ck0001616668-20221031
PROSPECTUS
February
28, 2023
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USAI |
Pacer
American Energy Independence ETF |
Listed
on NYSE Arca, Inc.
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ODDS |
Pacer
BlueStar Digital Entertainment ETF |
BULD |
Pacer
BlueStar Engineering the Future ETF |
Listed
on the Nasdaq Stock Market LLC
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved
of these securities or passed upon the accuracy or adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
INVESTMENT
PRODUCTS: *ARE
NOT FDIC INSURED *MAY
LOSE VALUE *ARE
NOT BANK GUARANTEED
Table
of Contents
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Pacer
American Energy Independence ETF |
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Pacer
BlueStar Digital Entertainment ETF |
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Pacer
BlueStar Engineering the Future ETF |
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SUMMARY
SECTION
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Pacer
American Energy Independence ETF |
Investment Objective
The Pacer American Energy Independence
ETF (the “Fund”) is an exchange traded fund (“ETF”) that seeks
to track the performance, before fees and expenses, of the American Energy
Independence Index (the “Index”).
Fees and Expenses of the
Fund
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
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Management
Fees |
0.75% |
Distribution
and/or Service (12b-1) Fees |
None |
Other
Expenses |
None |
Total
Annual Fund Operating Expenses |
0.75% |
Example
The following example
is intended to help retail investors compare the cost of investing in the Fund
with the cost of investing in other funds. It illustrates the hypothetical
expenses that such investors would incur over various periods if they were to
invest $10,000 in the Fund for the time periods indicated and then redeem all of
the Shares at the end of those periods. This example assumes that the Fund
provides a return of 5% a year and that operating expenses remain the
same. Although your actual costs may be higher
or lower, based on these assumptions, your costs would be:
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1
Year |
3
Years |
5
Years |
10
Years |
$77 |
$240 |
$417 |
$930 |
Portfolio
Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund Shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. For the fiscal year ended
October 31, 2022, the Fund’s portfolio turnover rate was 25% of the average value of its
portfolio.
Principal Investment Strategies of the
Fund
The
Fund employs a “passive management” (or indexing) investment approach designed
to track the total return performance, before fees and expenses, of the Index.
The Index is based on a proprietary methodology developed by SL Advisors,
LLC, the Fund’s Index Provider (the “Index Provider”) and the investment
adviser to the Predecessor Fund (as defined below), which is not affiliated with
the Fund, its distributor, or Pacer Advisors, Inc., the Fund’s investment
adviser (the “Adviser”).
The
Index
The
Index uses a proprietary, rules-based methodology to measure the
performance of a portfolio of U.S. and Canadian exchange-listed equity
securities of companies that generate a majority of their cash flow from certain
qualifying “midstream” energy infrastructure activities. The companies in the
Index are expected to benefit from regulatory policies favoring and industry
trends toward American energy independence (i.e.,
a reduced or eliminated need for the United States to import fuels, such as
coal, crude oil, or natural gas).
Midstream
energy infrastructure refers to the processing, storage, transportation, and
distribution of crude oil, natural gas, refined products, and their related
products, as well as the transmission or storage of renewable energy. The
following activity segments are considered qualifying midstream energy
infrastructure activities: gathering & processing, compression,
fractionation, logistics, midstream services, pipeline transportation, storage
and terminalling of oil, gas, natural gas liquids, and refined products, as well
as operating liquid natural gas facilities. The following activity segments
are not qualifying activities: refining, shipping, exploration, production,
retail distribution, or oil services. The Index may include small-, mid-, and
large-capitalization companies.
The
Index includes securities across the following categories of midstream
companies. Such categories and the “weight” (defined as the percentage of the
total Index) assigned to each category at the time of each rebalance of the
Index are as follows:
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U.S.
& Canadian Midstream Companies (80%)
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U.S.-
or Canadian-listed companies that (i) have their principal place of
business in the United States or Canada, (ii) elect to be treated as a
corporation for U.S. or Canadian federal income tax purposes, and (iii)
generate a majority of their cash flow or revenue from midstream energy
infrastructure related activities. |
U.S.
Midstream MLPs* (20%)
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U.S.-listed
Midstream MLPs that (i) have their principal place of business in the
United States, (ii) elect to be treated as a partnership for U.S. federal
income tax purposes, (iii) do not pay incentive distribution rights
(“IDRs”), and (iv) are not affiliates of MLP GPs that are owned in the
Index. |
*
If an MLP that would be included in the Index has a tracking stock that is a
corporation or elects to be taxed as a corporation, then such tracking stock
will be included in the Index in place of the MLP and will use the MLP’s
adjusted market capitalization for calculating its weight.
MLPs
are publicly traded partnerships that receive at least 90% of their income from
certain qualifying sources, such as natural resource-based midstream energy
infrastructure activities. The equity interests, or units, of an MLP trade on
public securities exchanges exactly like the shares of a corporation, without
entity level taxation. An MLP typically consists of a general partner and
limited partners. The operations and management of the MLP are controlled by the
general partner, and the general partner typically has an ownership stake in the
MLP and may have certain preferential rights to income from the MLP, such as
IDRs. IDRs provide their owner with a larger share of the aggregate cash
distributions made by a company once such distributions increase to certain
specified levels and are designed to provide the holder of the IDRs with a
strong incentive to increase the MLP’s aggregate cash
distributions.
At
the time of each quarterly rebalance of the Index, each company meeting the
Index’s criteria for the above categories is included in the Index, provided
that the company has a minimum market capitalization of $500
million.
The
Index is rebalanced quarterly, effective on the last trading day of each
calendar quarter. Within each of the above categories, Index constituents are
weighted based on their free-float market capitalization (i.e.,
market capitalization based on the number of shares available to the public),
subject to the following constraints as of the time of each rebalance. Each
individual Index constituent is limited to a weight of 7.25%, and any excess
weight is redistributed equally among the other companies in the same category
first and then to the remaining companies as needed.
Additionally,
the aggregate weight of companies with individual weights greater than 5% (“5%
Companies”) may not exceed 45% as of the time of each rebalance. If the
aggregate weight of the 5% Companies would exceed 45%, the excess weight will be
redistributed proportionally to companies with a weight of less than 4.25%. If
at the time of a rebalance a company’s weight would be between 4.25% and 5%, the
company’s weight will be reduced to 4.25% and the excess redistributed to
companies in the same category with a weight of less than 4.25%.
As
of January 31, 2023, the Index included securities of 30 companies. The Index
was developed by the Index Provider in 2017 in anticipation of the commencement
of operations of the Predecessor Fund (as defined
below).
The
Fund’s Investment Strategy
The
Fund attempts to invest all, or substantially all, of its assets in the
component securities that make up the Index. The Adviser expects that, over
time, the correlation between the Fund’s performance and that of the Index,
before fees and expenses, will be 95% or better. The Fund will generally use a
“replication” strategy to achieve its investment objective, meaning it will
invest in all of the component securities of the Index in the same approximate
proportion as in the Index. The Fund is non-diversified and therefore may invest
a larger percentage of its assets in the securities of a single company than
diversified funds.
To
the extent the Index concentrates (i.e.,
holds more than 25% of its total assets) in the securities of a particular
industry or group of related industries, the Fund will concentrate its
investments to approximately the same extent as the Index. The Index, and
consequently the Fund, is expected to generally be concentrated
in midstream energy infrastructure
companies.
Principal Investment Risks
You can lose money on your investment in the
Fund. The Fund is subject to the risks summarized below. Some or
all of these risks may adversely affect the Fund’s net asset value per Share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s prospectus entitled “Additional Information about the
Principal Risks of Investing in the Fund.” The principal risks are presented in
alphabetical order to facilitate finding particular risks and comparing them
with other funds. Each risk summarized below is considered a “principal risk” of
investing in the Fund, regardless of the order in which it appears.
•Concentration
in the Energy Infrastructure Industry Risk. The
Fund’s investments will be concentrated in an industry or group of industries to
the extent the Index is so concentrated, and the Index is expected to be
concentrated in midstream energy infrastructure companies. When the Fund focuses
its investments in the energy infrastructure industry, financial, economic,
business, and other developments affecting issuers in that industry, market, or
economic sector will have a greater effect on the Fund than if it had not done
so.
Companies
in the energy infrastructure industry are subject to many risks that can
negatively impact the revenues and viability of companies in this industry,
including, but not limited to, risks associated with companies owning and/or
operating pipelines, gathering and processing assets, power infrastructure,
propane assets, as well as capital markets, terrorism, natural disasters,
climate change, operating, regulatory, environmental, supply and demand, and
price volatility risks. The volatility of energy commodity prices can
significantly affect energy companies due to the impact of prices on the volume
of commodities developed, produced, gathered, and processed. Historically,
energy commodity prices have been cyclical and exhibited significant volatility,
which may adversely impact the value, operations, cash flows, and financial
performance of energy companies. The volatility of energy commodity prices can
also indirectly affect certain entities that operate in the midstream segment of
the energy industry due to the impact of prices on the volume of commodities
transported, processed, stored, or distributed.
•Currency
Exchange Rate Risk. The
Fund invests a significant percentage of its assets in investments denominated
in Canadian dollars or in securities that provide exposure to such currency.
Changes in currency exchange rates and the relative value of the Canadian dollar
to the U.S. dollar will affect the value of the Fund’s investment and the value
of your Shares. Currency exchange rates can be very volatile and can change
quickly and unpredictably. As a result, the value of an investment in the Fund
may change quickly and without warning and you may lose money.
•ETF
Risks.
The Fund is an ETF and, as a result of an ETF’s structure, is exposed to the
following risks:
◦Authorized
Participants (“APs”), Market Makers, and Liquidity Providers Concentration
Risk.
The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, shares of the Fund may trade at a material discount to NAV and possibly
face delisting: (i) APs exit the business or otherwise become unable to
process creation and/or redemption orders and no other APs step forward to
perform these services, or (ii) market makers and/or liquidity providers
exit the business or significantly reduce their business activities and no other
entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares of the Fund.
Due to the costs of buying or selling shares of the Fund, including brokerage
commissions imposed by brokers and bid/ask spreads, frequent trading of shares
of the Fund may significantly reduce investment results and an investment in
shares of the Fund may not be advisable for investors who anticipate regularly
making small investments.
◦Shares
of the Fund May Trade at Prices Other Than NAV.
As with all ETFs, shares of the Fund may be bought and sold in the secondary
market at market prices. The price of shares of the Fund, like the price of all
traded securities, will be subject to factors such as supply and demand, as well
as the current value of the Fund’s portfolio holdings. Although it is expected
that the market price of the shares of the Fund will approximate the Fund’s NAV,
there may be times when the market price of the shares is more than the NAV
intra-day (premium) or less than the NAV intra-day (discount). This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for shares in the secondary
market, in which case such premiums or discounts may be significant. Certain
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, and the Fund may experience
premiums and discounts greater than those of ETFs that hold securities that are
traded only in the United States.
◦Trading.
Although shares of the Fund are listed for trading on a national securities
exchange, such as NYSE Arca, Inc. (the “Exchange”), and may be traded on U.S.
exchanges other than the Exchange, there can be no assurance that shares of the
Fund will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of shares of the Fund may begin to mirror the
liquidity of the Fund’s underlying portfolio holdings, which can be
significantly less liquid than shares of the Fund, and this could lead to
differences between the market price of the shares of the Fund and the
underlying value of those shares.
•Equity
Market Risk. The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific industries, sectors or companies in which the Fund invests. Common
stocks are susceptible to general stock market fluctuations and to volatile
increases and decreases in value as market confidence in and perceptions of
their issuers change. The Fund’s NAV and market price may fluctuate
significantly in response to these and other factors. As a result, an investor
could lose money over short or long periods of time.
•Foreign
Securities Risk. Investments
in non-U.S. securities involve certain risks that may not be present with
investments in U.S. securities. For example, investments in non-U.S. securities
may be subject to risk of loss due to foreign currency fluctuations or to
political or economic instability. Investments in non-U.S. securities also may
be subject to withholding or other taxes and may be subject to additional
trading, settlement, custodial, and operational risks. These and other factors
can make investments in the Fund more volatile and potentially less liquid than
other types of investments.
•Geographic
Concentration Risk. To
the extent the Fund invests a significant portion of its assets in the
securities of companies of a single country or region, it is more likely to be
impacted by events or conditions affecting that country or region. The Index’s,
and therefore the Fund’s, heavy equity exposure to Canada subjects the Fund to a
higher degree of country risk than that of more geographically diversified
international funds.
◦Canada-Specific
Risk. The
Canadian economy is reliant on the sale of natural resources and commodities,
which can pose risks such as the fluctuation of prices and the variability of
demand for exportation of such products. Changes in spending on Canadian
products by the economies of other countries or changes in any of these
economies may cause a significant impact on the Canadian economy.
•Index
Provider Risk. There
is no assurance that the Index Provider or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
maintained, constructed, rebalanced, calculated or disseminated accurately. The
Fund relies upon the Index Provider and its agents to compile, determine,
maintain, construct, rebalance, calculate (or arrange for an agent to
calculate), and disseminate the Index accurately. Any losses or costs associated
with errors made by the Index Provider or its agents generally will be borne by
the Fund and its shareholders. Because the Index includes international
securities, the Index Provider may have limited information or may be more prone
to mistakes based on the data available and such mistakes may have a greater
impact on the Fund’s performance, which may increase the risks to the
Fund.
•MLP
Risk. MLP
investment returns are enhanced during periods of declining or low interest
rates and tend to be negatively influenced when interest rates are
rising. In addition, most MLPs are fairly leveraged and typically carry a
portion of a “floating” rate debt. As such, a significant upward swing in
interest rates would also drive interest expense higher. Furthermore, most
MLPs grow by acquisitions partly financed by debt, and higher interest rates
could make it more difficult to make acquisitions. MLP investments also
entail many of the general tax risks of investing in a partnership. Limited
partners in an MLP typically have limited control and limited or no rights to
vote on matters affecting the partnership. Additionally, there is always
the risk that an MLP will fail to qualify for favorable tax
treatment.
•Non-Diversification
Risk. Although the Fund intends to invest in a
variety of securities and instruments, the Fund is considered to be
non-diversified, which means that it may invest more of its assets in the
securities of a single issuer or a smaller number of issuers than if it were a
diversified fund. As a result, the Fund may be more exposed to the risks
associated with and developments affecting an individual issuer or a smaller
number of issuers than a fund that invests more widely. This may increase the
Fund’s volatility and cause the performance of a relatively smaller number of
issuers to have a greater impact on the Fund’s performance.
•Passive
Investment Risk. The
Fund is not actively managed and the Adviser would not sell a security due to
current or projected underperformance of a security, industry or sector, unless
that security is removed from the Index or the selling of shares of that
security is otherwise required upon a reconstitution of the Index in accordance
with the Index methodology. The Fund invests in securities included in the
Index, regardless of their investment merits. The Fund does not take defensive
positions under any market conditions, including conditions that are adverse to
the performance of the Fund.
•Sector
Risk.
To the extent the Fund invests more heavily in particular sectors of the
economy, its performance will be especially sensitive to developments that
significantly affect those sectors.
◦Energy
Sector Risk. The
Fund may invest in companies in the energy sector, and therefore the performance
of the fund could be negatively impacted by events affecting this sector. The
profitability of companies in the energy sector is related to worldwide energy
prices, exploration, and production spending. Such companies also are subject to
risks of changes in exchange rates, government regulation, world events,
depletion of resources and economic conditions, as well as market, economic and
political risks of the countries where energy companies are located or do
business. Oil and gas exploration and production can be significantly affected
by natural disasters. Oil exploration and production companies may be adversely
affected by changes in exchange rates, interest rates, government regulation,
world events, and economic conditions. Oil exploration and production companies
may be at risk for environmental damage claims.
The
energy sector is comprised of energy, energy industrial, energy infrastructure
and energy logistics companies, and will therefore be susceptible to adverse
economic, environmental, business, regulatory or other occurrences affecting
that sector. The energy sector has historically experienced substantial price
volatility. At times, the performance of these investments may lag the
performance of other sectors or the market as a whole. Master Limited
Partnerships (MLPs) and other companies operating in the energy sector are
subject to specific risks, including, among others, fluctuations in commodity
prices; reduced consumer demand for commodities such as oil, natural gas or
petroleum products; reduced availability of natural gas or other commodities for
transporting, processing, storing or delivering; slowdowns in new construction;
extreme weather or other natural disasters; and threats of attack by terrorists
on energy assets. Additionally, energy sector companies are subject to
substantial government regulation and changes in the regulatory environment for
energy companies may adversely impact their profitability. MLPs may incur
environmental costs and liabilities due to the nature of their businesses and
the substances they handle. Changes in existing laws, regulations or enforcement
policies governing the energy sector could significantly increase the compliance
costs of MLPs. Certain MLPs could, from time to time, be held responsible for
implementing remediation measures, the cost of which may not be recoverable from
insurance. Over time, depletion of natural gas reserves and other energy
reserves may also affect the profitability of energy companies.
◦Industrials
Sector Risk.
The industrials sector may be affected by changes in the supply of and demand
for products and services, product obsolescence, claims for environmental damage
or product liability and general economic conditions, among other
factors.
•Small
and Mid-Sized Company Stock Risk. The
Fund may invest in equity securities of small- or mid-sized (based on market
capitalization) companies. Small to mid-sized company securities have
historically been subject to greater investment risk than large company
securities. The prices of small- to mid-sized company securities tend to be more
volatile and less liquid than large company securities.
•Tax
Risk. The
Fund intends to qualify for treatment as a “regulated investment company” (a
“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the
“Code”), by meeting certain source-of-income, asset diversification and annual
distribution requirements. In particular, the Fund generally may not acquire a
security if, as a result of the acquisition, more than 50% of the value of the
Fund’s assets would be invested in (a) issuers in which the Fund has, in each
case, invested more than 5% of the Fund’s assets or (b) issuers more than 10% of
whose outstanding voting securities are owned by the Fund. Additionally, to
qualify for treatment as a RIC the Fund may not invest more than 25% of its
total assets in the securities of entities treated as qualified publicly traded
partnerships (“QPTPs”) for U.S. federal income tax purposes, including certain
MLPs. While the weighting of the Index is not inconsistent with these rules,
given the concentration of the Index in a relatively small number of securities,
it may not always be possible for the Fund to fully implement a replication
strategy or a representative sampling strategy while satisfying these
diversification requirements.
If
the Fund were to fail to qualify as a RIC, the Fund would be subject to tax on
its taxable income at corporate rates, and distributions from earnings and
profits would generally be taxable to Fund shareholders as ordinary income. The
Fund is also subject to the risk that MLPs in which the Fund invest will be
classified as corporations rather than as partnerships for federal income tax
purposes, which may reduce the Fund’s return and negatively affect the Fund’s
net asset value. There is a risk of changes in tax laws or regulations, or
interpretations thereof, which could adversely affect the Fund or the MLPs in
which the Fund invests.
◦MLP
Tax Risk.
Depreciation or other cost recovery deductions passed through to the Fund from
investments in MLPs in a given year will generally reduce the Fund’s taxable
income, but those deductions may be recaptured in the Fund’s income in one or
more subsequent years. When recognized and distributed, recapture income will
generally be taxable to shareholders at the time of the distribution at ordinary
income tax rates, even though those shareholders might not have held Shares at
the time the deductions were taken by the Fund, and even though those
shareholders will not have corresponding economic gain on their Shares at the
time of the recapture. To distribute recapture income or to fund redemption
requests, the Fund may need to liquidate investments. MLPs taxed as partnerships
have historically made cash distributions to limited partners that exceed the
amount of taxable income allocable
to
limited partners or members, due to a variety of factors, including significant
non-cash deductions such as depreciation and depletion. These excess cash
distributions would not be treated as income to the Fund but rather would be
treated as a return of capital to the extent of the Fund’s basis in the MLP. As
a consequence, the Fund may make distributions that exceed its earnings and
profits, which would be recharacterized as a return of capital to shareholders.
A return of capital distribution will generally not be taxable but will reduce
each shareholder’s cost basis in Shares and result in a higher capital gain or
lower capital loss when the Shares are sold. After a shareholder’s basis in
Shares has been reduced to zero, distributions in excess of earnings and profits
in respect of those Shares will be treated as gain from the sale of the
Shares.
•Tracking
Error Risk.
