Prospectus
December 29, 2022
December 29, 2022
GOLDMAN
SACHS ETF TRUST
THE SECURITIES AND
EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED
UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
|
AN
INVESTMENT IN A FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE
FEDERAL DEPOSIT
INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND
INVOLVES
INVESTMENT
RISKS, AND YOU MAY LOSE MONEY IN A
FUND. |
◼
Goldman Sachs
Future Consumer Equity ETF
◼
NYSE Arca:
GBUY
◼
Goldman Sachs
Future Health Care Equity ETF
◼
NYSE Arca:
GDOC
◼
Goldman Sachs
Future Planet Equity ETF
◼
NYSE Arca:
GSFP
◼
Goldman Sachs
Future Real Estate and Infrastructure Equity ETF
◼
NYSE Arca:
GREI
◼
Goldman Sachs
Future Tech Leaders Equity ETF
◼
NYSE Arca:
GTEK
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Management
Fee |
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Distribution
and Service (12b-1) Fee |
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Other
Expenses |
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Total
Annual Fund Operating Expenses |
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|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$ |
$ |
$ |
$ |
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|
|
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1
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|
2
3
|
|
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Portfolio
Management |
Goldman
Sachs Asset Management, L.P. is the investment adviser for the
Fund.
Portfolio
Managers: Alexis Deladerrière, CFA,
Managing Director; Laura Destribats, Vice President; Raj Garigipati, Managing
Director; and Nathan Lin, Vice President, has each managed the Fund since
November
2021.
|
Buying
and Selling Fund Shares |
Individual
Shares of the Fund may only be purchased and sold in secondary market
transactions through a broker or dealer at market price. Because Shares trade at
market prices, rather than NAV, Shares of the Fund may trade at a price greater
than NAV (i.e., a premium) or less than NAV (i.e., a discount).
You may
incur costs attributable to the difference between the highest price a buyer is
willing to pay for Shares (bid) and the lowest price a seller is willing to
accept for Shares (ask) (the “bid-ask spread”) when buying or selling Shares in
the secondary market.
Recent information,
including information about the Fund’s NAV, market price, premiums and
discounts, and bid-ask spreads, is included on the Fund’s website at
www.gsamfunds.com.
4
|
Tax
Information |
For
important tax information, please see “Tax Information” on page 26 of the
Prospectus.
|
Payments
to Broker-Dealers and
Other
Financial Intermediaries |
For
important information about financial intermediary compensation, please see
“Payments to Broker-Dealers and Other Financial Intermediaries” on page 26 of
the Prospectus.
5
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|
|
Management
Fee |
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|
Distribution
and Service (12b-1) Fee |
|
|
Other
Expenses |
|
|
Total
Annual Fund Operating Expenses |
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$ |
$ |
$ |
$ |
|
|
|
|
6
|
|
7
8
|
|
9
|
Portfolio
Management |
Goldman
Sachs Asset Management, L.P. is the investment adviser for the
Fund.
Portfolio
Managers: Jenny Chang, Vice
President; Raj Garigipati, Managing Director; and Anant Padmanabhan, Vice
President, has each managed the Fund since November
2021.
|
Buying
and Selling Fund Shares |
Individual
Shares of the Fund may only be purchased and sold in secondary market
transactions through a broker or dealer at market price. Because Shares trade at
market prices, rather than NAV, Shares of the Fund may trade at a price greater
than NAV (i.e., a premium) or less than NAV (i.e., a discount).
You may
incur costs attributable to the difference between the highest price a buyer is
willing to pay for Shares (bid) and the lowest price a seller is willing to
accept for Shares (ask) (the “bid-ask spread”) when buying or selling Shares in
the secondary market.
Recent information,
including information about the Fund’s NAV, market price, premiums and
discounts, and bid-ask spreads, is included on the Fund’s website at
www.gsamfunds.com.
|
Tax
Information |
For
important tax information, please see “Tax Information” on page 26 of the
Prospectus.
|
Payments
to Broker-Dealers and
Other
Financial Intermediaries |
For
important information about financial intermediary compensation, please see
“Payments to Broker-Dealers and Other Financial Intermediaries” on page 26 of
the Prospectus.
10
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|
|
|
Management
Fee |
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|
Distribution
and Service (12b-1) Fee |
|
|
Other
Expenses |
|
|
Total
Annual Fund Operating Expenses |
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$ |
$ |
$ |
$ |
|
|
|
|
11
|
|
12
13
|
|
14
|
Portfolio
Management |
Goldman
Sachs Asset Management, L.P. is the investment adviser for the
Fund.
