact the frequency of dividend distributions
to shareholders, including but not limited to adverse market conditions or
portfolio holding-specific events.
|
Expected
Distribution Schedule* |
|
|
Net
Investment Income |
Monthly |
|
Short-Term
Capital Gains |
Annually |
|
Long-Term
Capital Gains |
Annually |
*Under certain
circumstances, the Fund may make more than one distribution of short-term and/or
long-term capital gains during a fiscal year.
TAX
ISSUES
Investors who buy
shares of the Fund should be aware of some important tax issues. For example,
the Fund distributes dividends of net investment income and realized net capital
gains, if any, to shareholders. These distributions are subject to federal
income taxes, unless you hold your shares in a 401(k) plan, an Individual
Retirement Account (“IRA”) or some other qualified or tax-deferred plan or
account. Dividends and distributions from the Fund also may be subject to state
and local income tax in the state where you live. Also, if you sell shares of
the Fund for a profit, you may have to pay capital gains taxes on the amount of
your profit, unless you hold your shares in a qualified or tax-deferred plan or
account.
The following
briefly discusses some of the important income tax issues you should be aware
of, but is not meant to be tax advice. For tax advice, please speak with your
tax adviser.
Fund
Distributions
28
PGIM AAA CLO
ETF
Dividends of net
investment income will generally be taxable to shareholders at ordinary income
rates. Dividends from net investment income paid to a non-corporate U.S.
shareholder that are reported as qualified dividend income will generally be
taxable to such shareholder at the long-term capital gain tax rate. Also, a
portion of the dividends paid to corporate shareholders of the Fund will be
eligible for the dividends received deduction to the extent the Fund’s income is
derived from certain dividends received from U.S. corporations. Because of the
nature of the Fund’s investments, the Fund does not expect to pay dividends that
for noncorporate shareholders are treated as qualified dividend income or that
for corporate shareholders are eligible for the dividends received
deduction.
Fund distributions
of net capital gains are taxed differently depending on how long the Fund holds
the security. If the Fund holds a security for more than one year before selling
it, any gain is treated as long-term capital gain which is generally taxed at
rates of up to 15% or 20% for noncorporate U.S. shareholders, depending on
whether their income exceeds certain threshold amounts which are adjusted
annually for inflation. If the Fund holds the security for one year or less, any
gain is treated as short-term capital gain, which is taxed at rates applicable
to ordinary income. Different rates apply to corporate shareholders.
A U.S. shareholder
that is an individual, estate, or certain type of trust is subject to a 3.8%
Medicare contribution tax on the lesser of (1) the U.S. shareholder’s “net
investment income,” including Fund distributions and net gains from the
disposition of Fund shares, and (2) the excess of the U.S. shareholder’s
modified adjusted gross income for the taxable year over $200,000 (or $250,000
for married couples filing jointly). For this purpose, net investment income
includes interest, dividends, annuities, royalties, capital gain and income from
a passive activity business or a business of trading in financial instruments or
commodities.
Form
1099
For every year the
Fund declares a dividend, you will receive a Form 1099, which reports the amount
of ordinary income distributions and long-term capital gains we distributed to
you during the prior year unless you own shares of the Fund as part of a
qualified or tax-deferred plan or account. If you do own shares of the Fund as
part of a qualified or tax-deferred plan or account, your taxes are deferred, so
you will not receive a Form 1099 annually, but instead you will receive a Form
1099 when you take any distribution from your qualified or tax-deferred plan or
account.
Fund distributions
are generally taxable to you in the calendar year in which they are received,
except when we declare certain dividends and distributions in the fourth
quarter, with a record date in such quarter, and actually pay them in January of
the following year. In such cases, the dividends and distributions are treated
as if they were paid on December 31st of the prior year.
Withholding
Taxes
If federal tax law
requires you to provide the Fund with your taxpayer identification number and
certifications as to your tax status and you fail to do this, or if you are
otherwise subject to backup withholding, we will withhold and pay to the U.S.
Treasury a portion of your distributions and sale proceeds based on the
applicable backup withholding rate.
Taxation
of Non-U.S. Shareholders
For a discussion
regarding the taxation of non-U.S. shareholders, please see the SAI and contact
your tax adviser.
If
You Purchase on or Before a Record Date
If you buy shares
of the Fund on or before the record date for a distribution (the date that
determines who receives the distribution), we will pay that distribution to you.