As with all index funds, the performance of the Fund and its Index may differ
from each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
Fund
Performance
The
Fund is the successor to the investment performance of the American Energy
Independence ETF, a series of ETF Series Solutions (the “Predecessor Fund”), as
a result of the reorganization of the Predecessor Fund into the Fund at the
close of business on December 13, 2019. Accordingly, any performance information
for periods prior to December 16, 2019 is that of the Predecessor Fund. The
Predecessor Fund was managed by SL Advisors, LLC and sub-advised by Penserra
Capital Management LLC and had the same investment objective, strategies, and
policies as the Fund since the Predecessor Fund’s inception in December 2017.
The following
performance information indicates some of the risks of investing in the
Fund. The bar chart shows the Fund’s performance (or the
Predecessor Fund’s performance, as applicable) for each full calendar year since
inception. The table illustrates how the Fund’s (or the Predecessor Fund’s, as
applicable) average annual returns for the one-year, five-year, and since
inception periods compare with those of a broad measure of market performance
and the Index. The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is also available on the
Fund’s website at www.PacerETFs.com.
Calendar Year Total
Return
During the period of time shown
in the bar chart, the Fund’s highest quarterly return
was 46.88% for the quarter ended June 30, 2020 and the
lowest quarterly return was
-51.58% for the quarter ended March 31,
2020.
Average
Annual Total Returns
For
the Period Ended December 31, 2022
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Pacer
American Energy Independence ETF |
1
Year |
5
Years |
Since
Inception
(12/12/2017) |
Return Before
Taxes |
20.15% |
6.99% |
7.80% |
Return After Taxes on
Distributions |
19.62% |
6.29% |
7.10% |
Return After Taxes on Distributions and
Sale of Shares |
12.00% |
5.30% |
5.95% |
American
Energy Independence Total Return Index (reflects no deduction for
fees, expenses, or taxes) |
21.29% |
8.23% |
9.07% |
S&P
500®
Index (reflects
no deduction for fees, expenses, or taxes) |
-18.11% |
9.42% |
9.42% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns depend on an
investor’s tax situation and may differ from those shown. In certain cases, the figure
representing “Return After Taxes on Distributions and Sale of Shares” may be
higher than the other return figures for the same period. A higher after-tax
return results when a capital loss occurs upon redemption and provides an
assumed tax deduction that benefits the investor. After-tax returns shown are
not relevant to investors who hold their Fund Shares through tax-deferred
arrangements such as an individual retirement account (“IRA”) or other
tax-advantaged accounts.
Management
Investment
Adviser
Pacer
Advisors, Inc. serves as investment adviser to the Fund.
Portfolio
Managers
The
Fund employs a rules-based, passive investment strategy. The Adviser uses a
committee approach to managing the Fund. Bruce Kavanaugh, Vice President of the
Adviser, and Danke Wang, CFA, Head Portfolio Analyst of the Adviser, have
primary responsibility for the day-to-day management of the Fund. Mr. Kavanaugh
has been a portfolio manager of the Fund since the Fund’s reorganization into
the Trust in December 2019. Mr. Wang has been a portfolio manager of the Fund
since June 2022.
Buying
and Selling Fund Shares
The
Fund is an ETF. This means that individual Shares of the Fund may only be
purchased and sold in the secondary market through brokers at market prices,
rather than NAV. Because Shares trade at market prices rather than NAV, Shares
may trade at a price greater than NAV (premium) or less than NAV
(discount).
The
Fund generally issues and redeems shares at NAV only in large blocks of shares
known as “Creation Units,” which only institutions or large investors may
purchase or redeem. The Fund generally issues and redeems Creation Units in
exchange for a portfolio of securities (the “Deposit Securities”) and/or a
designated amount of U.S. cash that the Fund specifies each day.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its net asset value, market price, premiums and discounts, and bid-ask
spreads is available on the Fund’s website at www.PacerETFs.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an IRA
or other tax-advantaged retirement account. Distributions may be taxable upon
withdrawal from tax-deferred accounts.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase the Fund through a broker or other financial intermediary (such as
a bank), the Adviser and its related companies may pay the intermediary for
activities related to the marketing and 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.
|
| |
Pacer
BlueStar Digital Entertainment ETF |
Investment Objective
The Pacer BlueStar Digital Entertainment
ETF (the “Fund”) employs a “passive management” (or indexing)
investment approach designed to track the total return performance, before fees
and expenses, of the BlueStar Global Online Gambling, Video Gaming, and eSports
Index (the “Index”).
Fees and Expenses of the
Fund
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”).
You may pay other fees, such as brokerage commissions and other fees to
financial intermediaries, which are not reflected in the table and Example
below.
|
|
|
|
| |
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
|
Management
Fees |
0.60% |
Distribution
and/or Service (12b-1) Fees |
None |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.60% |
Example
The following example
is intended to help retail investors compare the cost of investing in the Fund
with the cost of investing in other funds. It illustrates the hypothetical
expenses that such investors would incur over various periods if they were to
invest $10,000 in the Fund for the time periods indicated and then redeem all of
the Shares at the end of those periods. This example assumes that the Fund
provides a return of 5% a year and that operating expenses remain the
same. Although your actual costs may be higher
or lower, based on these assumptions, your costs would be:
|
|
|
|
|
|
|
|
|
|
| |
1
Year |
3
Years |
5
Years |
10
Years |
$61 |
$192 |
$335 |
$750 |
Portfolio
Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund Shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. During the fiscal period from
April 7, 2022 to October 31, 2022, the Fund’s portfolio turnover rate was
33% of the average value of its
portfolio.
Principal Investment Strategies of the
Fund
The
Fund employs a “passive management” (or indexing) investment approach designed
to track the total return performance, before fees and expenses, of the
Index.
BlueStar
Global Online Gambling, Video Gaming, and eSports Index
The
Index is a rules-based index that consists of globally-listed stocks and
depositary receipts of digital entertainment companies, as described below.
Companies eligible to be added to the Index are those that derive at least 50%
of their revenues from the following activities: online gambling platforms or
software related to online gambling; video game development and software related
to the development of video games or hardware such as computer processors and
graphics cards used in video gaming systems, controllers, headsets, and gaming
consoles; and streaming services or video games and/or hardware for use in
eSports events or that are involved in eSports events such as league operators,
teams, distributors and platforms, (collectively, “Digital Entertainment”) as
determined by MV Index Solutions (the “Index Provider”).
To
be added to the Index, an Index component must derive at least 50% of its
revenue from Digital Entertainment; and must have a market capitalization
greater than or equal to US$150 million; a three-month
average-daily-value-traded of at least US$1 million at the current
reconstitution and also at the previous two quarters; and average monthly volume
of at least 250,000 shares over the last six months at the current
reconstitution and also at the previous two quarters. Current components are
eligible to remain in the Index if they derive at least 25% of their revenue
from Digital Entertainment; and they meet the following reduced thresholds: a
market capitalization exceeding US$75 million; a three-month
average-daily-trading value of at least US$600,000 at the current reconstitution
or at one of the previous two quarters; and at least 200,000 shares traded per
month over the last six months at the current reconstitution or at one of the
previous two quarters. The above criteria are referred to as the Index’s
“Investibility Requirements.” The Index may include companies of any market
capitalization that meets the Investibility Requirements, but has significant
exposure to large- and mid-capitalization companies.
Index
components are divided into two tiers: The first tier consists of companies that
develop or operate online gambling or betting platforms or related software
(“Online Gambling Companies”). The second tier consists of companies that (i)
develop and/or publish video games, facilitate the streaming or distribution of
video games, or produce hardware used in video games (e.g.,
computer processors and graphics cards used in video gaming systems,
controllers, headsets, and gaming consoles); (ii) develop or operate streaming
services, video games, or hardware for use in eSports events; or (iii) are
involved in eSports events, such as league operators, teams, distributors, and
platforms (collectively, “eSports Companies”). eSports are a form of competition
using video games, often taking the form of organized, multiplayer video game
competitions, and eSports companies include augmented and virtual reality video
games.
At
the time of each quarterly rebalance and reconstitution of the Index, companies
meeting the Investibility Requirements are added to the Index based on their
free-float market capitalization (from largest to smallest) until the aggregate
free-float market capitalization of companies in the Index from the applicable
tier is at least 90% of the free-float market capitalization of all companies
from such tier that meet the Investibility Requirements. For example, if the
aggregate free-float market capitalization of all eSports Companies meeting the
Investibility Requirements was US$1.5 trillion, the largest eSports Companies
meeting the Investibility Requirements would be included in the Index until
their aggregate free-float market capitalization was at least US$1.35 trillion.
The next largest company from each tier will continue to be added to the Index
until at least 25 companies from each tier are included.
At
the time of each quarterly review of the Index, each tier is assigned a weight
of 50%. Within each tier, companies in the Index are initially weighted by their
float-adjusted market capitalization, subject to a maximum weight of 8% for any
individual security (3% for companies in the semiconductor industry) and
adjustments downward based on certain liquidity criteria. Excess weight
resulting from any such adjustments is redistributed among the remaining
constituents in the applicable tier equally. The aggregate weight of
constituents with a weight of 5% or greater is capped at 50%. In addition, the
aggregate weight of companies earning less than 50% of their revenues from
Digital Entertainment is capped at 20%.
The
Index is rebalanced and reconstituted quarterly after the close of business on
the third Friday of March, June, September, and December based on the data of
the Wednesday prior to the second Friday of such reconstitution month.
As
of January 31, 2023, the Index was composed of 50 constituents, 35 of which were
listed on a non-U.S. exchange. The Index was established in 2022 and is owned
and maintained by the Index Provider.
The
Fund’s Investment Strategy
The
Adviser expects that, over time, the correlation between the Fund’s performance
and that of the Index, before fees and expenses, will be 95% or better. The Fund
will generally use a “replication” strategy to achieve its investment objective,
meaning it will invest in all of the component securities of the
Index.
Under
normal circumstances, at least 80% of the Fund’s net assets (plus any borrowings
for investment purposes) will be invested in companies that derive at least 50%
of their revenues from Digital Entertainment, as defined above.
As
of January 31, 2023, the Index had significant exposure to the consumer
discretionary and communication services sectors and significant exposure to
Chinese and European companies. To the extent the Index
concentrates (i.e.,
holds
more than 25% of its total assets) in the
securities of a particular industry or group of related industries, the Fund
will seek to concentrate its investments to approximately the same extent as the
Index. The Index, and consequently the Fund, is expected to be concentrated in
Digital Entertainment companies. The Fund is non-diversified
and therefore may invest a larger percentage of its assets in the securities of
a single issuer or small number of issuers than diversified
funds.
Principal Risks of Investing in the
Fund
You can lose money on your investment in the
Fund. The Fund is subject to the risks summarized below. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s prospectus entitled “Additional Information about the
Principal Risks of Investing in the Funds.” The principal risks are presented in
alphabetical order to facilitate finding particular risks and comparing them
with other funds. Each risk summarized below is considered a “principal risk” of
investing in the Fund, regardless of the order in which it appears.
•Concentration
in Digital Entertainment Companies Risk. Companies
in the business of betting or online gambling include those directly engaged in
casino operations, racetrack operations, sports and horse race betting
operations, and online betting operations. Online Gambling Companies face
intense competition and are highly regulated. These companies face regulatory
challenges and heightened competition as more states begin to allow betting and
online gambling activities.
eSports
Companies are subject to intense global competition and may be smaller companies
with limited product lines, markets, financial resources, or personnel. Such
companies may be heavily dependent on patent and intellectual property rights
and may be prone to operational and information security risks resulting from
cyber-attacks and/or technological malfunctions. eSports Companies may have
products that face rapid obsolescence and may be dependent on one or a small
number of products or product franchises for a significant portion of their
revenue and profits. They may also be subject to shifting consumer preferences,
including preferences with respect to gaming console platforms and other forms
of entertainment, and changes in consumer discretionary spending, all of which
may change rapidly and cannot necessarily be predicted. eSports Companies are
also subject to increasing regulatory constraints, particularly with respect to
cybersecurity and privacy, and may be subject to sophisticated intellectual
property infringement schemes and piracy efforts.
•Currency
Exchange Rate Risk. The
Fund may invest a significant percentage of its assets in investments
denominated in a foreign currency or in securities that provide exposure to such
currency. Changes in currency exchange rates and the relative value of such
currency to the U.S. dollar will affect the value of the Fund’s investment and
the value of your Shares. Currency exchange rates can be very volatile and can
change quickly and unpredictably. As a result, the value of an investment in the
Fund may change quickly and without warning and you may lose money.
•Depositary
Receipt Risk. Depositary
Receipts involve risks similar to those associated with investments in foreign
securities, such as changes in political or economic conditions of other
countries and changes in the exchange rates of foreign currencies. Depositary
Receipts listed on U.S. exchanges are issued by banks or trust companies and
entitle the holder to all dividends and capital gains that are paid out on the
underlying foreign shares (“Underlying Shares”). When the Fund invests in
Depositary Receipts as a substitute for an investment directly in the Underlying
Shares, the Fund is exposed to the risk that the Depositary Receipts may not
provide a return that corresponds precisely with that of the Underlying
Shares.
•Equity
Market Risk. The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific industries, sectors or companies in which the Fund invests. Common
stocks are susceptible to general stock market fluctuations and to volatile
increases and decreases in value as market confidence in and perceptions of
their issuers change. The Fund’s NAV and market price may fluctuate
significantly in response to these and other factors. As a result, an investor
could lose money over short or long periods of time.
•ETF
Risks.
The Fund is an ETF and, as a result of an ETF’s structure, is exposed to the
following risks:
◦Authorized
Participants (“APs”), Market Makers, and Liquidity Providers Concentration
Risk.
The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of
market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, shares of the Fund may trade at a material discount
to NAV and possibly face delisting: (i) APs exit the business or otherwise
become unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Cash
Redemption Risk. The
Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. The Fund may be
required to sell or unwind portfolio investments to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to recognize a capital
gain that it might not have recognized if it had made a redemption in-kind. As a
result, the Fund may pay out higher annual capital gain distributions than if
the in-kind redemption process was used.
◦Costs
of Buying or Selling Shares of the Fund.
Due to the costs of buying or selling shares of the Fund, including brokerage
commissions imposed by brokers and bid/ask spreads, frequent trading of shares
of the Fund may significantly reduce investment results and an investment in
shares of the Fund may not be advisable for investors who anticipate regularly
making small investments.
◦Shares
of the Fund May Trade at Prices Other Than NAV.
As with all ETFs, shares of the Fund may be bought and sold in the secondary
market at market prices. The price of shares of the Fund, like the price of all
traded securities, will be subject to factors such as supply and demand, as well
as the current value of the Fund’s portfolio holdings. Although it is expected
that the market price of the shares of the Fund will approximate the Fund’s NAV,
there may be times when the market price of the shares is more than the NAV
intra-day (premium) or less than the NAV intra-day (discount). This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for shares in the secondary
market, in which case such premiums or discounts may be significant. Because
certain securities held by the Fund trade on foreign exchanges that are closed
when the Fund’s primary listing exchange is open, the Fund is likely to
experience premiums and discounts greater than those of domestic
ETFs.
◦Trading.
Although shares of the Fund are listed for trading on a national securities
exchange, such as The Nasdaq Stock Market LLC (the “Exchange”), and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
shares of the Fund will trade with any volume, or at all, on any stock exchange.
In stressed market conditions, the liquidity of shares of the Fund may begin to
mirror the liquidity of the Fund’s underlying portfolio holdings, which can be
significantly less liquid than shares of the Fund, and this could lead to
differences between the market price of the shares of the Fund and the
underlying value of those shares.
•Foreign
Securities Risk. Investments
in non-U.S. securities involve certain risks that may not be present with
investments in U.S. securities. For example, investments in non-U.S. securities
may be subject to risk of loss due to foreign currency fluctuations or to
political or economic instability. Investments in non-U.S. securities also may
be subject to withholding or other taxes and may be subject to additional
trading, settlement, custodial, and operational risks. These and other factors
can make investments in the Fund more volatile and potentially less liquid than
other types of investments. Companies in many foreign markets are not subject to
the same degree of regulatory requirements, accounting standards or auditor
oversight as companies in the U.S., and as a result, information about the
securities in which the Fund invests may be less reliable or complete. Foreign
markets often have less reliable securities valuations and greater risk
associated with the custody of securities than the U.S. There may be significant
obstacles to obtaining information necessary for investigations into or
litigation against companies and shareholders may have limited legal remedies.
•Geographic
Concentration Risk.
To the extent the Fund invests a significant portion of its assets in the
securities of companies of a single country or region, it is more likely to be
impacted by events or conditions affecting that country or region. The Index’s,
and therefore the Fund’s, heavy equity exposure to China and Europe subjects the
Fund to a higher degree of country risk than that of more geographically
diversified international funds.
◦Risks
of Investing in China. Investments
in Chinese issuers subject the Fund to risks specific to China. China may be
subject to considerable degrees of economic, political and social instability.
China is a developing market and demonstrates significantly higher volatility
from time to time in comparison to developed markets. Over the past 25 years,
the Chinese government has undertaken reform of economic and market practices
and is expanding the sphere of private ownership of property in China. However,
Chinese markets generally continue to experience inefficiency, volatility and
pricing anomalies resulting from governmental influence, a lack of publicly
available information and/or political and social instability. Internal social
unrest or confrontations with other neighboring countries, including military
conflicts in response to such events, may also disrupt economic development in
China and result in a greater risk of currency fluctuations, currency
convertibility, interest rate fluctuations and higher rates of inflation. Export
growth continues to be a major driver of China’s rapid economic growth.
Reduction in spending on Chinese products and services, institution of tariffs
or other trade barriers, or a downturn in any of the economies of China’s key
trading partners may have an adverse impact on the Chinese economy. China is
also vulnerable economically to the impact of a public health crisis, which
could depress consumer demand, reduce economic output, and potentially lead to
market closures, travel restrictions, and quarantines, all of which would
negatively impact China’s economy and could affect the economies of its trading
partners.
◦Risks
Related to Investing in Europe.
The economies and markets of European countries are often closely connected and
interdependent, and events in one country in Europe can have an adverse impact
on other European countries. The Fund makes investments in securities of issuers
that are domiciled in, or have significant operations in, member countries of
the European Union (“EU”) that are subject to economic and monetary controls
that can adversely affect the Fund’s investments. The European financial markets
have experienced volatility and adverse trends in recent years and these events
have adversely affected the exchange rate of the euro and may continue to
significantly affect other European countries. Decreasing imports or exports,
changes in governmental or EU regulations on trade, changes in the exchange rate
of the euro, the default or threat of default by an EU member country on its
sovereign debt, and/or an economic recession in an EU member country may have a
significant adverse effect on the economies of EU member countries and their
trading partners, including some or all of the European countries in which the
Fund invests.
The
UK formally exited from the EU on January 31, 2020 (known as “Brexit”), and
effective December 31, 2020, the UK ended a transition period during which it
continued to abide by the EU’s rules and the UK’s trade relationships with the
EU were generally unchanged. Following this transition period, the impact on the
UK and European economies and the broader global economy could be significant,
resulting in negative impacts, such as increased volatility and illiquidity, and
potentially lower economic growth of markets in the UK, Europe and globally,
which may adversely affect the value of the Fund’s investments.
•Index
Provider Risk. There
is no assurance that the Index Provider or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
maintained, constructed, rebalanced, calculated or disseminated accurately. The
Fund relies upon the Index Provider and its agents to compile, determine,
maintain, construct, rebalance, calculate (or arrange for an agent to
calculate), and disseminate the Index accurately. Any losses or costs associated
with errors made by the Index Provider or its agents generally will be borne by
the Fund and its shareholders. Because the Index includes international
securities, the Index Provider may have limited information or may be more prone
to mistakes based on the data available and such mistakes may have a greater
impact on the Fund’s performance, which may increase the risks to the
Fund.
•Limited
Operating History.
The Fund is a recently organized management investment company with limited
operating history. As a result, prospective investors have a limited track
record on which to base their investment decision. An investment in the Fund may
therefore involve greater uncertainty than an investment in a fund with a more
established record of performance.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing.
The securities of large-capitalization companies may be relatively mature
compared to smaller companies and therefore subject to slower growth during
times of economic expansion.
◦Mid-Capitalization
Investing.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large-capitalization stocks or the stock market
as a whole.