Portfolio
Managers: Alexis Deladerrière, CFA,
Managing Director; and Raj Garigipati, Managing Director, has each managed the
Fund since July
2021.
|
Buying
and Selling Fund Shares |
Individual
Shares of the Fund may only be purchased and sold in secondary market
transactions through a broker or dealer at market price. Because Shares trade at
market prices, rather than NAV, Shares of the Fund may trade at a price greater
than NAV (i.e., a premium) or less than NAV (i.e., a discount).
You may
incur costs attributable to the difference between the highest price a buyer is
willing to pay for Shares (bid) and the lowest price a seller is willing to
accept for Shares (ask) (the “bid-ask spread”) when buying or selling Shares in
the secondary market.
Recent information,
including information about the Fund’s NAV, market price, premiums and
discounts, and bid-ask spreads, is included on the Fund’s website at
www.gsamfunds.com.
|
Tax
Information |
For
important tax information, please see “Tax Information” on page 26 of the
Prospectus.
|
Payments
to Broker-Dealers and
Other
Financial Intermediaries |
For
important information about financial intermediary compensation, please see
“Payments to Broker-Dealers and Other Financial Intermediaries” on page 26 of
the Prospectus.
15
|
|
|
|
|
Management
Fee |
|
|
Distribution
and Service (12b-1) Fee |
|
|
Other
Expenses |
|
|
Total
Annual Fund Operating Expenses |
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$ |
$ |
$ |
$ |
|
|
|
|
16
|
|
17
18
19
|
|
|
Portfolio
Management |
Goldman
Sachs Asset Management, L.P. is the investment adviser for the
Fund.
Portfolio
Managers: Kristin Kuney, Managing
Director; Raj Garigipati, Managing Director; and Abhinav Zutshi, Vice President,
has each managed the Fund since November
2021.
|
Buying
and Selling Fund Shares |
Individual
Shares of the Fund may only be purchased and sold in secondary market
transactions through a broker or dealer at market price. Because Shares trade at
market prices, rather than NAV, Shares of the Fund may trade at a price greater
than NAV (i.e., a premium) or less than NAV (i.e., a discount).
You may
incur costs attributable to the difference between the highest price a buyer is
willing to pay for Shares (bid) and the lowest price a seller is willing to
accept for Shares (ask) (the “bid-ask spread”) when buying or selling Shares in
the secondary market.
Recent information,
including information about the Fund’s NAV, market price, premiums and
discounts, and bid-ask spreads, is included on the Fund’s website at
www.gsamfunds.com.
|
Tax
Information |
For
important tax information, please see “Tax Information” on page 26 of the
Prospectus.
|
Payments
to Broker-Dealers and
Other
Financial Intermediaries |
For
important information about financial intermediary compensation, please see
“Payments to Broker-Dealers and Other Financial Intermediaries” on page 26 of
the Prospectus.
20
|
|
|
|
|
Management
Fee |
|
|
Distribution
and Service (12b-1) Fee |
|
|
Other
Expenses |
|
|
Total
Annual Fund Operating Expenses |
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$ |
$ |
$ |
$ |
|
|
|
|
21
|
|
22
23
|
|
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Portfolio
Management |
Goldman
Sachs Asset Management, L.P. is the investment adviser for the
Fund.
Portfolio
Managers: Sung Cho, CFA, Managing
Director; Charles “Brook” Dane, CFA, Managing Director; Raj Garigipati, Managing
Director; and Nathan Lin, Vice President, has each managed the Fund since
September
2021.
24
|
Buying
and Selling Fund Shares |
Individual
Shares of the Fund may only be purchased and sold in secondary market
transactions through a broker or dealer at market price. Because Shares trade at
market prices, rather than NAV, Shares of the Fund may trade at a price greater
than NAV (i.e., a premium) or less than NAV (i.e., a discount).
You may
incur costs attributable to the difference between the highest price a buyer is
willing to pay for Shares (bid) and the lowest price a seller is willing to
accept for Shares (ask) (the “bid-ask spread”) when buying or selling Shares in
the secondary market.