As explained above, the distribution may be subject to taxes. You may think
you’ve done well since you bought shares one day and soon thereafter received a
distribution. That is not so, because when dividends are paid out, the value of
each share of the Fund decreases by the amount of the dividend to
Visit our website
at www.pgim.com/investments
29
reflect the payout,
although this may not be apparent because the value of each share of the Fund
also will be affected by market changes, if any. However, the timing of your
purchase does mean that part of your investment may have come back to you as
taxable income.
TAXES
WHEN SHARES ARE SOLD
Any capital gain or
loss realized upon a sale of shares is generally treated as long-term capital
gain or loss if the shares have been held for more than one year and as
short-term capital gain or loss if the shares have been held for one year or
less. Capital loss realized on the sale or exchange of shares held for six
months or less will be treated as long-term capital loss to the extent of any
capital gain dividends received by the shareholder. The ability to deduct
capital losses may be limited. Net gains from the sale of shares are included in
“net investment income” for purposes of the 3.8% Medicare contribution tax
mentioned above.
For shares
purchased and sold from a taxable account, your intermediary will report cost
basis information to you and to the IRS. Your intermediary will permit
shareholders to elect their preferred cost basis method. In the absence of an
election, your cost basis method will be your intermediary’s default method,
which is often the average cost method. Please consult your tax adviser to
determine the appropriate cost basis method for your particular tax situation
and to learn more about how the cost basis reporting laws apply to you and your
investments.
The above is a
general summary of tax implications of investing in the Fund. Because each
investor’s tax consequences are unique, please consult your tax advisor to see
how investing in the Fund and, for individuals and S corporations, selection of
a particular cost method of accounting will affect your own tax
situation.
30
PGIM AAA CLO
ETF
HOW TO BUY AND
SELL SHARES
Secondary
Market
Most investors will
buy and sell Fund shares in secondary market transactions through brokers.
Shares of the Fund are listed and traded on the secondary market on the
Exchange. Shares can be bought and sold throughout the trading day like other
publicly traded securities. There is no minimum investment. When buying or
selling shares through a broker, you will incur customary brokerage commissions
and charges, and you may pay some or all of the spread between the bid and the
offered price in the secondary market on each leg of a round trip (purchase and
sale) transaction. The spread varies over time for Fund shares based on the
Fund’s trading volume and market liquidity, and is generally lower if the Fund
has a lot of trading volume and market liquidity.
Shares of the Fund
trade on the Exchange at prices that may differ to varying degrees from the
daily NAV of the shares.
Directly
with the Fund
Fund shares are
issued or redeemed by the Fund at NAV per share only in aggregations of a
specified number of shares (“Creation Units”). An Authorized Participant is a
member or participant of a clearing agency registered with the SEC, which has a
written agreement with the Fund or one of its service providers that allows the
Authorized Participant to place orders for the purchase and redemption of
Creation Units.
A creation
transaction, which is subject to acceptance by the Distributor and the Fund,
generally takes place when an Authorized Participant deposits into the Fund a
designated portfolio of securities, assets or other positions (a “creation
basket”, and an amount of cash (including any cash representing the value of
substituted securities, assets or other positions), if any, which together
approximate the holdings of the Fund in exchange for a specified number of
Creation Units. Similarly, shares can be redeemed only in Creation Units,
generally for a designated portfolio of securities, assets or other propositions
(the “redemption basket”) held by the Fund and an amount of cash (including any
portion of such securities for which cash may be substituted). The Fund may, in
certain circumstances, offer Creation Units partially or solely for cash. Except
when aggregated in Creation Units, shares are not redeemable by the Fund.
Creation and redemption baskets may differ and the Fund may accept “custom
baskets.”
For more detailed
information, see “Creations and Redemptions of Fund Shares” in the Fund’s
SAI.
Beneficial
Ownership
The Depository
Trust Company (“DTC”) serves as securities depository for Fund shares. Shares of
the Fund may be held only in book-entry form; stock certificates will not be
issued. DTC, or its nominee, is the record or registered owner of all
outstanding shares of the Fund. Beneficial ownership of shares will be shown on
the records of DTC or its participants. Beneficial owners of shares are not
entitled to have shares registered in their names, will not receive or be
entitled to receive physical delivery of certificates in definitive form and are
not considered the registered holder thereof. Accordingly, to exercise any
rights of a holder of shares of the Fund, each beneficial owner must rely on the
procedures of: (i) DTC; (ii) “DTC Participants,” i.e., securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations, some of whom (and/or their representatives) own DTC; and
(iii) “Indirect Participants,” i.e., brokers, dealers, banks and trust
companies that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly, through which such beneficial owner
holds its interests.