•Non-Diversification
Risk. Although the Fund intends to invest in a
variety of securities and instruments, the Fund is considered to be
non-diversified, which means that it may invest more of its assets in the
securities of a single issuer or a smaller number of issuers than if it were a
diversified fund. As a result, the Fund may be more exposed to the risks
associated with and developments affecting an individual issuer or a smaller
number of issuers than a fund that invests more widely. This may increase the
Fund’s volatility and cause the performance of a relatively smaller number of
issuers to have a greater impact on the Fund’s performance.
•Passive
Investment Risk. The
Fund is not actively managed and the Adviser would not sell a security due to
current or projected underperformance of a security, industry or sector, unless
that security is removed from the Index or the selling of shares of that
security is otherwise required upon a reconstitution of the Index in accordance
with the Index methodology. The Fund invests in securities included in the
Index, regardless of their investment merits. The Fund does not take defensive
positions under any market conditions, including conditions that are adverse to
the performance of the Fund.
•Sector
Risk. To
the extent the Fund invests more heavily in particular sectors of the economy,
its performance will be especially sensitive to developments that significantly
affect those sectors.
◦Communications
Services Sector Risk. The
Fund is generally expected to invest significantly in companies in the
communications services sector, and therefore the performance of the Fund could
be negatively impacted by events affecting this sector. Communications services
companies are subject to extensive government regulation. The costs of complying
with governmental regulations, delays or failure to receive required regulatory
approvals, or the enactment of new adverse regulatory requirements may adversely
affect the business of the such companies. Companies in the communications
services sector can also be significantly affected by intense competition,
including competition with alternative technologies such as wireless
communications (including with 5G and other technologies), product
compatibility, consumer preferences, rapid product obsolescence, and research
and development of new products. Technological innovations may make the products
and services of such companies obsolete.
◦Consumer
Discretionary Sector Risk.
The Fund may invest in companies in the consumer discretionary sector, and
therefore the performance of the Fund could be negatively impacted by events
affecting this sector. The success of consumer product manufacturers and
retailers is tied closely to the performance of domestic and international
economies, interest rates, exchange rates, competition, consumer confidence,
changes in demographics and consumer preferences. Companies in the consumer
discretionary sector depend heavily on disposable household income and consumer
spending, and may be strongly affected by social trends and marketing campaigns.
These companies may be subject to severe competition, which may have an adverse
impact on their profitability.
•Tracking
Error Risk.
As with all index funds, the performance of the Fund and its Index may differ
from each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
Fund
Performance
Performance information for the Fund is not
included because the Fund did not have a full calendar year of performance prior
to the date of this Prospectus. In the future, performance for
the Fund will be presented in this section. Updated performance information will
be available on the Fund’s website at www.PacerETFs.com
or by calling the Fund toll-free at 1-877-337-0500.
Management
Investment
Adviser
Pacer
Advisors, Inc. (the “Adviser”) serves as investment adviser to the
Fund.
Portfolio
Managers
Bruce
Kavanaugh, Vice President of the Adviser, and Danke Wang, CFA, Portfolio Manager
for the Adviser, are jointly and primarily responsible for the day-to-day
management of the Fund. Mr. Kavanaugh has served as a portfolio manager since
the Fund’s inception and Mr. Wang has served as a portfolio manager since June
2022.
Buying
and Selling Fund Shares
The
Fund is an ETF. This means that individual Shares of the Fund may only be
purchased and sold in the secondary market through brokers at market prices,
rather than NAV. Because Shares trade at market prices rather than NAV, Shares
may trade at a price greater than NAV (premium) or less than NAV
(discount).
The
Fund generally issues and redeems shares at NAV only in large blocks of shares
known as “Creation Units,” which only institutions or large investors may
purchase or redeem. The Fund generally issues and redeems Creation Units in
exchange for a portfolio of securities (the “Deposit Securities”) and/or a
designated amount of U.S. cash that the Fund specifies each day.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its net asset value, market price, premiums and discounts, and bid-ask
spreads is available on the Fund’s website at www.PacerETFs.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an IRA
or other tax-advantaged retirement account. Distributions may be taxable upon
withdrawal from tax-deferred accounts.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase the Fund through a broker or other financial intermediary (such as
a bank), the Adviser, and their related companies may pay the intermediary for
activities related to the marketing and promotion of the Fund. These payments
may create a conflict of interest by influencing the broker-dealer or other
intermediary and your sales person to recommend the Fund over another
investment. Ask your sales person or visit your financial intermediary’s website
for more information.
|
| |
Pacer
BlueStar Engineering the Future ETF |
Investment Objective
The Pacer BlueStar Engineering the Future
ETF (the “Fund”) employs a “passive management” (or indexing)
investment approach designed to track the total return performance, before fees
and expenses, of the BlueStar Robotics and 3D Printing Index (the
“Index”).
Fees and Expenses of the
Fund
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
|
|
|
|
| |
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
|
Management
Fees |
0.60% |
Distribution
and/or Service (12b-1) Fees |
None |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.60% |
Example
The following example
is intended to help retail investors compare the cost of investing in the Fund
with the cost of investing in other funds. It illustrates the hypothetical
expenses that such investors would incur over various periods if they were to
invest $10,000 in the Fund for the time periods indicated and then redeem all of
the Shares at the end of those periods. This example assumes that the Fund
provides a return of 5% a year and that operating expenses remain the
same.Although your actual costs may be higher
or lower, based on these assumptions, your costs would be:
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|
|
|
|
|
|
|
|
|
| |
1
Year |
3
Years |
5
Years |
10
Years |
$61 |
$192 |
$335 |
$750 |
Portfolio
Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund Shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. During the fiscal period from
May 4, 2022 to October 31, 2022, the Fund’s portfolio turnover rate was
0% of the average value of its
portfolio.
Principal Investment Strategies of the
Fund
The
Fund employs a “passive management” (or indexing) investment approach designed
to track the total return performance, before fees and expenses, of the
Index.
BlueStar
Robotics and 3D Printing Index
The
Index is a rules-based index that consists of globally-listed stocks and
depositary receipts of companies that, at the time of being added to the Index,
derive at least 50% of their revenues (25% for current Index components) from
robots or manufacturing automation equipment (“robotics”); computer aided design
(“CAD”) software; or 3D printing centers, 3D printing hardware, 3D printing
simulation software, 3D scanning and measurement software, and 3D printing
materials (collectively, “Robotics and 3D Printing Companies”), as determined by
MV Index Solutions (the “Index Provider”).
To
be added to the Index, an Index component must have a market capitalization
greater than or equal to US$500 million; a three-month
average-daily-value-traded of at least US$1 million at the current
reconstitution and also at the previous two quarters; and average monthly volume
of at least 250,000 shares over the last six months at the current
reconstitution and also at the previous two quarters. Current components will
remain eligible for selection to the Index if they meet the following, reduced
thresholds: a market capitalization exceeding US$250 million; a three-month
average-daily-value-traded of at least US$500,000 in at least two of the latest
three quarters (including the current reconstitution); and a three-month
average-daily-trading value of at least US$750,000 at the current reconstitution
or at one of the previous two
quarters.
The above criteria are referred to as the Index’s “Investibility Requirements.”
The Index may include companies of any market capitalization that meets the
Investibility Requirements, but has significant exposure to large- and
mid-capitalization companies.
At
the time of each semi-annual reconstitution of the Index, the Index components
are initially weighted by their float-adjusted market capitalization within
three tiers:
Tier
1 Robotics and Manufacturing Automation Equipment (50% weight):
includes companies that derive at least 50% of their revenues (25% for current
components) from the development of industrial or agricultural robots and
production systems, automated inventory management, voice/image/text recognition
solutions for the industrial market, and medical robots or robotic instruments
(“Robotics Companies”). “Robotics” involves the design, construction, and
operation of machines that perform tasks that would otherwise be done by humans.
Tier
2 3D Printing (25% weight):
includes companies that derive at least 50% of their revenues (25% for current
components) from the following business lines: 3D printing hardware, 3D printing
simulation software, 3D printing centers, 3D scanning and measurement software
(e.g.,
software used for creating 3D models, augmented reality, motion capture, robotic
mapping, and 3D printing), and 3D printing materials.
Tier
3 Computer Aided Design Software (25% weight):
includes companies that derive at least 50% of their revenues (25% for current
components) from: development of CAD software to aid in the creation,
modification, analysis, or optimization of a design. CAD software has many uses,
including applications in the automotive, shipbuilding, and aerospace
industries. CAD software is also used in industrial and architectural design,
medical device design, and digital content creation (e.g.,
computer animation for special effects).
At
the time of each semi-annual rebalance and reconstitution of the Index, Robotics
and 3D Printing Companies meeting the Investibility Requirements are added to
the Index based on their free-float market capitalization (from largest to
smallest) until the aggregate free-float market capitalization of companies in
the Index from the applicable tier is at least 98% of the free-float market
capitalization of all companies from such tier that meet the Investibility
Requirements. For example, if the aggregate free-float market capitalization of
all Robotics Companies meeting the Investibility Requirements was
US$1 trillion, the largest Robotics Companies meeting the Investibility
Requirements would be included in the Index until their aggregate free-float
market capitalization was at least US$980 billion. The next largest company from
each tier will continue to be added to the Index until at least 25 Robotics
Companies, ten 3D Printing companies, and ten CAD Software companies are
included.
Index
components are subject to a maximum weight of 8% for any individual security and
adjustments downward based on certain liquidity criteria. An additional rule is
applied to ensure that the aggregate weight of constituents with a weight of 5%
or greater does not exceed 50%.
The
Index is rebalanced and reconstituted semi-annually after the close of business
on the third Thursday of June and December based on the data of the first
Thursday of such reconstitution month.
As
of January 31, 2023, the Index was composed of 52 constituents, 31 of which were
listed on a non-U.S. exchange. The Index was established in 2022 and is owned
and maintained by the Index Provider.
The
Fund’s Investment Strategy
The
Adviser expects that, over time, the correlation between the Fund’s performance
and that of the Index, before fees and expenses, will be 95% or better. The Fund
will generally use a “replication” strategy to achieve its investment objective,
meaning it will invest in all of the component securities of the
Index.
As
of February 15, 2022, the Index had significant exposure to the industrials and
information technology sectors and had significant exposure to Japanese and
European companies. To the extent the Index
concentrates (i.e., holds more than 25% of its total assets)
in the securities of a particular industry or group of related industries, the
Fund will seek to concentrate its investments to approximately the same extent
as the Index. The Index, and consequently the Fund, is expected to be
concentrated in Robotics and 3D Printing Companies. The Fund
is non-diversified and therefore may invest a larger percentage of its assets in
the securities of a single issuer or small number of issuers than diversified
funds.
Principal Risks of Investing in the
Fund
You can lose money on your investment in the
Fund. The Fund is subject to the risks summarized below. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s prospectus entitled “Additional Information about the
Principal Risks of Investing in the Funds.” The principal risks are presented in
alphabetical order to facilitate finding particular risks and comparing them
with other funds. Each risk summarized below is considered a “principal risk” of
investing in the Fund, regardless of the order in which it appears.
•Concentration
in Robotics and 3D Printing Companies Risk. The
Robotics and 3D Printing industry can be significantly affected by intense
competition, aggressive pricing, technological innovations, and product
obsolescence. Companies in the software industry are subject to significant
competitive pressures, such as aggressive pricing, new market entrants,
competition for market share, short product cycles due to an accelerated rate of
technological developments and the potential for limited earnings and/or falling
profit margins. These companies also face the risks that new services, equipment
or technologies will not be accepted by consumers and businesses or will become
rapidly obsolete. These factors can affect the profitability of these companies
and, as a result, the value of their securities. Also, patent protection is
integral to the success of many companies in this industry, and profitability
can be affected materially by, among other things, the cost of obtaining (or
failing to obtain) patent approvals, the cost of litigating patent infringement
and the loss of patent protection for products (which significantly increases
pricing pressures and can materially reduce profitability with respect to such
products). In addition, many software companies have limited operating
histories. Prices of these companies’ securities historically have been more
volatile than other securities, especially over the short term.
•Currency
Exchange Rate Risk. The
Fund may invest a significant percentage of its assets in investments
denominated in a foreign currency or in securities that provide exposure to such
currency. Changes in currency exchange rates and the relative value of such
currency to the U.S. dollar will affect the value of the Fund’s investment and
the value of your Shares. Currency exchange rates can be very volatile and can
change quickly and unpredictably. As a result, the value of an investment in the
Fund may change quickly and without warning and you may lose money.
•Depositary
Receipt Risk. Depositary
Receipts involve risks similar to those associated with investments in foreign
securities, such as changes in political or economic conditions of other
countries and changes in the exchange rates of foreign currencies. Depositary
Receipts listed on U.S. exchanges are issued by banks or trust companies and
entitle the holder to all dividends and capital gains that are paid out on the
underlying foreign shares (“Underlying Shares”). When the Fund invests in
Depositary Receipts as a substitute for an investment directly in the Underlying
Shares, the Fund is exposed to the risk that the Depositary Receipts may not
provide a return that corresponds precisely with that of the Underlying
Shares.
•Equity
Market Risk. The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific industries, sectors or companies in which the Fund invests. Common
stocks are susceptible to general stock market fluctuations and to volatile
increases and decreases in value as market confidence in and perceptions of
their issuers change. The Fund’s NAV and market price may fluctuate
significantly in response to these and other factors. As a result, an investor
could lose money over short or long periods of time.
•ETF
Risks.
The Fund is an ETF and, as a result of an ETF’s structure, is exposed to the
following risks:
◦Authorized
Participants (“APs”), Market Makers, and Liquidity Providers Concentration
Risk.
The Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, shares of the Fund may trade at a material discount to NAV and possibly
face delisting: (i) APs exit the business or otherwise become unable to
process creation and/or redemption orders and no other APs step forward to
perform these services, or (ii) market makers and/or liquidity providers
exit the business or significantly reduce their business activities and no other
entities step forward to perform their functions.
◦Cash
Redemption Risk. The
Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. The Fund may be
required to sell or unwind portfolio investments to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to recognize a capital
gain that it might not have recognized if it had made a redemption in-kind. As a
result, the Fund may pay out higher annual capital gain distributions than if
the in-kind redemption process was used.
◦Costs
of Buying or Selling Shares of the Fund.
Due to the costs of buying or selling shares of the Fund, including brokerage
commissions imposed by brokers and bid/ask spreads, frequent trading of shares
of the Fund may significantly reduce investment results and an investment in
shares of the Fund may not be advisable for investors who anticipate regularly
making small investments.
◦Shares
of the Fund May Trade at Prices Other Than NAV.
As with all ETFs, shares of the Fund may be bought and sold in the secondary
market at market prices. The price of shares of the Fund, like the price of all
traded securities, will be subject to factors such as supply and demand, as well
as the current value of the Fund’s portfolio holdings. Although it is expected
that the market price of the shares of the Fund will approximate the Fund’s NAV,
there may be times when the market price of the shares is more than the NAV
intra-day (premium) or less than the NAV intra-day (discount). This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for shares in the secondary
market, in which case such premiums or discounts may be significant. Because
certain securities held by the Fund trade on foreign exchanges that are closed
when the Fund’s primary listing exchange is open, the Fund is likely to
experience premiums and discounts greater than those of domestic
ETFs.
◦Trading.
Although shares of the Fund are listed for trading on a national securities
exchange, such as The Nasdaq Stock Market LLC (the “Exchange”), and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
shares of the Fund will trade with any volume, or at all, on any stock exchange.
In stressed market conditions, the liquidity of shares of the Fund may begin to
mirror the liquidity of the Fund’s underlying portfolio holdings, which can be
significantly less liquid than shares of the Fund, and this could lead to
differences between the market price of the shares of the Fund and the
underlying value of those shares.
•Foreign
Securities Risk. Investments
in non-U.S. securities involve certain risks that may not be present with
investments in U.S. securities. For example, investments in non-U.S. securities
may be subject to risk of loss due to foreign currency fluctuations or to
political or economic instability. Investments in non-U.S. securities also may
be subject to withholding or other taxes and may be subject to additional
trading, settlement, custodial, and operational risks. These and other factors
can make investments in the Fund more volatile and potentially less liquid than
other types of investments. Companies in many foreign markets are not subject to
the same degree of regulatory requirements, accounting standards or auditor
oversight as companies in the U.S., and as a result, information about the
securities in which the Fund invests may be less reliable or complete. Foreign
markets often have less reliable securities valuations and greater risk
associated with the custody of securities than the U.S. There may be significant
obstacles to obtaining information necessary for investigations into or
litigation against companies and shareholders may have limited legal remedies.
•Geographic
Concentration Risk. To
the extent the Fund invests a significant portion of its assets in the
securities of companies of a single country or region, it is more likely to be
impacted by events or conditions affecting that country or region. The Index’s,
and therefore the Fund’s, heavy equity exposure to Japan and Europe subjects the
Fund to a higher degree of country risk than that of more geographically
diversified international funds.
◦Risks
Related to Investing in Europe.
The economies and markets of European countries are often closely connected and
interdependent, and events in one country in Europe can have an adverse impact
on other European countries. The Fund makes investments in securities of issuers
that are domiciled in, or have significant operations in, member countries of
the European Union (“EU”) that are subject to economic and monetary controls
that can adversely affect the Fund’s investments. The European financial markets
have experienced volatility and adverse trends in recent years and these events
have adversely affected the exchange rate of the euro and may continue to
significantly affect other European countries. Decreasing imports or
exports,
changes in governmental or EU regulations on trade, changes in the exchange rate
of the euro, the default or threat of default by an EU member country on its
sovereign debt, and/or an economic recession in an EU member country may have a
significant adverse effect on the economies of EU member countries and their
trading partners, including some or all of the European countries in which the
Fund invests.
The
UK formally exited from the EU on January 31, 2020 (known as “Brexit”), and
effective December 31, 2020, the UK ended a transition period during which it
continued to abide by the EU’s rules and the UK’s trade relationships with the
EU were generally unchanged. Following this transition period, the impact on the
UK and European economies and the broader global economy could be significant,
resulting in negative impacts, such as increased volatility and illiquidity, and
potentially lower economic growth of markets in the UK, Europe and globally,
which may adversely affect the value of the Fund’s investments.
◦Risks
Related to Investing in Japan.
The Japanese economy may be subject to considerable degrees of economic,
political and social instability, which could have a negative impact on Japanese
securities. Since the year 2000, Japan’s economic growth rate has remained
relatively low and it may remain low in the future. In addition, Japan is
subject to the risk of natural disasters, such as earthquakes, volcanoes,
typhoons and tsunamis. Additionally, decreasing U.S. imports, new trade
regulations, changes in the U.S. dollar exchange rates, a recession in the
United States or continued increases in foreclosure rates may have an adverse
impact on the economy of Japan. Japan also has few natural resources, and any
fluctuation or shortage in the commodity markets could have a negative impact on
Japanese securities.
•Index
Provider Risk. There
is no assurance that the Index Provider or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
maintained, constructed, rebalanced, calculated or disseminated accurately. The
Fund relies upon the Index Provider and its agents to compile, determine,
maintain, construct, rebalance, calculate (or arrange for an agent to
calculate), and disseminate the Index accurately. Any losses or costs associated
with errors made by the Index Provider or its agents generally will be borne by
the Fund and its shareholders. Because the Index includes international
securities, the Index Provider may have limited information or may be more prone
to mistakes based on the data available and such mistakes may have a greater
impact on the Fund’s performance, which may increase the risks to the
Fund.
•Limited
Operating History.
The Fund is a recently organized management investment company with limited
operating history. As a result, prospective investors have a limited track
record on which to base their investment decision. An investment in the Fund may
therefore involve greater uncertainty than an investment in a fund with a more
established record of performance.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing.
The securities of large-capitalization companies may be relatively mature
compared to smaller companies and therefore subject to slower growth during
times of economic expansion.
◦Mid-Capitalization
Investing.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large-capitalization stocks or the stock market
as a whole.
•Non-Diversification
Risk. Although the Fund intends to invest in a
variety of securities and instruments, the Fund is considered to be
non-diversified, which means that it may invest more of its assets in the
securities of a single issuer or a smaller number of issuers than if it were a
diversified fund. As a result, the Fund may be more exposed to the risks
associated with and developments affecting an individual issuer or a smaller
number of issuers than a fund that invests more widely. This may increase the
Fund’s volatility and cause the performance of a relatively smaller number of
issuers to have a greater impact on the Fund’s performance.
•Passive
Investment Risk. The
Fund is not actively managed and the Adviser would not sell a security due to
current or projected underperformance of a security, industry or sector, unless
that security is removed from the Index or the selling of shares of that
security is otherwise required upon a reconstitution of the Index in accordance
with the Index
methodology.