Recent information,
including information about the Fund’s NAV, market price, premiums and
discounts, and bid-ask spreads, is included on the Fund’s website at
www.gsamfunds.com.
|
Tax
Information |
For
important tax information, please see “Tax Information” on page 26 of the
Prospectus.
|
Payments
to Broker-Dealers and
Other
Financial Intermediaries |
For
important information about financial intermediary compensation, please see
“Payments to Broker-Dealers and Other Financial Intermediaries” on page 26 of
the Prospectus.
25
Goldman
Sachs Future Thematic Equity ETFs –
Additional Summary Information
Additional Summary Information
|
Tax
Information |
The Funds'
distributions are taxable, and will be taxed as ordinary income or capital
gains, unless you are investing through a tax-deferred arrangement, such as a
401(k) plan or an individual retirement account. Investments made through
tax-deferred arrangements may become taxable upon withdrawal from such
arrangements.
|
Payments
to Broker-Dealers and
Other
Financial Intermediaries |
If you
purchase Shares of a Fund through a broker-dealer or other financial
intermediary (such as a bank), GSAM or other related companies may pay the
intermediary for the sale of Fund Shares or related services. These payments may
create a conflict of interest by influencing the broker-dealer or other
intermediary and your salesperson to recommend a Fund over another investment.
Ask your salesperson or visit your financial intermediary’s website for more
information.
26
Investment
Management Approach
|
INVESTMENT
OBJECTIVE |
Each Fund,
except Goldman Sachs Future Planet Equity ETF, seeks long-term growth of
capital. The Goldman Sachs Future Planet Equity ETF seeks long-term capital
appreciation. Each Fund’s investment objective may be changed without
shareholder approval upon 60 days’ notice.
|
PRINCIPAL
INVESTMENT STRATEGIES |
Goldman Sachs Future
Consumer Equity ETF
The Fund
invests, under normal circumstances, at least 80% of its Net Assets in equity
investments in U.S. and non-U.S. companies. Shareholders will be provided with
sixty days’ notice in the manner prescribed by the Securities and Exchange
Commission (“SEC”) before any change in the Fund’s policy to invest at least 80%
of its Net Assets in the particular type of investment suggested by its
name.
Equity
investments may include common stock, preferred stock, warrants and other rights
to acquire stock, ADRs, EDRs, and GDRs, underlying funds (including ETFs), and
futures, forwards, options and other instruments with similar economic
exposures. The Fund may invest in companies that only recently began to trade
publicly. The Fund may invest in underlying ETFs, ETPs and/or money market
funds, including those that currently exist or that may become available for
investment in the future for which the Investment Adviser or an affiliate now or
in the future acts as investment adviser or principal underwriter. The Fund may
also invest in unaffiliated ETFs, ETPs and/or money market funds.
The Fund
generally intends to invest in companies that the Investment Adviser believes
are aligned with key themes associated with the different and evolving
priorities and spending habits of younger consumers, which include, but are not
limited to, the increased adoption of technology and their different lifestyle
preferences and values (the “Key Themes”). The Investment Adviser considers a
company aligned to the Key Themes if it believes the company provides, invests
in or helps create products, services or technologies consistent with one or
more of the Key Themes as described below.
The Key
Themes currently are:
Technology-Enabled
Consumption:
represents companies that, in the Investment Adviser’s view, provide or help
create products, services or technologies in areas including, but not limited
to, the connected world, social media, ecommerce, entertainment and gaming,
fintech, mobility, and the digital workforce.
Lifestyle
and Values:
represents companies that, in the Investment Adviser’s view, provide or help
create products, services or technologies in areas including, but not limited
to, sustainable living, experiences, education, health & wellness, childcare
and luxury.
The Key
Themes and related areas of investment may change over time at the sole
discretion of the Investment Adviser without prior notice to shareholders. In
addition, the Fund is permitted to make investments that are not aligned with
the Key Themes. In selecting investments, the Investment Adviser will not seek
to allocate a specified portion of the Fund’s portfolio to each particular Key
Theme, and the allocation of the Fund’s investments across the Key Themes will
vary over time in the Investment Adviser’s sole discretion. The Fund may not
allocate its investments to each Key Theme at all times and an investment may be
aligned with multiple Key Themes at the same time.
The
Investment Adviser’s belief may be informed by, among other things, company
disclosure, third-party research, engagement with the companies, or subjective
criteria including the Investment Adviser’s own research, expectations, or
opinions. A company in which the Fund invests may not currently or in the future
derive any revenue from its association with the different and evolving
priorities and spending habits of younger consumers.