The Fund
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. As
described above, the Fund recognizes DTC or its nominee as the owner of all
shares of the Fund for all purposes. For more detailed information, see “Book
Entry Only System” in the Fund’s SAI.
Visit our website
at www.pgim.com/investments
31
Shares of the Fund
have not been registered for sale outside of the United States.
Understanding
the Price You'll Pay for the Shares
Market
Trading Price. The trading price
of the Fund’s shares on the Exchange may differ from the Fund’s daily NAV and
can be affected by market forces of supply and demand, economic conditions and
other factors.
Premiums
and Discounts. Information
regarding how often the shares of the Fund traded on the Exchange at a price
above (i.e., at a premium) or below (i.e., at a discount) the NAV since the
inception of the Fund, as applicable, can be found at pgim.com/investments.
Net
Asset Value. The share value of
a fund—known as the net
asset value or NAV—is determined by a
simple calculation: it's the total value of the Fund (assets minus liabilities)
divided by the total number of shares outstanding. For example, if the value of
the investments held by Fund XYZ (minus its liabilities) is $1,000 and there are
100 shares of Fund XYZ owned by shareholders, the value of one share of Fund
XYZ—or the NAV—is $10 ($1,000 divided by 100).
The Fund's NAV will
be determined every day on which the Fund is open as of the close of regular
trading on the New York Stock Exchange (“NYSE”) (generally, 4:00 p.m. Eastern
Time). The price at which a purchase of a Creation Unit is effected is based on
the next calculation of NAV after the order is received in proper form in
accordance with this prospectus and the requirements of the Authorized
Participant agreement.
The Fund's
portfolio securities are valued based upon market quotations or, if market
quotations are not readily available, at fair value as determined in good faith
under procedures established by the Board. These procedures include pricing
methodologies for determining the fair value of certain types of securities and
other assets held by the Fund that do not have quoted market prices, and
authorize the use of other pricing sources, such as bid prices supplied by a
principal market maker and evaluated prices supplied by pricing vendors that
employ analytic methodologies that take into account the prices of similar
securities and other market factors.
If the Fund
determines that a market quotation for a security is not reliable based on,
among other things, events or market conditions that occur with respect to one
or more securities held by the Fund or the market as a whole, after the
quotation is derived or after the closing of the primary market on which the
security is traded, but before the time that the Fund's NAV is determined, the
Fund may use “fair value pricing,” which is implemented by a valuation committee
(“Valuation Committee”) consisting of representatives of the Manager or by the
Board. The subadviser often provides relevant information for the Valuation
Committee meeting. In addition, the Fund may use fair value pricing determined
by the Valuation Committee or Board if the pricing source does not provide an
evaluated price for a security or provides an evaluated price that, in the
judgment of the Manager (which may be based upon a recommendation from the
subadviser), does not represent fair value. Equity securities that are traded on
foreign exchanges are valued using pricing vendor services that provide fair
value model prices. The models generate an evaluated adjustment factor for each
security, which is applied to the local closing price to adjust it for
post-closing market movements. Utilizing that evaluated adjustment factor, the
vendor provides an evaluated price for each security. Non-U.S. securities
markets are open for trading on weekends and other days when the Fund does not
price shares. Therefore, the value of the Fund’s shares may change on days when
you will not be able to purchase or redeem the Fund’s shares.
Investments in
open-end non-exchange-traded mutual funds will be valued at their NAV as
determined as of the close of the NYSE on the date of valuation, which will
reflect the mutual fund’s fair valuation procedures.
Different valuation
methods may result in differing values for the same security. The fair value of
a portfolio security that the Fund uses to determine its NAV may differ from the
security's quoted or published price. If the Fund needs to implement fair value
pricing after the NAV publishing deadline but before shares of the Fund are
processed, the NAV you receive or pay may differ from the published NAV price.
The prospectuses of any other mutual funds or ETFs in which the Fund invests
will explain each fund’s procedures and policies with respect to the use of fair
value pricing.
32
PGIM AAA CLO
ETF
Fair value pricing
procedures are designed to result in prices for the Fund's securities and its
NAV that are reasonable in light of the circumstances which make or have made
market quotations unavailable or unreliable, and may have the effect of reducing
arbitrage opportunities available to short-term traders. There is no assurance,
however, that fair value pricing will more accurately reflect the market value
of a security than the market price of such security on that day or that it will
prevent dilution of the Fund's NAV by short-term traders.
Frequent
Purchases and Redemptions
The Fund does not
impose restrictions on the frequency of purchases and redemptions. The Board
evaluated the risks of market timing activities by Fund shareholders when they
considered whether a restriction or policy was necessary. The Board considered
that, unlike mutual funds, the Fund issues and redeems its shares at NAV only in
Creation Units, and the Fund’s shares may be purchased and sold on the Exchange
at prevailing market prices.