The Fund invests in securities included in the Index, regardless of their
investment merits. The Fund does not take defensive positions under any market
conditions, including conditions that are adverse to the performance of the
Fund.
•Sector
Risk. To
the extent the Fund invests more heavily in particular sectors of the economy,
its performance will be especially sensitive to developments that significantly
affect those sectors.
◦Industrials
Sector Risk. The
Fund may invest in companies in the industrials sector, and therefore the
performance of the Fund could be negatively impacted by events affecting this
sector. The industrials sector may be affected by changes in the supply of and
demand for products and services, product obsolescence, claims for environmental
damage or product liability and general economic conditions, among other
factors.
◦Information
Technology Sector Risk.
Market or economic factors impacting information technology companies and
companies that rely heavily on technological advances could have a significant
effect on the value of the Fund’s investments. The value of stocks of
information technology companies and companies that rely heavily on technology
is particularly vulnerable to rapid changes in technology product cycles, rapid
product obsolescence, government regulation and competition, both domestically
and internationally, including competition from foreign competitors with lower
production costs. Stocks of information technology companies and companies that
rely heavily on technology, especially those of smaller, less-seasoned
companies, tend to be more volatile than the overall market. Information
technology companies are heavily dependent on patent and intellectual property
rights, the loss or impairment of which may adversely affect
profitability.
•Tracking
Error Risk.
As with all index funds, the performance of the Fund and its Index may differ
from each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
Fund
Performance
Performance information for the Fund is not
included because the Fund did not have a full calendar year of performance prior
to the date of this Prospectus. In the future, performance for
the Fund will be presented in this section. Updated performance information will
be available on the Fund’s website at www.PacerETFs.com
or by calling the Fund toll-free at 1-877-337-0500.
Management
Investment
Adviser
Pacer
Advisors, Inc. (the “Adviser”) serves as investment adviser to the
Fund.
Portfolio
Managers
Bruce
Kavanaugh, Vice President of the Adviser, and Danke Wang, CFA, Portfolio Manager
for the Adviser, are jointly and primarily responsible for the day-to-day
management of the Fund. Mr. Kavanaugh has served as a portfolio manager since
the Fund’s inception and Mr. Wang has served as a portfolio manager since June
2022.
Buying
and Selling Fund Shares
The
Fund is an ETF. This means that individual Shares of the Fund may only be
purchased and sold in the secondary market through brokers at market prices,
rather than NAV. Because Shares trade at market prices rather than NAV, Shares
may trade at a price greater than NAV (premium) or less than NAV
(discount).
The
Fund generally issues and redeems shares at NAV only in large blocks of shares
known as “Creation Units,” which only institutions or large investors may
purchase or redeem. The Fund generally issues and redeems Creation Units in
exchange for a portfolio of securities (the “Deposit Securities”) and/or a
designated amount of U.S. cash that the Fund specifies each day.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary
market (the “bid-ask spread”). Recent information about the Fund, including its
net asset value, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.PacerETFs.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an IRA
or other tax-advantaged retirement account. Distributions may be taxable upon
withdrawal from tax-deferred accounts.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase the Fund through a broker or other financial intermediary (such as
a bank), the Adviser, and their related companies may pay the intermediary for
activities related to the marketing and promotion of the Fund. These payments
may create a conflict of interest by influencing the broker-dealer or other
intermediary and your sales person to recommend the Fund over another
investment. Ask your sales person or visit your financial intermediary’s website
for more information.
ADDITIONAL
INFORMATION ABOUT THE FUNDS
Additional
Information About Each Fund
Investment
Objective.
Each Fund’s investment objective has been adopted as a non-fundamental
investment policy and may be changed without a vote of shareholders upon written
notice to shareholders.
Each
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning it will invest in all of the component securities of the
applicable Index in the same approximate proportion as in such Index, but may,
when the Adviser believes it is in the best interests of such Fund, use a
“representative sampling” strategy, meaning it may invest in a sample of the
securities in the applicable Index whose risk, return, and other characteristics
closely resemble the risk, return, and other characteristics of the applicable
Index as a whole (e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
Additional
Information about the Indices
Pacer
American Energy Independence ETF
SL
Advisors, LLC provides the American Energy Independence Index (the “Energy
Index”) to the Pacer American Energy Independence ETF (“USAI”). SL Advisors, LLC
created and is responsible for maintaining and applying the rules-based
methodology of the Energy Index. The Energy Index is calculated by S&P Opco,
LLC, an independent third-party that is not affiliated with the Funds, the
Adviser, the Funds’ distributor, or any of their respective affiliates. S&P
Opco, LLC provides information to USAI about the Energy Index constituents and
does not provide investment advice with respect to the desirability of investing
in, purchasing, or selling securities.
Pacer
BlueStar Digital Entertainment ETF and Pacer BlueStar Engineering the Future
ETF
Each
Index for the Pacer BlueStar Digital Entertainment ETF and Pacer BlueStar
Engineering the Future ETF was originally developed by BlueStar Indexes, which
was acquired by MV Index Solutions, the current Index Provider to Pacer BlueStar
Funds, in August 2020.
Each
Index for the Pacer BlueStar Funds is calculated by Solactive AG (the “Index
Calculation Agent”), an independent third-party that is not affiliated with the
Adviser. The Index Calculation Agent provides information to a Fund on the
applicable Index constituents and does not provide investment advice with
respect to the desirability of investing in, purchasing, or selling
securities.
BlueStar
Global Online Gambling, Video Gaming, and eSports Index
The
Index is a rules-based index that consists of globally-listed stocks and
depositary receipts of digital entertainment companies, as described below.
Companies eligible to be added to the Index are those that derive at least 50%
of their revenues from the following activities: online gambling platforms or
software related to online gambling; video game development and software related
to the development of video games or hardware such as computer processors and
graphics cards used in video gaming systems, controllers, headsets, and gaming
consoles; and streaming services or video games and/or hardware for use in
eSports events or that are involved in eSports events such as league operators,
teams, distributors and platforms, (collectively, “Digital Entertainment”) as
determined by MV Index Solutions, the Index Provider.
In
the event that the Index would include fewer than 25 companies, the Index will
include Digital Entertainment companies (from largest to smallest based on their
free-float market capitalization) meeting the Investibility Requirements and, if
necessary, add the next largest Digital Entertainment company that does not meet
the Investibility Requirements until there are a minimum of 25 companies in the
Index.
Additionally,
at the time of each rebalance of the Index, the aggregate weight of constituents
with a weight greater than or equal to 5% is limited to 50%, and the weight of
the smallest constituent(s) that would otherwise cause the Index to exceed the
50% threshold and all other constituents with a weight greater than 4.5% but
less than 5% will be set to 4.5%.
In
addition, the aggregate weight of companies earning less than 50% of their
revenues from Digital Entertainment is capped at 20%.
Companies
listed on the following exchanges are not eligible for inclusion in the Index:
Bahrain, China (domestic market), India, Kuwait, Oman, Qatar, Saudi Arabia,
United Arab Emirates, or Vietnam exchanges.
BlueStar
Robotics and 3D Printing Index
The
Index is a rules-based index that consists of globally-listed stocks and
depositary receipts of Robotics and 3D Printing Companies as determined by the
Index Provider in accordance with the Index methodology. Robotics and 3D
Printing Companies are those that, at the time of being added to the Index,
derive at least 50% of their revenues from (i) the development of industrial
robots and production systems, automated inventory management, unmanned
vehicles, voice/image/text recognition, and medical robots or robotic
instruments; (ii) 3D printing hardware, 3D printing simulation software, 3D
printing centers, scanning and measurement software, and 3D printing materials;
or (iii) the development of CAD software to aid in the creation, modification,
analysis, or optimization of a design. Current Index constituents that derive at
least 25% of their revenues from one of these activities is eligible to remain
in the Index at each rebalance and reconstitution.
In
the event that the Index would include fewer than 25 companies, the Index will
include Robotics and 3D Printing Companies (from largest to smallest based on
their free-float market capitalization) meeting the Investibility Requirements
and, if necessary, add the next largest Robotics and 3D Printing Company that
does not meet the Investibility Requirements until there are a minimum of 25
companies in the Index.
Additionally,
at the time of each rebalance of the Index, the aggregate weight of constituents
with a weight greater than or equal to 5% is limited to 50%, and the weight of
the smallest constituent(s) that would otherwise cause the Index to exceed the
50% threshold and all other constituents with a weight greater than 4.5% but
less than 5% will be set to 4.5%.
Companies
listed on the following exchanges are not eligible for inclusion in the Index:
Bahrain, China (domestic market), India, Kuwait, Oman, Qatar, Saudi Arabia,
United Arab Emirates, or Vietnam exchanges.
Index/Trademark
Licenses/Disclaimers
The
Energy Index is the exclusive property of the SL Advisors, LLC, which has
contracted with S&P Opco, LLC (a subsidiary of S&P Dow Jones
Indices) to calculate and maintain the Energy Index. The Energy Index is not
sponsored by S&P Dow Jones Indices or its affiliates or its third party
licensors. Neither S&P Dow Jones Indices, nor any of their affiliates or
third party licensors will be liable for any errors or omissions in calculating
the Energy Index. “Calculated by S&P Dow Jones Indices” and the related
stylized mark(s) are service marks of Standard & Poor’s Financial Services,
LLC (“SPFS”) and have been licensed for use by S&P Dow Jones Indices and
sublicensed for certain purposes by SL Advisors, LLC.
USAI
is not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices, SPFS,
or any of their affiliates or third party licensors (collectively, “S&P Dow
Jones Indices Entities”). S&P Dow Jones Indices Entities do not make any
representation or warranty, express or implied, to the owners of USAI or any
member of the public regarding the advisability of investing in securities
generally or in USAI particularly or the ability of the Energy Index to track
general market performance. S&P Dow Jones Indices Entities’ only
relationship to SL Advisors, LLC with respect to the Energy Index is the
licensing of the S&P 500, certain trademarks, service marks and trade names
of S&P Dow Jones Indices Entities, and the provision of the calculation and
maintenance services related to the Energy Index. S&P Dow Jones Indices
Entities are not responsible for and have not participated in the determination
of the prices and amount of USAI or the timing of the issuance or sale of USAI
or in the determination or calculation of the equation by which the Fund may be
converted into cash or other redemption mechanics. S&P Dow Jones Indices
Entities have no obligation or liability in connection with the administration,
marketing or trading of USAI. S&P Dow Jones Indices, LLC is not an
investment adviser. Inclusion of a security within the Energy Index is not a
recommendation by S&P Dow Jones Indices Entities to buy, sell, or hold such
security, nor is it investment advice.
S&P
DOW JONES INDICES ENTITIES DO NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS
AND/OR THE COMPLETENESS OF THE ENERGY INDEX OR ANY DATA RELATED THERETO OR ANY
COMMUNICATION
WITH
RESPECT THERETO, INCLUDING BUT NOT LIMITED TO, ORAL, WRITTEN OR ELECTRONIC
COMMUNICATIONS. S&P DOW JONES INDICES ENTITIES SHALL NOT BE SUBJECT TO ANY
DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW
JONES INDICES ENTITIES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIM ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE OR AS TO RESULTS TO BE OBTAINED BY THE ADVISER, OWNERS OF USAI, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR WITH RESPECT TO ANY DATA
RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER
SHALL S&P DOW JONES INDICES ENTITIES BE LIABLE FOR ANY INDIRECT, SPECIAL,
INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO,
LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT
LIABILITY, OR OTHERWISE.
Additional
Information about the Principal Risks of Investing in the Funds
This
section provides additional information regarding the principal risks described
under “Principal Risks of Investing in the Fund” in each of the Fund Summaries.
The principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with other funds. Each risk summarized below
is considered a ‘principal risk’ of investing in the Funds, regardless of the
order in which they appear. The factors below apply to each Fund as indicated in
the following table; additional information about each such risk and how it
impacts each Fund that is subject thereto is set forth below the chart. Each of
the factors below could have a negative impact on the applicable Fund’s
performance and trading prices.
|
|
|
|
|
|
|
|
|
|
| |
|
USAI |
ODDS |
BULD |
Concentration
in Digital Entertainment Companies Risk |
| X |
|
Concentration
in the Energy Infrastructure Industry Risk |
X |
| |
Concentration
in Robotics and 3D Printing Companies Risk |
|
| X |
Currency
Exchange Rate Risk |
X |
X |
X |
Depositary
Receipt Risk |
| X |
X |
Equity
Market Risk |
X |
X |
X |
ETF
Risks |
X |
X |
X |
Foreign
Securities Risk |
X |
X |
X |
Geographic
Concentration Risk |
X |
X |
X |
—
Risks of Investing in Canada |
X |
| |
—
Risks of Investing in China |
| X |
|
—
Risks Related to Investing in Europe |
| X |
X |
—
Risks Related to Investing in Japan |
|
| X |
Index
Provider Risk |
X |
X |
X |
Large-Capitalization
Investing Risk |
| X |
X |
Limited
Operating History |
|
X |
X |
Mid-Capitalization
Investing Risk |
| X |
X |
MLP
Risk |
X |
| |
Non-Diversification
Risk |
X |
X |
X |
Passive
Investment Risk |
X |
X |
X |
REIT
Investment Risk |
X |
| |
Sector
Risk |
X |
X |
X |
—
Communications Sector Risk |
| X |
|
—
Consumer Discretionary Sector Risk |
| X |
|
—
Energy Sector Risk |
X |
| |
—
Industrials Sector Risk |
X |
|
X |
—
Information Technology Sector Risk |
|
|
X |
Small
and Mid-Sized Company Stock Risk |
X |
| |
Tax
Risk |
X |
| |
Tracking
Error Risk |
X |
X |
X |
Concentration
in Digital Entertainment Companies Risk
Companies
in the business of betting or online gambling include those directly engaged in
casino operations, race track operations, sports and horse race betting
operations, and online betting operations. Online Gambling Companies face
intense competition and are highly regulated. These companies face regulatory
challenges and heightened competition as more states begin to allow betting and
online gambling activities.
eSports
Companies are subject to intense global competition and may be smaller companies
with limited product lines, markets, financial resources, or personnel. Such
companies may be heavily dependent on patent and intellectual property rights
and may be prone to operational and information security risks resulting from
cyber-attacks and/or technological malfunctions. eSports Companies may have
products that face rapid obsolescence and may be dependent on one or a small
number of products or product franchises for a significant portion of their
revenue and profits. They may also be subject to shifting consumer preferences,
including preferences with respect to gaming console platforms and other forms
of entertainment, and changes in consumer discretionary spending, all of which
may change rapidly and cannot necessarily be predicted. eSports Companies are
also subject to increasing regulatory constraints, particularly with respect to
cybersecurity and privacy, and may be subject to sophisticated intellectual
property infringement schemes and piracy efforts.
Concentration
in the Energy Infrastructure Industry Risk
The
Fund’s investments will be concentrated in an industry or group of industries to
the extent the Energy Index is so concentrated, and the Energy Index is expected
to be concentrated in midstream energy infrastructure companies. When the
Fund focuses its investments in a particular industry or sector, it thereby
presents a more concentrated risk and its performance will be especially
sensitive to developments that significantly affect that industry or group of
industries. In addition, the value of Fund Shares may change at different rates
compared to the value of shares of a fund with investments in a more diversified
mix of industries. An industry may have above-average performance during
particular periods, but may also move up and down more than the broader market.
The several industries that constitute a sector may all react in the same way to
economic, political, public health, cyber, or regulatory events. The performance
of the Fund could also be affected if the sectors, industries, or sub-sectors do
not perform as expected. Alternatively, the lack of exposure to one or more
sectors or industries may adversely affect performance.
•Commodity
Price Volatility Risk. The
volatility of energy commodity prices can significantly affect energy companies
due to the impact of prices on the volume of commodities developed, produced,
gathered, and processed. Historically, energy commodity prices have been
cyclical and exhibited significant volatility, which may adversely impact the
value, operations, cash flows, and financial performance of energy companies.
The volatility of energy commodity prices can also indirectly affect certain
entities that operate in the midstream segment of the energy industry due to the
impact of prices on the volume of commodities transported, processed, stored, or
distributed.
Commodity
price fluctuations may be swift and may occur for several reasons, including
changes in global and domestic energy markets, general economic conditions,
consumer demand, the price and level of foreign imports, the impact of weather
on demand, levels of domestic and worldwide supply, levels of production,
domestic and foreign governmental regulation, political instability, acts of war
and terrorism, epidemics or pandemics, the success and costs of exploration
projects, conservation and environmental protection efforts, the availability
and price of alternative energy, taxation, and the availability of local,
intrastate and interstate transportation systems.
•Supply
and Demand Risk.
A decrease in the exploration, production or development of natural gas, natural
gas liquids (“NGLs”), crude oil, refined petroleum products, or a decrease in
the volume of such commodities, may adversely impact the financial performance
and profitability of energy companies. Production declines and volume decreases
may be caused by various factors, including changes in commodity prices,
oversupply, depletion of resources, declines in estimates of proven reserves,
catastrophic events affecting production, labor difficulties, political events,
production variance from expectations, Organization of the Petroleum Exporting
Countries (“OPEC”) actions, environmental proceedings, increased regulations,
equipment failures and unexpected maintenance problems or outages, the
inability of energy companies to obtain necessary permits or carry out new
construction or acquisitions, unanticipated expenses, import supply disruption,
increased competition from alternative energy sources, and other events. All of
the above is particularly true for new or emerging areas of supply in North
America that may have
limited
or no production history. Reductions in or prolonged periods of low prices for
natural gas and crude oil can cause a given reservoir to become uneconomical for
continued production earlier than it would if prices were higher.
A
sustained decline in or varying demand for such commodities could also adversely
affect the financial performance of energy companies. Factors that could lead to
a decline in demand include economic recession or other adverse economic
conditions, political, public health, cyber, and economic conditions, including
embargoes, in other natural resource producing countries, hostilities in the
Middle East, Eastern Europe, or South America, military campaigns and terrorism,
OPEC actions, higher fuel taxes or governmental regulations, increases in fuel
economy, consumer shifts to the use of alternative fuel sources, exchange rates,
changes in commodity prices, and changes in weather.
In
addition, the profitability of companies engaged in processing and pipeline
activities may be materially impacted by the volume of natural gas or other
energy commodities available for transporting, processing, storing or
distributing. A significant decrease in the production of natural gas, oil, or
other energy commodities, due to a decline in production from existing
facilities, import supply disruption, depressed commodity prices or otherwise,
would reduce revenue and operating income of such entities.
•Reserve
& Depletion Risk. Energy
companies’ estimates of proven reserves and projected future net revenue are
generally based on internal reserve reports, engineering data, and reports of
independent petroleum engineers. The calculation of estimated reserves requires
subjective estimates of underground accumulations and utilizes assumptions
concerning future prices, production levels, and operating and development
costs. These estimates and assumptions may prove to be inaccurate. As a result,
estimated quantities of proved reserves, projections of future production rates,
and the timing of related expenditures may likewise prove to be inaccurate. Any
material negative inaccuracies in these reserve estimates or underlying
assumptions may materially lower the value of upstream energy companies. Future
natural gas, NGL, and oil production is highly dependent upon the success in
acquiring or finding additional reserves that are economically recoverable. This
is particularly true for new areas of exploration and development, such as in
North American oil and gas reservoirs, including shale. A portion of any one
upstream company’s assets may be dedicated to crude oil or natural gas reserves
that naturally deplete over time, and a significant slowdown in the
identification or availability of reasonably priced and accessible proven
reserves for these companies could adversely affect their business.
•Midstream
and Power Infrastructure Company Risk. The
Fund may be subject to midstream and power infrastructure company risk through
its investments in pipeline-related companies. In addition to the other energy
risks described herein, pipeline companies are subject to particular risks,
including varying demand for crude oil, natural gas, NGLs, or refined products
in the markets served by the pipeline; changes in the availability of products
for gathering, transportation, processing or sale due to natural declines in
reserves and production in the supply areas serviced by the companies’
facilities; sharp decreases in crude oil or natural gas prices that cause
producers to curtail production; reduced capital spending for exploration
activities; or re-contracting at lower rates. Demand for gasoline, which
accounts for a substantial portion of refined product transportation, depends on
price, prevailing economic conditions in the markets served, and demographic and
seasonal factors.