“Revenue
Sharing” Payments
The Manager or
certain of its affiliates (but not the Distributor) may make payments (which are
often referred to as “revenue sharing” payments) to financial intermediaries
from the Manager's or certain affiliates' own resources, including from the
profits derived from management fees or other fees received from the Fund,
without additional direct or indirect cost to the Fund or its shareholders.
Revenue sharing payments are usually calculated based on Fund assets
attributable to a particular financial services firm, and the amount of the
payments varies among financial intermediaries. The Manager or certain of its
affiliates may revise the terms of any existing revenue sharing arrangement, and
may enter into additional revenue sharing arrangements with other financial
intermediaries in the future. Revenue sharing arrangements are intended to
foster the sale of Fund shares and/or to compensate financial intermediaries for
assisting in marketing or promotional activities in connection with the sale of
Fund shares. In exchange for revenue sharing payments, it is expected that the
Fund will receive the opportunity to be sold through the financial
intermediaries' sales force or gain access to third-party platforms or other
marketing programs, including but not limited to “supermarket” platforms or
other sales programs. Both the Manager and Fund shareholders may receive
services from the financial intermediary in exchange for the revenue sharing
payments. Because the Manager's management fee is based on Fund assets, to the
extent that financial intermediaries receiving revenue sharing payments results
in an increase in the sale of Fund shares, the Manager and/or its affiliates
will benefit from the increase in Fund assets. From time to time the Manager
and/or an affiliate of the Fund (and not the Fund itself) may pay certain
administrative fees in order to make the Fund available to shareholders. Such
fees are not included in, and are paid separate and apart from, any revenue
sharing payments. Revenue sharing payments, or other similar payments, may
provide an incentive for financial intermediaries and their registered
representatives to recommend or sell shares of the Fund to you and in doing so
may create conflicts of interest between such intermediaries' financial
interests and their duties to customers. Please contact the registered
representative (or the financial intermediary) who sold shares of the Fund to
you for details about any payments the financial intermediary may receive from
the Manager and/or certain of its affiliates.
Visit our website
at www.pgim.com/investments
33
FINANCIAL
HIGHLIGHTS
No financial
highlights information is available for the Fund as of the date of this
Prospectus, as the Fund is new and has no prior financial highlights
information. As of the date of this Prospectus, the Fund has not yet commenced
investment operations.
34
PGIM AAA CLO
ETF
|
FOR
MORE INFORMATION
Please
read this Prospectus before you invest in the Fund and keep it for future
reference. Information on the Fund's
net
asset value, market price, premiums and discounts, and bid-ask spreads can
be found at pgim.com/investments.
For
information or shareholder questions contact: | |
|
◾MAIL
PGIM
Investments LLC
655
Broad Street, 6th Floor
Newark,
NJ 07102 ◾WEBSITE
pgim.com/investments |
◾TELEPHONE
(888)
247-8090
(973)
802-2093
(from
outside the U.S.) |
|
◾E-DELIVERY
You
may request e-delivery of Fund documents by contacting your financial
intermediary directly or by going to
www.icsdelivery.com.
Instead of receiving printed documents by mail, you will receive
notification via email when
new
materials are available. You can cancel your enrollment or change your
email address at any time by visiting
the
website address above. |
|
The
Annual and Semi-Annual Reports and the SAI contain additional information
about the Fund. Shareholders may
obtain
free copies of the SAI, Annual Report and Semi-Annual Report as well as
other information about the Fund
and
may make other shareholder inquiries through the telephone number, address
and website listed above. | |
|
◾STATEMENT
OF ADDITIONAL INFORMATION (SAI)
(incorporated
by reference into this Prospectus) ◾SEMI-ANNUAL
REPORT |
◾ANNUAL
REPORT
(contains
a discussion of the market conditions and
investment
strategies that significantly affected the
Fund's
performance during the last fiscal
year) |
|
You
can also obtain copies of Fund documents, including the SAI, from the
Securities and Exchange Commission as
follows
(the SEC charges a fee to copy documents): | |
|
◾ELECTRONIC
REQUEST
|
◾VIA
THE INTERNET
on
the EDGAR Database at
www.sec.gov |
|
PGIM
AAA CLO ETF | |
|
Ticker
Symbol |
PAAA |
|
Listing
Exchange |
NYSE
Arca, Inc. |
ETF1012STAT
The
Fund's Investment Company Act File No. 811-23324