Gathering
and processing companies are subject to many risks, including declines in
production of crude oil and natural gas fields which utilize their gathering and
processing facilities, prolonged depression in the price of natural gas or crude
oil which curtails production due to lack of drilling activity, and declines in
the prices of natural gas liquids and refined petroleum products, resulting in
lower processing or refining margins. In addition, the development of, demand
for, and/or supply of competing forms of energy may negatively impact the
revenues of these companies.
Propane
companies are subject to many risks, including earnings variability based upon
weather patterns in the locations where the company operates and the wholesale
cost of propane sold to end customers. In addition, propane companies are facing
increased competition due to the growing availability of natural gas, fuel oil
and alternative energy sources for residential heating.
Power
infrastructure companies are subject to many risks, including earnings
variability based upon weather patterns in the locations where the company
operates, the change in the demand for electricity, the cost to produce power,
and the regulatory environment. Further, share prices are partly based on the
interest rate environment, the sustainability
and
potential growth of the dividend, and the outcome of various rate cases
undertaken by the company or a regulatory body.
•Operating
Risk. Energy
companies are subject to many operating risks, including: equipment failure
causing outages; structural, maintenance, impairment and safety problems;
transmission or transportation constraints, inoperability or inefficiencies;
dependence on a specified fuel source; changes in electricity and fuel usage;
availability of competitively priced alternative energy sources; changes in
generation efficiency and market heat rates; lack of sufficient capital to
maintain facilities; significant capital expenditures to keep older assets
operating efficiently; seasonality; changes in supply and demand for energy;
catastrophic and/or weather-related events such as spills, leaks, well blowouts,
uncontrollable flows, ruptures, fires, explosions, floods, earthquakes,
hurricanes, discharges of toxic gases and similar occurrences; storage,
handling, disposal and decommissioning costs; and environmental compliance.
Breakdown or failure of an energy company’s operating assets may prevent it from
performing under applicable sales agreements, which in certain situations could
result in termination of the agreement or in the company incurring a liability
for liquidated damages. Because of these operating risks and other potential
hazards, energy companies may be exposed to significant liabilities for which
they may not have adequate insurance coverage. Any of the identified risks may
have a material adverse effect on the business, financial condition, results of
operations and cash flows of energy companies.
The
energy industry is cyclical and from time to time may experience a shortage of
drilling rigs, equipment, supplies, or qualified personnel, or, due to
significant demand, such services or equipment may not be available on
commercially reasonable terms. A company’s ability to complete capital
improvements to existing projects or invest in planned capital projects in a
successful and timely manner is dependent upon many variables. Should any such
efforts be unsuccessful, an energy company may be subject to additional costs
and/or the write-off of its investment in the project or improvement. The
marketability of oil and gas production depends in large part on the
availability, proximity and capacity of pipeline systems owned by third parties.
Oil and gas properties are subject to royalty interests, liens and other
burdens, encumbrances, easements or restrictions, all of which may impact the
production of a particular energy company. Oil and gas companies operate in a
highly competitive and cyclical industry, with intense price competition. A
significant portion of their revenues may depend on a relatively small number of
customers, including governmental entities and utilities.
Energy
companies engaged in interstate pipeline transportation of natural gas, refined
petroleum products and other products are subject to regulation by the Federal
Energy Regulatory Commission (“FERC”) with respect to the tariff rates that
these companies may charge for pipeline transportation services. An adverse
determination to an energy company by the FERC with respect to such tariff rates
may have a material adverse effect on that energy company’s business, financial
condition, results of operations and cash flows and on its ability to make cash
distributions to its equity owners.
•Regulatory
Risk. Energy
companies are subject to regulation by governmental authorities in various
jurisdictions and may be adversely affected by the imposition of special tariffs
and changes in tax laws, regulatory policies, and accounting standards.
Regulation exists with respect to multiple aspects of their operations,
including: reports and permits concerning exploration, drilling, and production;
how facilities are constructed, maintained, and operated; how wells are spaced;
the unitization and pooling of properties; environmental and safety controls,
including emissions release, the reclamation and abandonment of wells and
facility sites, remediation, protection of endangered species, and the discharge
and disposition of waste materials; offshore oil and gas operations; and the
prices energy companies may charge for the oil and gas produced or transported
under federal and state leases and for other products and services. Various
governmental authorities have the power to enforce compliance both with these
regulations and permits issued pursuant to them, and violators may be subject to
administrative, civil and criminal penalties, including fines, injunctions or
both. Stricter laws, regulations, or enforcement policies may be enacted in the
future which increase compliance costs and adversely affect the financial
performance of energy companies. Additionally, legislation has been proposed
that would, if enacted into law, make significant changes to U.S. federal income
tax laws, including the elimination of certain U.S. federal income tax benefits
currently available to oil and gas exploration and production
companies.
The
use of methods such as hydraulic fracturing (described in greater detail below)
may be subject to new or different regulation in the future. Any new state or
federal regulations that may be imposed on hydraulic fracturing could result in
additional permitting and disclosure requirements (including of substances used
in the fracturing process) and in additional operating restrictions. The
imposition of various conditions and restrictions on drilling and completion
operations could lead to operational delays and increased costs and, moreover,
could delay or effectively prevent the development of oil and gas from
formations that would not be economically viable without the use of hydraulic
fracturing.
Energy
infrastructure companies engaged in interstate pipeline transportation of
natural gas, refined petroleum products and other products are subject to
regulation by FERC with respect to tariff rates these companies may charge for
pipeline transportation services. An adverse determination by the FERC with
respect to the tariff rates of an energy infrastructure company could have a
material adverse effect on its business, financial condition, results of
operations and cash flows and its ability to make cash distributions to its
equity owners. Certain MLPs regulated by FERC have the right, but not the
obligation, to redeem all their common units held by an investor who is not
subject to U.S. federal income taxation at market value, with the purchase price
payable in cash or via a three-year interest-bearing promissory note. Prices for
certain electric power companies are regulated in the U.S. with the intention of
protecting the public while ensuring that the rate of return earned by such
companies is sufficient to attract growth capital and to provide appropriate
services. The rates assessed for these rate-regulated electric power companies
by state and local regulators are generally subject to cost-of-service
regulation and annual earnings oversight. This regulatory treatment does not
provide any assurance as to achievement of earnings levels. Changes in laws or
regulations or changes in the application or interpretation of regulatory
provisions in jurisdictions where electric power companies operate, particularly
utilities where electricity tariffs are subject to regulatory review or
approval, could adversely affect their business. The Fund could become subject
to FERC’s jurisdiction if it is deemed to be a holding company of a public
utility company or of a holding company of a public utility company, and the
Fund may be required to aggregate securities held by the Fund or other funds and
accounts managed by the Adviser and its affiliates. Accordingly, the Fund may be
prohibited from buying securities of a public utility company or of a holding
company of any public utility company or may be forced to divest itself of such
securities because of other holdings by the Fund or other funds or accounts
managed by the Adviser and its affiliates.
•Environmental
Risk. Energy
company activities are subject to stringent environmental laws and regulation by
many federal, state and local authorities, international treaties and foreign
governmental authorities. A company’s failure to comply with such laws and
regulations or to obtain any necessary environmental permits pursuant to such
laws and regulations may result in the imposition of fines or other sanctions.
Congress and other domestic and foreign governmental authorities have either
considered or implemented various laws and regulations to restrict or tax
certain emissions, particularly those involving air and water emissions.
Existing environmental regulations may be revised or reinterpreted, new laws and
regulations may be adopted or become applicable, and future changes in
environmental laws and regulations may occur, each of which could impose
significant additional costs on energy companies. Energy companies have made and
will likely continue to make significant capital and other expenditures to
comply with these and other environmental laws and regulations. There can be no
assurance that such companies will be able to recover all or any increased
environmental costs from their customers or that their business, financial
condition or results of operations will not be materially and adversely affected
by such expenditures or by any changes in domestic or foreign environmental laws
and regulations, in which case the value of these companies’ securities could be
adversely affected. Energy companies may not be able to obtain or maintain all
required environmental regulatory approvals. If there is a delay in obtaining
any required environmental regulatory approvals or if an energy company fails to
obtain, maintain or comply with any such approval, the operation of its
facilities could be stopped or become subject to additional costs. In addition,
energy companies may be responsible for environmentally-related liabilities,
including any on-site liabilities associated with the environmental condition of
facilities that it has acquired, leased or developed, or liabilities from
associated activities, regardless of when the liabilities arose and whether they
are known or unknown.
Hydraulic
fracturing is a common practice used to stimulate production of natural gas
and/or oil from dense subsurface rock formations such as shales that generally
exist several thousand feet below ground. Some energy companies commonly apply
hydraulic-fracturing techniques in onshore oil and natural gas drilling and
completion programs. The process involves the injection of water, sand, and
additives under pressure into a targeted subsurface
formation.
The water and pressure create fractures in the rock formations, which are held
open by grains of sand, enabling the oil or natural gas to flow to the wellbore.
The use of hydraulic fracturing may produce certain wastes that may in the
future be designated as hazardous wastes and become subject to more rigorous and
costly compliance and disposal requirements. In addition, the Department of
Energy is conducting an investigation into practices the agency could recommend
to better protect the environment from drilling using hydraulic fracturing
completion methods, and the Department of the Interior has proposed disclosure,
well testing and monitoring requirements for hydraulic fracturing on federal
lands. The White House Council on Environmental Quality and a committee of the
US House of Representatives are reviewing hydraulic-fracturing practices, and
legislation has been introduced in Congress to provide for federal regulation of
hydraulic fracturing and to require disclosure of the chemicals used in the
fracturing process. Some states have also adopted, and other states are
considering adopting, regulations that impose more stringent permitting,
disclosure and well construction requirements on hydraulic fracturing
operations. Additional regulations may be imposed that would, among other
things, limit injection of oil and gas well wastewater into underground disposal
wells, because of concerns about the possibility of minor earthquakes being
linked to such injection, an indirect byproduct to drilling unique to certain
geographic regions. If new laws or regulations that significantly restrict
hydraulic fracturing or associated activity are adopted, such laws may make it
more difficult or costly for energy companies to perform fracturing to stimulate
production from tight formations, which might adversely affect their production
levels, operations, and cash flow, as well as the value of such companies’
securities.
•Climate
Change Regulation Risk. Climate
change regulation may result in increased operations and capital costs for the
companies in which the Fund invests. Voluntary initiatives and mandatory
controls have been adopted or are being discussed both in the U.S. and worldwide
to reduce emissions of “greenhouse gases” such as carbon dioxide, a by-product
of burning fossil fuels, which some scientists and policymakers believe
contribute to global climate change. These current and future measures may
result in certain companies in which the Fund invests incurring increased costs
to operate and maintain facilities and to administer and manage a greenhouse gas
emissions program, which in turn may reduce demand for fuels that generate
greenhouse gases that are produced or managed or produced by such
companies.
•Terrorism
Risk. Energy
companies, and the market for their securities, are subject to disruption as a
result of terrorism-related risks. These include terrorist activities, such as
the September 11, 2001 terrorist attacks; wars, such as the wars in Afghanistan
and Iraq and their aftermath; and other geopolitical events, including upheaval
in the Middle East and other energy producing regions. Cyber hacking may also
cause significant disruption and harm to energy companies. The U.S. government
has issued warnings that energy industry assets, including exploration and
production facilities as well as pipelines and transmission and distribution
facilities, may be specific targets for terrorist activity. Such events have
led, and in the future may lead, to short-term market volatility, and may also
have long-term effects on companies in the energy industry and the market price
of their securities. Such events may also adversely affect the business and
financial condition of particular companies in which the Fund
invests.
•Natural
Disaster Risk. Natural
risks, such as earthquakes, flood, lightning, hurricanes, tsunamis, tornadoes
and wind, are inherent risks in energy company operations. Such natural
disasters have in the past resulted in and may in the future cause substantial
damage to the facilities of certain companies located in the affected areas,
created significant volatility in the supply of energy, and adversely impacted
the prices of certain energy company securities. Future natural disasters, or
even the threat thereof, may result in similar volatility and may adversely
affect commodity prices and earnings of energy companies in which the Fund
invests.
•Capital
Markets Risk. Global
financial markets and economic conditions have been, and may continue to be,
volatile due to a variety of factors, including significant write-offs in the
financial services sector. In volatile times, the cost of raising capital in the
debt and equity capital markets, and the ability to raise capital, may be
impacted. In particular, concerns about the general stability of financial
markets and specifically the solvency of lending counterparties, may impact the
cost of raising capital from the credit markets through increased interest
rates, tighter lending standards, difficulties in refinancing debt on existing
terms or at all and reduced, or in some cases ceasing to provide, funding to
borrowers. In addition, lending counterparties under existing revolving credit
facilities and other debt instruments may be unwilling or unable to meet their
funding obligations. As a result of any of the foregoing, energy companies may
be unable to obtain new debt or equity financing on acceptable terms. If funding
is not available when needed, or is available only on unfavorable terms, energy
companies may not be able to meet obligations as they come due.
Moreover,
without adequate funding, energy companies may be unable to execute their growth
strategies, complete future acquisitions, take advantage of other business
opportunities or respond to competitive pressures, any of which could have a
material adverse effect on their revenues and results of
operations.
Rising
interest rates could limit the capital appreciation of equity units of energy
companies as a result of the increased availability of alternative investments
at competitive yields. Rising interest rates may increase the cost of capital
for energy companies. A higher cost of capital or an inflationary period may
lead to inadequate funding, which could limit growth from acquisition or
expansion projects, the ability of such entities to make or grow dividends or
distributions or meet debt obligations, the ability to respond to competitive
pressures, all of which could adversely affect the prices of their
securities.
Concentration
in Robotics and 3D Printing Companies Risk
The
Robotics and 3D Printing industry can be significantly affected by intense
competition, aggressive pricing, technological innovations, and product
obsolescence. Companies in the software industry are subject to significant
competitive pressures, such as aggressive pricing, new market entrants,
competition for market share, short product cycles due to an accelerated rate of
technological developments and the potential for limited earnings and/or falling
profit margins. These companies also face the risks that new services, equipment
or technologies will not be accepted by consumers and businesses or will become
rapidly obsolete. These factors can affect the profitability of these companies
and, as a result, the value of their securities. Also, patent protection is
integral to the success of many companies in this industry, and profitability
can be affected materially by, among other things, the cost of obtaining (or
failing to obtain) patent approvals, the cost of litigating patent infringement
and the loss of patent protection for products (which significantly increases
pricing pressures and can materially reduce profitability with respect to such
products). In addition, many software companies have limited operating
histories. Prices of these companies’ securities historically have been more
volatile than other securities, especially over the short term.
Currency
Exchange Rate Risk
Changes
in currency exchange rates and the relative value of non-U.S. currencies will
affect the value of the Fund’s investments and the value of your Shares. Because
the Fund’s NAV is determined on the basis of U.S. dollars, the U.S. dollar value
of your investment in the Fund may go down if the value of the local currency of
the non-U.S. markets in which the Fund invests depreciates against the U.S.
dollar. This is true even if the local currency value of securities in the
Fund’s holdings goes up. Conversely, the dollar value of your investment in the
Fund may go up if the value of the local currency appreciates against the U.S.
dollar. The value of the U.S. dollar measured against other currencies is
influenced by a variety of factors. These factors include, among others:
national debt levels and trade deficits, changes in balances of payments and
trade, domestic and foreign interest and inflation rates, global or regional
political, public health, cyber, economic or financial events, monetary policies
of governments, actual or potential government intervention, epidemics, and
global energy prices. Political instability, the possibility of government
intervention and restrictive or opaque business and investment policies may also
reduce the value of a country’s currency. Government monetary policies and the
buying or selling of currency by a country’s government may also influence
exchange rates. Currency exchange rates can be very volatile and can change
quickly and unpredictably. As a result, the value of an investment in the Fund
may change quickly and without warning, and you may lose money.
Depositary
Receipt Risk
Depositary
Receipts involve risks similar to those associated with investments in foreign
securities, such as changes in political or economic conditions of other
countries and changes in the exchange rates of foreign currencies. Depositary
Receipts listed on U.S. exchanges are issued by banks or trust companies and
entitle the holder to all dividends and capital gains that are paid out on the
underlying foreign shares (“Underlying Shares”). When a Fund invests in
Depositary Receipts as a substitute for an investment directly in the Underlying
Shares, the Fund is exposed to the risk that the Depositary Receipts may not
provide a return that corresponds precisely with that of the Underlying
Shares.
Equity
Market Risk
Equity
securities may experience sudden, unpredictable drops in value or long periods
of decline in value. This may occur because of factors that affect securities
markets generally or factors affecting specific industries, sectors or
companies. Common stocks are generally exposed to greater risk than other types
of securities, such as preferred stock and debt obligations, because common
stockholders generally have inferior rights to receive payment from issuers.
Common stocks are susceptible to general stock market fluctuations and to
volatile increases and decreases in value as market confidence in and
perceptions of their issuers change. These investor perceptions are based on
various and unpredictable factors including, among others: expectations
regarding government, economic, monetary and fiscal policies; inflation and
interest rates; economic expansion or contraction; and global or regional
political, public health, cyber, economic and banking crises. If you held common
stock, or common stock equivalents, of any given issuer, you would generally be
exposed to greater risk than if you held preferred stocks and debt obligations
of the issuer because common stockholders, or holders of equivalent interests,
generally have inferior rights to receive payments from issuers in comparison
with the rights of preferred stockholders, bondholders, and other creditors of
such issuers. Other conditions affecting the general economy, including
political, public health, cyber, or economic instability at the local, regional,
or global level and pandemics, epidemics, or other similar circumstances in one
or more countries or regions may also affect the market value of a security.
Beginning
in the first quarter of 2020, financial markets in the United States and around
the world experienced extreme and, in many cases, unprecedented volatility and
severe losses due to the global pandemic caused by COVID-19, a novel
coronavirus. The pandemic has resulted in a wide range of social and economic
disruptions, including closed borders, voluntary or compelled quarantines of
large populations, stressed healthcare systems, reduced or prohibited domestic
or international travel, and supply chain disruptions affecting the United
States and many other countries. Some sectors of the economy and individual
issuers have experienced particularly large losses as a result of these
disruptions, and such disruptions may continue for an extended period of time or
reoccur in the future to a similar or greater extent. It is unknown how long
circumstances related to the pandemic will persist, whether they will reoccur in
the future, whether efforts to support the economy and financial markets will be
successful, and what additional implications may follow from the pandemic. The
impact of these events and other epidemics or pandemics in the future could
adversely affect Fund performance.
ETF
Risks
The
Fund is an ETF and, as a result of an ETF’s structure, is exposed to the
following risks:
•APs,
Market Makers, and Liquidity Providers Concentration Risk. The
Fund may have a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares of the Fund may trade at a material discount to NAV and possibly
face delisting: (i) APs exit the business or otherwise become unable to
process creation and/or redemption orders and no other APs step forward to
perform these services, or (ii) market makers and/or liquidity providers
exit the business or significantly reduce their business activities and no other
entities step forward to perform their functions.
•Cash
Redemption Risk. To
the extent the Fund’s investment strategy requires it to redeem Shares for cash
or to otherwise include cash as part of its redemption proceeds, the Fund may be
required to sell or unwind portfolio investments to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to recognize a capital
gain that it might not have recognized if it had made a redemption in-kind. As a
result, the Fund may pay out higher annual capital gain distributions than if
the in-kind redemption process was used.
•Costs
of Buying or Selling Shares. Investors
buying or selling Shares in the secondary market will pay brokerage commissions
or other charges imposed by brokers, as determined by that broker. Brokerage
commissions are often a fixed amount and may be a significant proportional cost
for investors seeking to buy or sell relatively small amounts of Shares. In
addition, secondary market investors will also incur the cost of the difference
between the price at which an investor is willing to buy Shares (the “bid”
price) and the price at which an investor is willing to sell Shares (the “ask”
price). This difference in bid and ask prices is often referred to as the
“spread” or “bid/ask spread.” The bid/ask spread varies over time for Shares
based on trading volume and market liquidity, and is generally lower if Shares
have more trading volume and market liquidity and higher if Shares have little
trading volume and market liquidity.
Further,
a relatively small investor base in the Fund, asset swings in the Fund and/or
increased market volatility may cause increased bid/ask spreads. Due to the
costs of buying or selling Shares, including bid/ask spreads, frequent trading
of Shares may significantly reduce investment results and an investment in
Shares may not be advisable for investors who anticipate regularly making small
investments.
•Shares
of the Fund May Trade at Prices Other Than NAV.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. Although it is expected that the market price of Shares will
approximate the Fund’s NAV, there may be times when the market price of Shares
is more than the NAV intra-day (premium) or less than the NAV intra-day
(discount) due to supply and demand of Shares or during periods of market
volatility. This risk is heightened in times of market volatility, periods of
steep market declines, and periods when there is limited trading activity for
Shares in the secondary market, in which case such premiums or discounts may be
significant. Certain securities held by the Fund may trade on foreign exchanges
that are closed when the Fund’s primary listing exchange is open, and the Fund
may experience premiums and discounts greater than those of ETFs that hold
securities that are traded only in the United States.
•Trading.
Although Shares are listed for trading on the Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to each Exchange’s “circuit
breaker” rules, which temporarily halt trading on such Exchange when a decline
in the S&P 500 Index during a single day reaches certain thresholds (e.g.,
7%, 13%, and 20%). Additional rules applicable to the Exchange may halt trading
in Shares when extraordinary volatility causes sudden, significant swings in the
market price of Shares. There can be no assurance that Shares will trade with
any volume, or at all, on any stock exchange. In stressed market conditions, the
liquidity of Shares may begin to mirror the liquidity of the Fund’s underlying
portfolio holdings, which can be significantly less liquid than
Shares.
Foreign
Securities Risk
Investments
in foreign securities involve certain risks that may not be present with
investments in U.S. securities. For example, investments in foreign securities
may be subject to risk of loss due to foreign currency fluctuations or to
political or economic instability. There may be less information publicly
available about a foreign issuer than a U.S. issuer. Foreign issuers may be
subject to different accounting, auditing, financial reporting and investor
protection standards than U.S. issuers. Investments in foreign securities may be
subject to withholding or other taxes and may be subject to additional trading,
settlement, custodial, and operational risks. With respect to certain countries,
there is the possibility of government intervention and expropriation or
nationalization of assets. Because legal systems differ, there is also the
possibility that it will be difficult to obtain or enforce legal judgments in
certain countries. Since foreign exchanges may be open on days when the Fund
does not price its Shares, the value of foreign securities or an Underlying ETF
holding foreign securities may change on days when shareholders will not be able
to purchase or sell Shares. Conversely, Shares may trade on days when foreign
exchanges are closed. Each of these factors can make investments in the Fund
more volatile and potentially less liquid than other types of
investments.
Geographic
Concentration Risk
Each
Fund is subject to geographic concentration risk, which is the chance that world
events—such as political upheaval, financial troubles, or natural disasters—will
adversely affect the value of securities issued by companies in foreign
countries or regions. Because a Fund may invest a large portion of its assets in
securities of companies located in any one country or region, the Fund’s
performance may be hurt disproportionately by the poor performance of its
investments in that area.
•Risks
of Investing in China. The
Chinese economy is subject to a considerable degree of economic, political and
social instability:
◦Political
and Social Risk: The
Chinese government is authoritarian and has periodically used force to suppress
civil dissent. Disparities of wealth and the pace of economic liberalization may
lead to social turmoil, violence and labor unrest. In addition, China continues
to experience disagreements related to
integration
with Hong Kong and religious and nationalist disputes in Tibet and Xinjiang.
There is also a greater risk in China than in many other countries of currency
fluctuations, currency convertibility, interest rate fluctuations and higher
rates of inflation as a result of internal social unrest or conflicts with other
countries. Unanticipated political or social developments may result in sudden
and significant investment losses. China’s growing income inequality and
worsening environmental conditions also are factors that may affect the Chinese
economy. China is also vulnerable economically to the impact of a public health
crisis, which could depress consumer demand, reduce economic output, and
potentially lead to market closures, travel restrictions, and quarantines, all
of which would negatively impact China’s economy and could affect the economies
of its trading partners.
◦Government
Control and Regulations:
The Chinese government has implemented significant economic reforms in order to
liberalize trade policy, promote foreign investment in the economy, reduce
government control of the economy and develop market mechanisms. There can be no
assurance these reforms will continue or that they will be effective. Despite
recent reform and privatizations, significant regulation of investment and
industry is still pervasive, and the Chinese government may restrict foreign
ownership of Chinese corporations and/or repatriate assets. Chinese markets
generally continue to experience inefficiency, volatility and pricing anomalies
that may be connected to governmental influence, a lack of publicly-available
information and/or political and social instability.
◦Economic
Risk:
The Chinese economy has grown rapidly during the past several years and there is
no assurance that this growth rate will be maintained. In fact, the Chinese
economy may experience a significant slowdown as a result of, among other
things, a deterioration in global demand for Chinese exports, as well as
contraction in spending on domestic goods by Chinese consumers. In addition,
China may experience substantial rates of inflation or economic recessions,
which would have a negative effect on the economy and securities market. Delays
in enterprise restructuring, slow development of well-functioning financial
markets and widespread corruption have also hindered performance of the Chinese
economy. China continues to receive substantial pressure from trading partners
to liberalize official currency exchange rates. Chinese companies are subject to
the risk that the U.S. government or other governments may sanction Chinese
issuers or otherwise prohibit U.S. persons or funds from investing in certain
Chinese issuers and a lack of transparency with respect to economic activity and
transactions in China. Recent developments in relations between the United
States and China have heightened concerns of increased tariffs and restrictions
on trade between the two countries. It is unclear whether further tariffs and
sanctions may be imposed or other escalating actions may be taken in the future.
◦Expropriation
Risk: The
Chinese government maintains a major role in economic policymaking, and
investing in China involves risk of loss due to expropriation, nationalization,
confiscation of assets and property, or the imposition of restrictions on
foreign investments and on repatriation of capital invested.
◦Hong
Kong Political Risk:
Hong Kong reverted to Chinese sovereignty on July 1, 1997 as a Special
Administrative Region (SAR) of the PRC under the principle of “one country, two
systems.” Although China is obligated to maintain the current capitalist
economic and social system of Hong Kong through June 30, 2047, the
continuation of economic and social freedoms enjoyed in Hong Kong is dependent
on the government of China. Any attempt by China to tighten its control over
Hong Kong’s political, economic, legal or social policies may result in an
adverse effect on Hong Kong’s markets. In addition, the Hong Kong dollar trades
at a fixed exchange rate in relation to (or, is “pegged” to) the U.S. dollar,
which has contributed to the growth and stability of the Hong Kong economy.
However, it is uncertain how long the currency peg will continue or what effect
the establishment of an alternative exchange rate system would have on the Hong
Kong economy. Because the Fund’s NAV is denominated in U.S. dollars, the
establishment of an alternative exchange rate system could result in a decline
in the Fund’s NAV.
•Risks
Related to Investing in Europe.
The economies of Europe are highly dependent on each other, both as key trading
partners and as in many cases as fellow members maintaining the euro. Reduction
in trading activity among European countries may cause an adverse impact on each
nation’s individual economies. European countries that are part of the Economic
and Monetary Union of the EU are required to comply with restrictions on
inflation rates, deficits, interest rates, debt levels, and fiscal and monetary
controls, each of which may significantly affect every
country
in Europe. Decreasing imports or exports, changes in governmental or EU
regulations on trade, changes in the exchange rate of the euro, the default or
threat of default by an EU member country on its sovereign debt, and recessions
in an EU member country may have a significant adverse effect on the economies
of EU member countries and their trading partners. Recent market events
affecting several of the EU member countries have adversely affected the
sovereign debt issued by those countries, and ultimately may lead to a decline
in the value of the euro. A significant decline in the value of the euro may
produce unpredictable effects on trade and commerce generally and could lead to
increased volatility in financial markets worldwide.
The
United Kingdom (“UK”) formally exited from the EU on January 31, 2020 (known as
“Brexit”), and effective December 31, 2020, the UK ended a transition period
during which it continued to abide by the EU’s rules and the UK’s trade
relationships with the EU were generally unchanged. Following this transition
period, the impact on the UK and European economies and the broader global
economy could be significant, resulting in negative impacts, such as increased
volatility and illiquidity, potentially lower economic growth on markets in the
UK, Europe, and globally, and changes in legal and regulatory regimes to which
certain Fund assets are or become subject, any of which may adversely affect the
value of Fund investments.
The
effects of Brexit will depend, in part, on agreements the UK negotiates to
retain access to EU markets, including, but not limited to, current trade and
finance agreements. Brexit could lead to legal and tax uncertainty and
potentially divergent national laws and regulations, as the UK determines which
EU laws to replace or replicate. The extent of the impact of the withdrawal
negotiations in the UK and in global markets, as well as any associated adverse
consequences, remain unclear, and the uncertainty may have a significant
negative effect on the value of a Fund investments. If one or more other
countries were to exit the EU or abandon the use of the euro as a currency, the
value of investments tied to those countries or the euro could decline
significantly and unpredictably.
Russia’s
invasion of the Ukraine, and corresponding events in late February 2022, have
had, and could continue to have, severe adverse effects on regional and global
economic markets for securities and commodities. Moreover, this event has had an
adverse effect on global markets performance and liquidity. The duration of
ongoing hostilities and the vast array of sanctions and related events cannot be
predicted. Those events present material uncertainty and risk with respect to
markets globally and the performance of the Funds and their investments or
operations could be negatively impacted.
•Risks
Related to Investing in Japan. The
Japanese economy may be subject to considerable degrees of economic, political
and social instability, which could have a negative impact on Japanese
securities. Since the year 2000, Japan’s economic growth rate has remained
relatively low and it may remain low in the future. In addition, Japan is
subject to the risk of natural disasters, such as earthquakes, volcanoes,
typhoons and tsunamis. Additionally, decreasing U.S. imports, new trade
regulations, changes in the U.S. dollar exchange rates, a recession in the
United States or continued increases in foreclosure rates may have an adverse
impact on the economy of Japan. Japan also has few natural resources, and any
fluctuation or shortage in the commodity markets could have a negative impact on
Japanese securities.
•Canada-Specific
Risk.
The Canadian economy is reliant on the sale of natural resources and
commodities, which can pose risks such as the fluctuation of prices and the
variability of demand for exportation of such products. Changes in spending on
Canadian products by the economies of other countries or changes in any of these
economies may cause a significant impact on the Canadian economy.
Index
Provider Risk
There
is no assurance that the Index Provider or any agents that act on its behalf,
will compile an Index accurately, or that an Index will be determined,
maintained, constructed, rebalanced, calculated or disseminated accurately. Each
Fund relies upon the Index Provider and its agents to compile, determine,
maintain, construct, rebalance, calculate (or arrange for an agent to
calculate), and disseminate each Index accurately. Any losses or costs
associated with errors made by the Index Provider or its agents generally will
be borne by the Fund and its shareholders. To correct any such error, the Index
Provider or its agents may carry out an unscheduled rebalance of an Index or
other modification of Index constituents or weightings. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from
such portfolio rebalancing will be borne by the Fund and its shareholders.
Because the Index includes international securities, the Index Provider may have
limited information or may be more prone to mistakes based on the data available
and such
mistakes
may have a greater impact on the Fund’s performance, which may increase the
risks to the Fund. Unscheduled rebalances also expose the Fund to additional
tracking error risk. Errors in respect of the quality, accuracy, and
completeness of the data used to compile the Index may occur from time to time
and may not be identified and corrected by the Index Provider for a period of
time or at all, particularly where the Index is less commonly used as a
benchmark by funds or advisors. The Index Provider and its agents rely on
various sources of information to assess the criteria of issuers included in the
Index, including information that may be based on assumptions and
estimates.
Large-Capitalization
Investing
Risk
The
securities of large-capitalization companies may be relatively mature compared
to smaller companies and therefore subject to slower growth during times of
economic expansion. Large-capitalization companies may also be unable to respond
quickly to new competitive challenges, such as changes in technology and
consumer tastes.
Limited
Operating History
A
recently organized management investment company with limited operating history
subjects prospective investors to a limited track record on which to base their
investment decision. An investment in a Fund may therefore involve greater
uncertainty than an investment in a fund with a more established record of
performance.
Mid-Capitalization
Investing Risk
The
securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, public health, cyber, or economic developments than
securities of large-capitalization companies. The securities of
mid-capitalization companies generally trade in lower volumes and are subject to
greater and more unpredictable price changes than large capitalization stocks or
the stock market as a whole. Some medium capitalization companies have limited
product lines, markets, financial resources, and management personnel and tend
to concentrate on fewer geographical markets relative to large-capitalization
companies.
MLP
Risk
MLPs
involve risks related to limited control and limited rights to vote on matters
affecting the MLP, risks related to potential conflicts of interest between the
MLP and the MLP’s general partner, and cash flow risks. MLP common units and
other equity securities can be affected by macroeconomic and other factors
affecting the stock market in general, expectations of interest rates, investor
sentiment towards MLPs or the energy sector, changes in a particular issuer’s
financial condition or unfavorable or unanticipated poor performance of a
particular issuer (in the case of MLPs, generally measured in terms of
distributable cash flow). Prices of common units of individual MLPs and other
equity securities also can be affected by fundamentals unique to the partnership
or company, including earnings power and coverage ratios.
MLPs
typically do not pay U.S. federal income tax at the partnership level. Instead,
each partner is allocated a share of the partnership’s income, gains, losses,
deductions and expenses. A change in current tax law or in the underlying
business mix of a given MLP could result in an MLP being treated as a
corporation for U.S. federal income tax purposes, which would result in such MLP
being required to pay U.S. federal income tax on its taxable income. The
classification of an MLP as a corporation for U.S. federal income tax purposes
would have the effect of reducing the amount of cash available for distribution
by the MLP. Thus, if any MLP owned by the Fund were treated as a corporation for
U.S. federal income tax purposes, the result could be a reduction of the value
of your investment in the Fund and lower income, as compared to if the MLP were
not taxed as a corporation.
Non-Diversification
Risk
Although
the Fund intends to invest in a variety of securities and instruments, the Fund
is considered to be non- diversified. This means that the Fund may invest more
of its assets in the securities of a single issuer or a smaller number of
issuers than if it were a diversified fund. As a result, the Fund may be more
exposed to the risks associated with and developments affecting an individual
issuer or a smaller number of issuers than a fund that invests more widely. This
may increase the Fund’s volatility and cause the performance of a relatively
smaller number of issuers to have a greater impact on the Fund’s
performance.
Passive
Investment Risk
The
Fund is not actively managed and the Adviser would not sell a security due to
current or projected underperformance of a security, industry or sector, unless
that security is removed from the Index or the selling of shares of that
security is otherwise required upon a reconstitution of the Index in accordance
with the Index methodology. Other than in response to a trigger if set forth in
the Fund’s Index methodology, the Fund invests in securities included in, or
representative of securities included in the Index regardless of their
investment merits. The Fund does not take defensive positions under any market
conditions, including conditions that are adverse to the performance of the
Fund. The returns from the types of securities in which the Fund invests may
underperform returns from the various general securities markets or different
asset classes. This may cause the Fund to underperform other investment vehicles
that invest in different asset classes. Different types of securities (for
example, large-, mid- and small-capitalization stocks) tend to go through cycles
of doing better – or worse – than the general securities markets. In the past,
these periods have lasted for as long as several years.
REIT
Investment Risk
Investments
in REITs involve unique risks. REITs may have limited financial resources, may
trade less frequently and in limited volume, and may be more volatile than other
securities. In addition, to the extent the Fund holds interests in REITs, it is
expected that investors in the Fund will bear two layers of asset-based
management fees and expenses (directly at the Fund level and indirectly at the
REIT level). The risks of investing in REITs include certain risks associated
with the direct ownership of real estate and the real estate industry in
general. These include risks related to general, regional and local economic
conditions; fluctuations in interest rates and property tax rates; shifts in
zoning laws, environmental regulations and other governmental action such as the
exercise of eminent domain; cash flow dependency; increased operating expenses;
lack of availability of mortgage funds; losses due to natural disasters;
overbuilding; losses due to casualty or condemnation; changes in property values
and rental rates; and other factors.
In
addition to these risks, REITs are dependent upon management skills and
generally may not be diversified. REITs are also subject to heavy cash flow
dependency, defaults by borrowers and self-liquidation. In addition, REITs could
possibly fail to qualify for the beneficial tax treatment available to REITs
under the Internal Revenue Code of 1986, or to maintain their exemptions from
registration under the Investment Company Act of 1940, as amended (the “1940
Act”). The Fund expects that dividends received from a REIT and distributed to
Fund shareholders generally will be taxable to the shareholder as ordinary
income, but may be taxable as return of capital. In the event of a default by a
borrower or lessee, the REIT may experience delays in enforcing its rights as a
mortgagee or lessor and may incur substantial costs associated with protecting
investments.
Sector
Risk
To
the extent the Fund invests more heavily in particular sectors of the economy,
its performance will be especially sensitive to developments that significantly
affect those sectors.
•Communications Services
Sector Risk. The
Fund is generally expected to invest significantly in companies in the
communications services sector, and therefore the performance of the Fund could
be negatively impacted by events affecting this sector. Communications services
companies are subject to extensive government regulation. The costs of complying
with governmental regulations, delays or failure to receive required regulatory
approvals, or the enactment of new adverse regulatory requirements may adversely
affect the business of the such companies. Companies in the communications
services sector can also be significantly affected by intense competition,
including competition with alternative technologies such as wireless
communications (including with 5G and other technologies), product
compatibility, consumer preferences, rapid product obsolescence, and research
and development of new products. Technological innovations may make the products
and services of such companies obsolete.
•Consumer
Discretionary Sector Risk.
The Fund may invest in companies in the consumer discretionary sector, and
therefore the performance of the Fund could be negatively impacted by events
affecting this sector. The success of consumer product manufacturers and
retailers is tied closely to the performance of domestic and international
economies, interest rates, exchange rates, competition, consumer confidence,
changes in demographics and consumer preferences. Companies in the consumer
discretionary sector depend heavily on disposable household income and consumer
spending, and may be strongly affected by social trends and marketing campaigns.
These companies may be subject to severe competition, which may have an adverse
impact on their profitability.
•Energy
Sector Risk. The
Fund may invest in companies in the energy sector, and therefore the performance
of the fund could be negatively impacted by events affecting this sector. The
profitability of companies in the energy sector is related to worldwide energy
prices, exploration, and production spending. Such companies also are subject to
risks of changes in exchange rates, government regulation, world events,
depletion of resources and economic conditions, as well as market, economic and
political risks of the countries where energy companies are located or do
business. Oil and gas exploration and production can be significantly affected
by natural disasters. Oil exploration and production companies may be adversely
affected by changes in exchange rates, interest rates, government regulation,
world events, and economic conditions. Oil exploration and production companies
may be at risk for environmental damage claims.
The
energy sector is comprised of energy, energy industrial, energy infrastructure
and energy logistics companies, and will therefore be susceptible to adverse
economic, environmental, business, regulatory or other occurrences affecting
that sector. The energy sector has historically experienced substantial price
volatility. At times, the performance of these investments may lag the
performance of other sectors or the market as a whole. Master Limited
Partnerships (MLPs) and other companies operating in the energy sector are
subject to specific risks, including, among others, fluctuations in commodity
prices; reduced consumer demand for commodities such as oil, natural gas or
petroleum products; reduced availability of natural gas or other commodities for
transporting, processing, storing or delivering; slowdowns in new construction;
extreme weather or other natural disasters; and threats of attack by terrorists
on energy assets. Additionally, energy sector companies are subject to
substantial government regulation and changes in the regulatory environment for
energy companies may adversely impact their profitability. MLPs may incur
environmental costs and liabilities due to the nature of their businesses and
the substances they handle. Changes in existing laws, regulations or enforcement
policies governing the energy sector could significantly increase the compliance
costs of MLPs. Certain MLPs could, from time to time, be held responsible for
implementing remediation measures, the cost of which may not be recoverable from
insurance. Over time, depletion of natural gas reserves and other energy
reserves may also affect the profitability of energy companies.
•Industrials
Sector Risk. The
Fund may invest in companies in the industrials sector, and therefore the
performance of the Fund could be negatively impacted by events affecting this
sector. The industrials sector may be affected by changes in the supply of and
demand for products and services, product obsolescence, claims for environmental
damage or product liability and general economic conditions, among other
factors. As the demand for, or prices of, industrials increase, the value of the
Fund’s investments generally would be expected to also increase. Conversely,
declines in the demand for, or prices of, industrials generally would be
expected to contribute to declines in the value of such securities. Such
declines may occur quickly and without warning and may negatively impact the
value of the Fund and your investment.
•Information
Technology Sector Risk. The
Fund may invest in companies in the information technology sector, and therefore
the performance of the Fund could be negatively impacted by events affecting
this sector. Market or economic factors impacting information technology
companies and companies that rely heavily on technological advances could have a
significant effect on the value of the Fund’s investments. The value of stocks
of information technology companies and companies that rely heavily on
technology is particularly vulnerable to rapid changes in technology product
cycles, rapid product obsolescence, government regulation and competition, both
domestically and internationally, including competition from foreign competitors
with lower production costs. Stocks of information technology companies and
companies that rely heavily on technology, especially those of smaller,
less-seasoned companies, tend to be more volatile than the overall market.
Information technology companies are heavily dependent on patent and
intellectual property rights, the loss or impairment of which may adversely
affect profitability. Additionally, companies in the information technology
sector may face dramatic and often unpredictable changes in growth rates and
competition for the services of qualified personnel.
Small
Company Stock Risk
•Small-Capitalization
Investing. The
securities of small-capitalization companies may be more vulnerable to adverse
issuer, market, political, public health, cyber, or economic developments than
securities of larger-capitalization companies. The securities of
small-capitalization companies generally trade in lower volumes and are subject
to greater and more unpredictable price changes than larger capitalization
stocks or the stock market as a whole. Some small capitalization companies have
limited product lines, markets, and financial and managerial resources and tend
to concentrate on fewer geographical markets relative to larger capitalization
companies. There is typically less publicly available information concerning
smaller-capitalization companies than for larger, more established companies.
Small-capitalization companies also may be particularly sensitive to changes in
interest rates, government regulation, borrowing costs and
earnings.
Tax
Risk
The
Fund intends to qualify as a “regulated Investment company.” To qualify for the
favorable tax treatment generally available to regulated investment companies,
the Fund must satisfy certain diversification requirements. In particular, the
Fund generally may not acquire a security if, as a result of the acquisition,
more than 50% of the value of the Fund’s assets would be invested in (a) issuers
in which the Fund has, in each case, invested more than 5% of its assets or (b)
issuers more than 10% of whose outstanding voting securities are owned by the
Fund. While the weighting of the Index is not inconsistent with these rules,
given the concentration of the Index in a relatively small number of securities,
it may not always be possible for the Fund to fully implement a replication
strategy or a representative sampling strategy while satisfying these
diversification requirements. The Fund’s efforts to satisfy the diversification
requirements may affect the Fund’s execution of its investment strategy and may
cause the Fund’s return to deviate from that of the Index, and the Fund’s
efforts to replicate or represent the Index may cause it inadvertently to fail
to satisfy the diversification requirements. If the Fund were to fail to satisfy
the diversification requirements, it could incur penalty taxes and be forced to
dispose of certain assets, or it could fail to qualify as a regulated investment
company. If the Fund were to fail to qualify as a regulated investment company,
it would be taxed in the same manner as an ordinary corporation, and
distributions to its shareholders would not be deductible by the Fund in
computing its taxable income.
Tracking
Error Risk
The
Fund seeks to track the performance of its underlying index. Under normal market
conditions, the Adviser expects that the performance of the Fund over time,
before expenses, will track the performance of its underlying index within a
0.95 correlation coefficient. The Fund is subject to the risk of tracking
variance. Tracking variance may result from share purchases and redemptions,
transaction costs, expenses and other factors. Tracking variance may prevent the
Fund from achieving its investment objective. Additionally, the Fund’s return
may not track the return of the Index if the Fund is not able to replicate the
holdings of the Index due to the diversification requirements described above
under “Tax Risk,” which apply to the Fund but not the Index. The use of sampling
techniques may affect the Fund’s ability to achieve close correlation with its
Index. The Fund may use a representative sampling strategy to achieve its
investment objective, if the Adviser believes it is in the best interest of the
Fund, which generally can be expected to produce a greater non-correlation
risk.
ADDITIONAL
NON-PRINCIPAL RISK INFORMATION
Cash
Equivalents and Short-Term Investments. Normally,
the Fund invests substantially all of its assets to meet its investment
objective. The Fund may invest the remainder of its assets in securities with
maturities of less than one year or cash equivalents, or each may hold cash. The
percentage of the Fund invested in such holdings varies and depends on several
factors, including market conditions.
Absence
of a Prior Active Market. Although
the Funds’ Shares are approved for listing on a national securities exchange,
there can be no assurance that an active trading market will develop and be
maintained for Fund Shares. There can be no assurance that a Fund will grow to
or maintain an economically viable size, in which case such Fund may experience
greater tracking error to its Index than it otherwise would at higher asset
levels or the Fund may ultimately liquidate.
Liquidity
Risk. The
Fund may hold certain investments that may be subject to restrictions on resale,
trade over-the-counter or in limited volume, or lack an active trading market.
Accordingly, the Fund may not be able to sell or close out of such investments
at favorable times or prices (or at all), or at prices approximating those at
which the Fund currently values them. Illiquid securities may trade at a
discount from comparable, more liquid investments and may be subject to wide
fluctuations in market value.
Risk
of Investing in the United States. Certain
changes in the U.S. economy, such as when the U.S. economy weakens or when its
financial markets decline, may have an adverse effect on the securities to which
the Funds have exposure. A decrease in imports or exports, changes in trade
regulations, and/or an economic recession in the United States may have a
material adverse effect on the U.S. economy and the securities listed on U.S.
exchanges. Proposed and adopted policy and legislative changes in the United
States are changing many aspects of financial and other regulation and may have
a significant effect on the U.S. markets generally, as well as on the value of
certain securities. In addition, a continued rise in the U.S. public debt level
or the imposition of U.S. austerity measures may adversely affect U.S. economic
growth and the securities to which the Fund has exposure. The United States has
developed increasingly strained relations with a number of foreign countries. If
relations with certain countries continue to worsen, it could adversely affect
U.S. issuers as well as non-U.S. issuers that rely on the United States for
trade. The United States has also experienced increased internal unrest and
discord. If this trend were to continue, it may have an adverse impact on the
U.S. economy and the issuers in which the Fund invests.
Securities
Lending
Risk.
There
are certain risks associated with securities lending, including the risk that
the borrower may fail to return the securities on a timely basis or even the
loss of rights in the collateral deposited by the borrower, if the borrower
should fail financially. As a result, a Fund may lose money. A Fund could also
lose money in the event of a decline in the value of collateral provided for
loaned securities or a decline in the value of any investments made with cash
collateral. These events could also trigger adverse tax consequences for a
Fund.
PORTFOLIO
HOLDINGS INFORMATION
Information
about each Fund’s daily portfolio holdings is available at www.PacerETFs.com. A
summarized description of each Fund’s policies and procedures with respect to
the disclosure of each Fund’s portfolio holdings is available in the Funds’
Statement of Additional Information (“SAI”).
MANAGEMENT
The
Funds are series of Pacer Funds Trust (the “Trust”), a Delaware statutory trust,
which is overseen by a board of trustees.
Investment
Adviser
The
Adviser has overall responsibility for the general management and administration
of the Trust and each of its separate investment portfolios. The Adviser is a
registered investment adviser with offices located at 500 Chesterfield Parkway,
Malvern, Pennsylvania 19355. The Adviser has managed ETFs since 2015. The
Adviser also arranges for transfer agency, custody, fund administration,
securities lending, and all other related services necessary for each Fund to
operate. For its services, the Adviser receives a fee from each Fund, calculated
daily and paid monthly, based on a percentage of each Fund’s average daily net
assets, as shown in the following table:
|
|
|
|
| |
Name
of Fund |
Management
Fee |
Pacer
American Energy Independence ETF |
0.75% |
Pacer
BlueStar Digital Entertainment ETF |
0.60% |
Pacer
BlueStar Engineering the Future ETF |
0.60% |
Under
the Investment Advisory Agreement between the Adviser and the Trust, on behalf
of the Funds (the “Investment Advisory Agreement”), the Adviser has agreed to
pay all expenses of each Fund, except for: the fee paid to the Adviser pursuant
to the Investment Advisory Agreement, interest charges on any borrowings, taxes,
brokerage commissions and other expenses incurred in placing orders for the
purchase and sale of securities and other investment instruments, acquired fund
fees and expenses, accrued deferred tax liability, extraordinary expenses, and
distribution (12b-1) fees and expenses.
The
basis for the Board of Trustees’ approval of the Investment Advisory Agreement
for the USAI and BULD is available in the Funds’ Annual
Report
for the fiscal year ended October 31, 2022.
The
basis for the Board of Trustees’ approval of the Investment Advisory Agreement
for ODDS is available in the Fund’s Semi-Annual
Report
for the fiscal period ended April 30, 2022.
Portfolio
Managers
The
Funds’ portfolio management team consists of Bruce Kavanaugh and Danke Wang, who
are jointly and primarily responsible for the day-to-day management of each
Fund.
Each
Fund employs a rules-based, passive investment strategy. The Adviser uses a
committee approach to managing the Funds.
Mr.
Kavanaugh has been Vice President of the Adviser since it began operations in
2004. He has been a portfolio manager with the Adviser since 2013. Mr. Kavanaugh
has more than 25 years of experience in financial services.
Mr.
Wang, Head Portfolio Analyst and Portfolio Manager, joined the Adviser in 2014.
He served as a Senior Portfolio Analyst of the Adviser from 2014 to 2022, and
became Head Portfolio Analyst in 2022. Mr. Wang obtained an MS in Finance from
Villanova University and holds the Chartered Financial Analyst
designation.
The
SAI provides additional information about each Portfolio Manager’s compensation
structure, other accounts managed by the Portfolio Managers, and the Portfolio
Managers’ ownership of Shares of each Fund.
ADDITIONAL
INFORMATION ON BUYING AND SELLING FUND SHARES
Most
investors will buy and sell Shares of the Funds through brokers. Shares of each
Fund trade on its applicable Exchange and elsewhere during the trading day and
can be bought and sold throughout the trading day like other shares of publicly
traded securities.
When
buying or selling Shares through a broker, most investors will incur customary
brokerage commissions and charges. Shares of each Fund trade under the trading
symbol listed on the cover of this Prospectus. Only authorized participants
(“Authorized Participants” or “APs”) who have entered into agreements with the
Funds’ distributor may acquire Shares directly from a Fund, and only APs may
tender their Shares for redemption directly to each Fund, at NAV in Creation
Units. Once created, Shares trade in the secondary market in amounts less than a
Creation Unit.
Share
Trading Prices
Transactions
in each Fund’s Shares will be priced at NAV only if you purchase Shares directly
from a Fund in Creation Units. As with other types of securities, the trading
prices of Shares in the secondary market can be affected by market forces such
as supply and demand, economic conditions and other factors. The price you pay
or receive when you buy or sell your Shares in the secondary market may be more
or less than the NAV of such Shares.
Determination
of Net Asset Value
The
NAV of each Fund’s Shares is calculated each day the New York Stock Exchange
(“NYSE”) is open for trading as of the close of regular trading on the NYSE,
generally 4:00 p.m. Eastern Time (the “NAV Calculation Time”). If the NYSE
closes before 4:00 p.m. Eastern Time, as it occasionally does, the NAV
Calculation Time will be the time the NYSE
closes.
In addition, any U.S. fixed-income assets may be valued as of the announced
closing time of trading in fixed income instruments on any day that the
Securities Industry and Financial Markets Association announces an early closing
time. Each Fund’s NAV per share is calculated by dividing the Fund’s net assets
by the number of Fund Shares outstanding.
In
calculating its NAV, each Fund generally values its assets on the basis of
market quotations, last sale prices, or estimates of value furnished by a
pricing service or brokers who make markets in such instruments. Debt
obligations with maturities of 60 days or less are valued at amortized
cost.
Fair
Value Pricing
The
Board has adopted procedures and methodologies to fair value Fund securities
whose market prices are not “readily available” or are deemed to be unreliable.
For example, such circumstances may arise when: (i) a security has been
de-listed or has had its trading halted or suspended; (ii) a security’s primary
pricing source is unable or unwilling to provide a price; (iii) a security’s
primary trading market is closed during regular market hours; or (iv) a
security’s value is materially affected by events occurring after the close of
the security’s primary trading market. Generally, when fair valuing a security,
the Adviser will take into account all reasonably available information that may
be relevant to a particular valuation including, but not limited to, fundamental
analytical data regarding the issuer, information relating to the issuer’s
business, recent trades or offers of the security, general and/or specific
market conditions and the specific facts giving rise to the need to fair value
the security. The Adviser makes fair value determinations in good faith and in
accordance with the fair value methodologies included in the Board-adopted
valuation procedures. Due to the subjective and variable nature of fair value
pricing, there can be no assurance that the Adviser will be able to obtain the
fair value assigned to the security upon the sale of such security.
Dividends
and Distributions
USAI
expects to pay out dividends monthly, if any. ODDS expects to pay out dividends,
if any, on a quarterly basis. BULD expects to pay out dividends, if any, on a
semi-annual basis. Nonetheless, each Fund may make more frequent dividend
payments. Each Fund expects to distribute its net realized capital gains to
investors annually. Each Fund occasionally may be required to make supplemental
distributions at some other time during the year. Distributions in cash may be
reinvested automatically in additional whole Shares only if the broker through
whom you purchased Shares makes such option available. Your broker is
responsible for distributing the income and capital gain distributions to
you.
Book
Entry
Shares
of each Fund are held in book-entry form, which means that no stock certificates
are issued. The Depository Trust Company (“DTC”) or its nominee is the record
owner of all outstanding Shares of each Fund.
Investors
owning Shares of each Fund are beneficial owners as shown on the records of DTC
or its participants. DTC serves as the securities depository for all Shares of
each Fund. Participants include DTC, securities brokers and dealers, banks,
trust companies, clearing corporations, and other institutions that directly or
indirectly maintain a custodial relationship with DTC. As a beneficial owner of
Shares, you are not entitled to receive physical delivery of stock certificates
or to have Shares registered in your name, and you are not considered a
registered owner of Shares. Therefore, to exercise any right as an owner of
Shares, you must rely upon the procedures of DTC and its participants. These
procedures are the same as those that apply to any securities that you hold in
book-entry or “street name” form. Your broker will provide you with account
statements, confirmations of your purchases and sales, and tax
information.
Delivery
of Shareholder Documents – Householding
Householding
is an option available to certain investors of each Fund. Householding is a
method of delivery, based on the preference of the individual investor, in which
a single copy of certain shareholder documents can be delivered to investors who
share the same address, even if their accounts are registered under different
names. Householding for each Fund is available through certain broker-dealers.
If you are interested in enrolling in householding and receiving a single copy
of prospectuses and other shareholder documents, please contact your
broker-dealer. If you are currently enrolled in householding and wish to change
your householding status, please contact your broker-dealer.
Financial
reports will be published semi-annually. Each Fund has discontinued mailing
paper copies of the Funds’ financial reports as permitted by new regulations
adopted by the SEC, unless you specifically request paper copies from the Fund.
The reports will remain available to you on the Funds’ website
(www.PacerETFs.com) and you will be notified by mail each time a report is
posted and provided with a link to access the report. Annual reports will
include audited financial statements. For any shareholder that requests paper
copies only one copy of each report will be mailed to each taxpayer
identification number even though the investor may have more than one account in
the Fund.
Frequent
Purchases and Redemptions of Fund Shares
Each
Fund imposes no restrictions on the frequency of purchases and redemptions of
Fund Shares. In determining not to impose such restrictions, the Board evaluated
the risks of market timing activities by Fund shareholders. Purchases and
redemptions by APs, who are the only parties that may purchase or redeem Shares
directly with a Fund, are an essential part of the ETF process and help keep
Fund share trading prices in line with NAV. As such, each Fund accommodates
frequent purchases and redemptions by APs. However, the Board has also
determined that frequent purchases and redemptions for cash may increase
tracking error and portfolio transaction costs and may lead to the realization
of capital gains. To minimize these potential consequences of frequent purchases
and redemptions, each Fund imposes transaction fees on purchases and redemptions
of Creation Units to cover the custodial and other costs incurred by the Fund in
effective trades. In addition, each Fund and the Adviser reserve the right to
reject any purchase order at any time.
Investments
by Registered Investment Companies
Section
12(d)(1) of the 1940 Act restricts investments by registered investment
companies in the securities of other investment companies, including Shares of
each Fund. Registered investment companies are permitted to invest in each Fund
beyond the limits set forth in section 12(d)(1) subject to certain terms and
conditions set forth in Rule 12d1-4 under the 1940 Act, including that such
investment companies enter into an agreement with the applicable
Fund(s).
ADDITIONAL
TAX INFORMATION
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Funds. Your investment
in the Funds may have other tax implications. Please consult your tax advisor
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws.
The
Funds have qualified and intend to continue to qualify each year for treatment
as a regulated investment company (“RIC”). If it meets certain minimum
distribution requirements, a RIC is not subject to tax at the fund level on
income and gains from investments that are timely distributed to shareholders.
However, a Fund’s failure to qualify as a RIC or to meet minimum distribution
requirements would result (if certain relief provisions were not available) in
fund-level taxation and, consequently, a reduction in income available for
distribution to shareholders.
Unless
you are a tax-exempt entity or your investment in Fund Shares is made through a
tax advantaged retirement account, such as an IRA, you need to be aware of the
possible tax consequences when:
•A
Fund makes distributions;
•You
sell Fund Shares; and
•You
purchase or redeem Creation Units (institutional investors only).
Taxes
on Distributions
Tax
reform legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Act”)
was enacted on December 22, 2017. The Tax Act made significant changes to the
U.S. federal income tax rules for individuals and corporations, generally
effective for taxable years beginning after December 31, 2017. The application
of certain provisions of the Tax Act is uncertain, and the changes in the act
may have indirect effects on the Funds, its investments and its shareholders
that cannot be predicted. For federal income tax purposes, distributions of
investment income are generally taxable as ordinary income or “qualified
dividend income.” Taxes on distributions of capital gains (if any) depend on how
long a Fund owned the assets that generated them, rather than how long a
shareholder has owned his or her Fund Shares. Sales of assets held by a Fund for
more than one year generally result in long-term capital gains and losses, and
sales of assets held by a Fund for one year or less generally result in
short-term capital gains and losses. Distributions of a Fund’s net capital gain
(the excess of net long-term capital gains over net short-term capital losses)
that are properly reported by the Fund as
capital
gain dividends (“Capital Gain Dividends”) are taxable as long-term capital
gains. For noncorporate shareholders, long-term capital gains are generally
subject to tax at reduced rates and currently set at a maximum rate of 20%.
Distributions of short-term capital gain are generally taxable as ordinary
income. Distributions of investment income reported by the Fund as derived from
“qualified dividend income” will be taxed at long term capital gain rates for
non-corporate shareholders.
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8%
Medicare contribution tax on all or a portion of their “net investment income,”
which includes interest, dividends, and certain capital gains (generally
including capital gain distributions and capital gains realized on the sale or
exchange of Fund Shares).
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are
generally taxable even if they are paid from income or gains earned by a Fund
before your investment (and thus were included in the Fund Shares’ NAV when you
purchased your Fund Shares).
A
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. The Funds may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause a Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in-kind. As a result, a Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
Nonresident
aliens, foreign corporations and other foreign shareholders in the Funds will
generally be exempt from U.S. federal income tax on Capital Gain Dividends. The
exemption may not apply, however, if the investment in a Fund is connected to a
trade or business for the foreign shareholder in the United States or if the
foreign shareholder is present in the United States for 183 days or more in a
year and certain other conditions are met.
Distributions
(other than Capital Gain Dividends) paid to individual shareholders that are
neither citizens nor residents of the U.S. or to foreign entities will generally
be subject to a U.S. withholding tax at the rate of 30%, unless a lower treaty
rate applies. The Funds may, under certain circumstances, report all or a
portion of a dividend as an “interest-related dividend” or a “short-term capital
gain dividend,” which would generally be exempt from this 30% U.S. withholding
tax, provided certain other requirements are met. Short-term capital gain
dividends received by a nonresident alien individual who is present in the U.S.
for a period or periods aggregating 183 days or more during the taxable year are
not exempt from this 30% withholding tax. Gains realized by foreign shareholders
from the sale or other disposition of Shares of a Fund generally are not subject
to U.S. taxation, unless the recipient is an individual who is physically
present in the U.S. for 183 days or more per year.
The
Funds (or a financial intermediary, such as a broker, through which shareholders
own Fund Shares) generally are required to withhold and to remit to the US
Treasury a percentage of the taxable distributions and the sale or redemption
proceeds paid to any shareholder who fails to properly furnish a correct
taxpayer identification number, who has under-reported dividend or interest
income, or who fails to certify that he, she or it is not subject to such
withholding.
A
U.S. withholding tax at a 30% rate will be imposed on dividends effective July
1, 2014 (and proceeds of sales in respect of Fund Shares (including certain
capital gain dividends) received by Fund shareholders beginning after December
31, 2018) for shareholders who own their Shares through foreign accounts or
foreign intermediaries if certain disclosure requirements related to U.S.
accounts or ownership are not satisfied. The Funds will not pay any additional
amounts in respect to any amounts withheld.
To
the extent a Fund invests in foreign securities, it may be subject to foreign
withholding taxes with respect to dividends or interest the Fund received from
sources in foreign countries. If more than 50% of the total assets of a Fund
consists of foreign securities, such Fund will be eligible to elect to treat
some of those taxes as a distribution to shareholders, which would allow
shareholders to offset some of their U.S. federal income tax. The Funds (or its
administrative agent) will notify you if it makes such an election and provide
you with the information necessary to reflect foreign taxes paid on your income
tax return.
Taxes
When Fund Shares Are Sold
Any
capital gain or loss realized upon a sale of Fund Shares is generally treated as
a long-term gain or loss if the Shares have been held for more than one year.
Any capital gain or loss realized upon a sale of Fund Shares held for one year
or less is generally treated as a short-term gain or loss, except that any
capital loss on a sale of Shares held for six months or less is treated as
long-term capital loss to the extent that Capital Gain Dividends were paid with
respect to such Shares. The ability to deduct capital losses may be limited
depending on your circumstances.
A
foreign shareholder will generally not be subject to U.S. tax on gains realized
on sales or exchange of Fund Shares unless the investment in a Fund is connected
to a trade or business of the investor in the United States or if the
shareholder is present in the United States for 183 days or more in a year and
certain other conditions are met. All foreign shareholders should consult their
own tax advisors regarding the tax consequences in their country of residence of
an investment in a Fund.
Creation
and Redemption Units
An
Authorized Participant who exchanges securities for Creation Units generally
will recognize a gain or a loss. The gain or loss will be equal to the
difference between the market value of the Creation Units at the time and the
sum of the exchanger’s aggregate basis in the securities surrendered plus the
amount of cash paid for such Creation Units. A person who redeems Creation Units
will generally recognize a gain or loss equal to the difference between the
exchanger’s basis in the Creation Units and the sum of the aggregate market
value of any securities received plus the amount of any cash received for such
Creation Units. The Internal Revenue Service, however, may assert that a loss
realized upon an exchange of securities for Creation Units cannot be deducted
currently under the rules governing “wash sales,” or on the basis that there has
been no significant change in economic position.
Any
capital gain or loss realized upon the creation of Creation Units will generally
be treated as long-term capital gain or loss if the securities exchanged for
such Creation Units have been held for more than one year. Any capital gain or
loss realized upon the redemption of Creation Units will generally be treated as
long-term capital gain or loss if the Shares comprising the Creation Units have
been held for more than one year. Otherwise, such capital gains or losses will
be treated as short-term capital gains or losses. Persons purchasing or
redeeming Creation Units should consult their own tax advisors with respect to
the tax treatment of any creation or redemption transaction.
The
Funds have the right to reject an order for Creation Units if the purchaser (or
group of purchasers) would, upon obtaining the Shares so ordered, own 80% or
more of the outstanding Shares of the Fund and if, pursuant to section 351 of
the Internal Revenue Code, the Fund would have a basis in the deposit securities
different from the market value of such securities on the date of deposit. The
Funds also have the right to require information necessary to determine
beneficial Share ownership for purposes of the 80% determination.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in the Funds. It is not a substitute for
personal tax advice. You also may be subject to state and local tax on Fund
distributions and sales of Shares. Consult your personal tax advisor about the
potential tax consequences of an investment in Shares under all applicable tax
laws. For more information, please see the section entitled “Federal Income
Taxes” in the SAI.
State
and Local Taxes
Shareholders
may also be subject to state and local taxes on income and gain attributable to
your ownership of Fund Shares. State income taxes may not apply, however, to the
portions of a Fund’s distributions, if any, that are attributable to interest
earned by a Fund on U.S. government securities. You should consult your tax
professional regarding the tax status of distributions in your state and
locality.
Master
Limited Partnerships (USAI)
In
general, for purposes of satisfying the source of income test for qualifying as
a RIC, income derived from a partnership will be treated as qualifying income
only to the extent such income is attributable to items of income of the
partnership that would be qualifying income if realized directly by the Fund.
However, 100% of the net income derived from an interest in a QPTP (generally, a
partnership (i) interests in which are traded on an established securities
market or are readily tradable on a secondary market or the substantial
equivalent thereof, (ii) that derives at least 90% of its income from the
passive income sources specified in Code section 7704(d), and (iii) that
derives less than 90% of its income from the same sources as described in the
source of RIC Qualifying Income Test described in the SAI) will be treated as
qualifying income. In addition, although in general the passive loss rules of
the Code do not apply to RICs, such rules do apply to a RIC with respect to
items attributable to an interest in a QPTP.
USAI
may invest in certain MLPs which may be treated as QPTPs. Income from QPTPs
is qualifying income for purposes of the source of income test for qualifying as
a RIC, but the Fund’s investment in one or more of such QPTPs is limited under
the asset diversification test for qualifying as a RIC to no more than 25% of
the value of the Fund’s assets. USAI will monitor its investment in such
QPTPs in order to ensure compliance with the source of income and asset
diversification tests for qualifying as a RIC. MLPs and other partnerships
that the Fund may invest in will deliver Form K-1s to the Fund to report its
share of income, gains, losses, deductions and credits of the MLP or other
partnership. These Form K-1s may be delayed and may not be received until
after the time that the Fund issues its tax reporting statements. As a result,
the Fund may at times find it necessary to reclassify the amount and character
of its distributions to you after it issues you your tax reporting
statement.
Investors
who receive a Form 1099 that reports distributions from the Fund’s investments,
including MLPs, may receive a corrected 1099 if additional information becomes
available regarding the characterization of your distribution after your 1099
was prepared.
USAI
invests in partnerships that elect to be classified as corporations for U.S.
federal income tax purposes. Such entities are required to pay U.S. federal
income tax on its taxable income. This has the effect of reducing the amount of
cash available for distribution to the Fund, which may result in a reduction of
the value of your investment in the Fund, as compared to if such entity were not
taxed as a corporation.
Foreign
Taxes
To
the extent a Fund invests in foreign securities, it may be subject to foreign
withholding taxes with respect to dividends or interest the Fund received from
sources in foreign countries.
DISTRIBUTION
The
Distributor, Pacer Financial, Inc., is a broker-dealer registered with the U.S.
Securities and Exchange Commission. The Distributor distributes Creation Units
for each Fund on an agency basis and does not maintain a secondary market in
Shares. The Distributor has no role in determining the policies of each Fund or
the securities that are purchased or sold by each Fund. The Distributor’s
principal address is 500 Chesterfield Parkway, Malvern, Pennsylvania, 19355. The
Distributor is an affiliate of the Adviser.
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, each Fund is authorized
to pay an amount up to 0.25% of its average daily net assets each year for
certain distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Funds, and there are no plans to
impose these fees. However, in the event Rule 12b-1 fees are charged in the
future, because the fees are paid out of a Fund’s assets, over time these fees
will increase the cost of your investment and may cost you more than certain
other types of sales charges.
PREMIUM/DISCOUNT
INFORMATION
Information
regarding how often Shares of each Fund traded on an Exchange at a price above
(i.e.,
at a premium) or below (i.e.,
at a discount) the NAV of the fund is available on the Funds’ website at
www.PacerETFs.com.
ADDITIONAL
NOTICES
Shares
are not sponsored, endorsed, or promoted by NYSE Arca, Inc. (USAI) and Nasdaq
Stock Market LLC (ODDS and BULD)(the “Exchanges”). The Exchanges make no
representation or warranty, express or implied, to the owners of the Shares or
any member of the public regarding the ability of the Funds to track the total
return performance of their respective Index or the ability of the Indexes
identified herein to track the performance of their constituent securities. The
Exchanges are not responsible for, nor has they participated in, the
determination of the compilation or the calculation of the Indexes, nor in the
determination of the timing of, prices of, or quantities of the Shares to be
issued, nor in the determination or calculation of the equation by which the
Shares are redeemable. The Exchanges have no obligation or liability to owners
of the Shares in connection with the administration, marketing, or trading of
the Shares. Without limiting any of the foregoing, in no event shall the
Exchanges have any liability for any lost profits or indirect, punitive,
special, or consequential damages even if notified of the possibility
thereof.
The
Adviser, the Funds’ index providers, the Exchanges, and the Funds make no
representation or warranty, express or implied, to the owners of Shares or any
member of the public regarding the advisability of investing in securities
generally or in the Funds particularly. The Funds do not guarantee the accuracy,
completeness, or performance of the Indexes or the data included therein and
shall have no liability in connection with the Indexes or Index calculation.
Each
Fund’s index provider owns its respective Index(es) and each Index methodology
and is a licensor of the respective Index(es) to the Adviser and index receipt
agent. Each index provider has contracted with an index calculation agent to
maintain and calculate the Indexes used by the Funds. The index calculation
agents maintain and calculate the Indexes used by the Funds. The index
calculation agent shall have no liability for any errors or omissions in
calculating the Indexes.
FINANCIAL
HIGHLIGHTS
The
financial highlights tables are intended to help you understand each Fund’s
financial performance for the period of the Fund’s operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned or
lost on an investment in the Fund (assuming reinvestment of all dividends and
distributions). The Pacer American Energy Independence ETF is the accounting
successor to the Predecessor Energy Fund as a result of the reorganization of
the Predecessor Energy Fund into the Fund as of the close of business on
December 13, 2019. The Pacer American Energy Independence ETF has adopted the
Financial Statements of the Predecessor Energy Fund. For the fiscal years ended
prior to December 13, 2019, the financial information for the Pacer American
Energy Independence ETF was audited by the Predecessor Energy Fund’s independent
registered public accounting firm. The remaining financial information has been
audited by Sanville & Company, the Funds’ independent registered public
accounting firm, whose report, along with the Funds’ financial statements, is
included in the Funds’ annual
report,
which is available upon request.
Pacer
American Energy Independence ETF
FINANCIAL
HIGHLIGHTS
For
a capital share outstanding throughout the year/period
|
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| |
|
For
the Year Ended October 31, 2022 |
| For
the Year Ended October 31, 2021 |
|
For
the
Period
Ended
October
31, 2020(a) |
| For
the Year Ended November 30, 2019 |
|
For
the
Period
Ended
November
30, 2018(b) |
|
Net
Asset Value, Beginning of Period |
$ |
25.31 |
|
| $ |
14.96 |
|
| $ |
21.79 |
|
| $ |
23.21 |
| |
$ |
25.00 |
| |
|
|
|
|
|
|
|
|
|
| |
INCOME
(LOSS) FROM INVESTMENT OPERATIONS: |
|
|
|
|
|
| |
|
|
|
Net
Investment Income(c) |
0.41 |
|
| 0.40 |
|
| 0.28 |
|
| 0.37 |
| |
0.55 |
| |
Net
Realized and Unrealized Gain (Loss) on Investments(d) |
3.59 |
|
| 11.39 |
|
| (5.55) |
|
| (0.34) |
| |
(1.51) |
| |
Total
from Investment Operations |
4.00 |
|
| 11.79 |
|
| (5.27) |
|
| 0.03 |
| |
(0.96) |
| |
|
|
|
|
|
|
|
|
|
| |
LESS
DISTRIBUTIONS: |
|
|
|
|
|
| |
|
|
|
Distributions
From: |
|
|
|
|
|
|
|
|
| |
Net
Investment Income |
(0.26) |
|
| (0.50) |
|
| (0.52) |
|
| (0.22) |
|
| (0.50) |
| |
Return
of Capital |
(1.18) |
|
| (0.94) |
|
| (1.04) |
|
| (1.23) |
| |
(0.33) |
| |
Total
Distributions |
(1.44) |
|
| (1.44) |
|
| (1.56) |
|
| (1.45) |
|
| (0.83) |
| |
|
|
|
|
|
|
|
|
|
| |
CAPITAL
SHARE TRANSACTIONS: |
|
|
|
|
|
| |
|
|
|
Transaction
Fees |
— |
| — |
| — |
| 0.00 |
(e) |
— |
| |
|
|
|
|
|
|
|
|
|
| |
Net
Asset Value, End of Period |
$ |
27.87 |
|
| $ |
25.31 |
|
| $ |
14.96 |
|
| $ |
21.79 |
| |
$ |
23.21 |
| |
Total
return |
16.26 |
% |
| 80.71 |
% |
| -24.76 |
% |
(f) |
-0.13% |
| -4.06% |
(f) |
|
|
|
|
|
|
|
|
|
| |
SUPPLEMENTAL
DATA: |
|
|
|
|
|
| |
|
|
|
Net
Assets at End of Period (000’s) |
$ |
47,377 |
|
| $ |
25,309 |
|
| $ |
11,966 |
|
| $ |
10,897 |
| |
$ |
9,284 |
| |
|
|
|
|
|
|
|
|
|
| |
RATIOS
TO AVERAGE NET ASSETS: |
|
|
|
|
|
| |
|
|
|
Expenses
to Average Net Assets |
0.75 |
% |
| 0.75 |
% |
| 0.75 |
% |
(g) |
0.75 |
% |
| 0.75 |
% |
(g) |
Net
Investment Income (Loss) to Average Net Assets |
1.53 |
% |
| 1.82 |
% |
| 1.81 |
% |
(g) |
1.58 |
% |
| 2.25 |
% |
(g) |
Portfolio
Turnover Rate(h) |
25 |
% |
| 22 |
% |
| 41 |
% |
(f) |
26 |
% |
| 61 |
% |
(f) |
(a)Shares
of the Predecessor USAI Fund converted Shares at the close of business on
December 13, 2019. For the period ended December 1, 2019 to October 31,
2020.
(b)Commencement
of operations on December 12, 2017.
(c)Calculated
based on average shares outstanding during the period.
(d)Realized
and unrealized gains and losses per share are balancing amounts necessary to
reconcile to the change in net asset value for the period and may reconcile with
aggregate gains and losses in the statement of operations due to share
transactions for the period.
(e)Represents
less than $0.005.
(f)Not
annualized.
(g)Annualized.
(h)Excludes
the impact of in-kind transactions.
Pacer
BlueStar Digital Entertainment ETF
FINANCIAL
HIGHLIGHTS
For
a capital share outstanding throughout the period
|
|
|
|
|
|
|
| |
|
For
the
Period
Ended
October
31, 2022(a) |
|
Net
Asset Value, Beginning of Period |
$ |
19.74 |
| |
|
| |
INCOME
(LOSS) FROM INVESTMENT OPERATIONS: |
| |
Net
Investment Income (Loss)(b) |
0.05 |
| |
Net
Realized and Unrealized Gain (Loss) on Investments(c) |
(4.32) |
| |
Total
from Investment Operations |
(4.27) |
| |
|
| |
LESS
DISTRIBUTIONS: |
| |
Distributions
from Net Investment Income |
(0.04) |
| |
Total
Distributions |
(0.04) |
| |
|
| |
CAPITAL
SHARE TRANSACTIONS: |
| |
Transaction
Fees |
0.01 |
| |
|
| |
Net
Asset Value, End of Period |
$ |
15.44 |
| |
Total
Return |
-21.58 |
% |
(f) |
|
| |
SUPPLEMENTAL
DATA: |
| |
Net
Assets at End of Period (000’s) |
$ |
618 |
| |
|
| |
RATIOS
TO AVERAGE NET ASSETS: |
| |
Expenses
to Average Net Assets |
0.60 |
% |
(e) |
Net
Investment Income (Loss) to Average Net Assets |
0.53 |
% |
(e) |
Portfolio
Turnover Rate(d) |
33 |
% |
(f) |
(a)Fund
commenced operations on April 7, 2022. The information presented is from April
7, 2022 to October 31, 2022.
(b)Calculated
based on average shares outstanding during the period.
(c)Realized
and unrealized gains and losses per share are balancing amounts necessary to
reconcile to the change in net asset value for the period and may reconcile with
aggregate gains and losses in the statement of operations due to share
transactions for the period.
(d)Excludes
the impact of in-kind transactions.
(e)Annualized.
(f)Not
annualized.
Pacer
BlueStar Engineering the Future ETF
FINANCIAL
HIGHLIGHTS
For
a capital share outstanding throughout the period
|
|
|
|
|
|
|
| |
|
For
the
Period
Ended
October
31, 2022(a) |
|
Net
Asset Value, Beginning of Period |
$ |
20.52 |
| |
INCOME
(LOSS) FROM INVESTMENT OPERATIONS: |
| |
Net
Investment Income (Loss)(b) |
0.01 |
| |
Net
Realized and Unrealized Gain (Loss) on Investments(c) |
(3.53) |
| |
Total
from Investment Operations |
(3.52) |
| |
|
| |
Net
Asset Value, End of Period |
$ |
17.00 |
| |
Total
Return |
-17.14 |
% |
(f) |
|
| |
SUPPLEMENTAL
DATA: |
| |
Net
Assets at End of Period (000’s) |
$ |
1,360 |
| |
|
| |
RATIOS
TO AVERAGE NET ASSETS: |
| |
Expenses
to Average Net Assets |
0.60 |
% |
(e) |
Net
Investment Income (Loss) to Average Net Assets |
0.07 |
% |
(e) |
Portfolio
Turnover Rate(d) |
0 |
% |
(f) |
(a)Fund
commenced operations on May 4, 2022. The information presented is from May 4,
2022 to October 31, 2022.
(b)Calculated
based on average shares outstanding during the period.
(c)Realized
and unrealized gains and losses per share are balancing amounts necessary to
reconcile to the change in net asset value for the period and may reconcile with
aggregate gains and losses in the statement of operations due to share
transactions for the period.
(d)Excludes
the impact of in-kind transactions.
(e)Annualized.
(f)Not
annualized.
|
|
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|
|
|
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| |
Adviser |
Pacer
Advisors, Inc.
500
Chesterfield Parkway
Malvern,
Pennsylvania 19355 |
Distributor |
Pacer
Financial, Inc.
500
Chesterfield Parkway
Malvern,
Pennsylvania 19355 |
Custodian |
U.S.
Bank National Association
1555
N. Rivercenter Drive
Milwaukee,
Wisconsin 53212 |
Fund
Accountant, Administrator and Transfer Agent |
U.S.
Bank Global Fund Services
615
East Michigan Street Milwaukee, Wisconsin 53202 |
Independent
Registered Public Accounting Firm |
Sanville
& Company
1514
Old York Road
Abington,
PA 19001 |
Legal
Counsel |
Practus
LLP
11300
Tomahawk Creek Parkway, Suite 310, Leawood, Kansas
66211 |
The
Trust’s current SAI provides additional detailed information about each Fund. A
current SAI dated February 28, 2023, as supplemented from time to time, is on
file with the SEC and is herein incorporated by reference into this
Prospectus.
Additional
information about each Fund’s investments is available in the Funds’ annual and
semi-annual reports to shareholders. In the annual report you will find a
discussion of the market conditions and investment strategies that significantly
affected each Fund’s performance for the respective period.
To
make shareholder inquiries, for more detailed information on each Fund, or to
request the SAI or annual or semi-annual shareholder reports (once available)
free of charge, please:
|
|
|
|
|
|
|
|
|
|
| |
Call: |
1-800-617-0004
Monday
through Friday
8:00
a.m. – 5:00 p.m. (Central time) |
Write: |
Pacer
Funds Trust, (Name of Fund)
c/o
U.S. Bank Global Fund Services, LLC
P.O.
Box 701
Milwaukee,
Wisconsin 53202 |
Visit: |
www.PacerETFs.com |
| |
Reports
and other information about each Fund are also available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
No
person is authorized to give any information or to make any representations
about each Fund and its Shares not contained in this Prospectus and you should
not rely on any other information. Read and keep this Prospectus for future
reference.
(The
Trust’s SEC Investment Company Act file number is 811-23024)