The Fund
concentrates its investments (i.e., holds
more than 25% of its total assets) in the group of industries that comprise the
consumer discretionary, communication services and information technology
sectors. Therefore, under normal circumstances, the Fund will invest at least
25% of its total assets in securities of issuers in this group of industries.
The Fund may, however, invest less than 25% of its total assets in securities of
issuers in this group of industries as a temporary defensive
position.
Goldman Sachs Future
Health Care Equity ETF
The Fund
invests, under normal circumstances, at least 80% of its Net Assets in equity
investments in U.S. and non-U.S. health care companies. Shareholders will be
provided with sixty days’ notice in the manner prescribed by the SEC before any
change in the Fund’s policy to invest at least 80% of its Net Assets in the
particular type of investment suggested by its name.
27
The
Investment Adviser generally defines a health care company as a company in the
health care sector. The Investment Adviser may use the classifications assigned
by third parties but is not required to do so. The Fund seeks to achieve its
investment objective by investing in health care companies that the Investment
Adviser believes are driving innovation in health care, by developing either new
treatments or new technologies, primarily in the fields of genomics, precision
medicine, technology-enabled procedures and digital healthcare. The Investment
Adviser seeks to identify companies at various growth stages, including dominant
businesses with strong competitive advantages, companies that are early
innovators and have developed new treatments or technologies, and companies that
are enabling new treatments or technologies that have the potential to disrupt
existing markets or serve existing markets more efficiently.
Equity
investments may include common stock, preferred stock, warrants and other rights
to acquire stock, ADRs, EDRs, and GDRs, underlying funds (including ETFs), and
futures, forwards, options and other instruments with similar economic
exposures. The Fund may invest in companies that only recently began to trade
publicly. The Fund may invest in underlying ETFs, ETPs and/or money market
funds, including those that currently exist or that may become available for
investment in the future for which the Investment Adviser or an affiliate now or
in the future acts as investment adviser or principal underwriter. The Fund may
also invest in unaffiliated ETFs, ETPs and/or money market funds.
The Fund
generally intends to invest in companies that the Investment Adviser believes
are aligned with key themes associated with innovation in health care, which
include, but are not limited to, genomics, precision medicine, tech-enabled
procedures, and digital healthcare (the “Key Themes”). The Investment Adviser
considers a company aligned to the Key Themes if it believes the company
provides, invests in or helps create products, services or technologies
consistent with one or more of the Key Themes as described below.
The Key
Themes currently are:
Genomics:
represents companies that, in the Investment Adviser’s view, provide, invest in
or help create products, services or technologies in areas including, but not
limited to, sequencing, diagnostic testing and the genomics supply
chain.
Precision
Medicine:
represents companies that, in the Investment Adviser’s view, provide, invest in
or help create products, services or technologies in areas including, but not
limited to, targeted oncology, gene/cell therapy and rare diseases.
Technology-Enabled
Procedures:
represents companies that, in the Investment Adviser’s view, provide, invest in
or help create products, services or technologies in areas including, but not
limited to, robotic surgery and minimally invasive procedures.
Digital
Healthcare:
represents companies that, in the Investment Adviser’s view, provide, invest in
or help create products, services or technologies in areas including, but not
limited to, connected devices, digital transformation, and online
health.
The Key
Themes and related areas of investment may change over time at the sole
discretion of the Investment Adviser without prior notice to shareholders. In
addition, the Fund is permitted to make investments that are not aligned with
the Key Themes. In selecting investments, the Investment Adviser will not seek
to allocate a specified portion of the Fund’s portfolio to each particular Key
Theme, and the allocation of the Fund’s investments across the Key Themes will
vary over time in the Investment Adviser’s sole discretion. The Fund may not
allocate its investments to each Key Theme at all times and an investment may be
aligned with multiple Key Themes at the same time.
The
Investment Adviser’s belief may be informed by, among other things, company
disclosure, third-party research, engagement with the companies, or subjective
criteria including the Investment Adviser’s own research, expectations, or
opinions. A company in which the Fund invests may not currently or in the future
derive any revenue from its association with innovation in health
care.
The Fund
concentrates its investments (i.e., holds
more than 25% of its total assets) in securities of issuers in the health care
industries. The Fund may, however, invest less than 25% of its total assets in
securities of issuers in these industries as a temporary defensive
position.
Goldman Sachs Future
Planet Equity ETF
The Fund
invests, under normal circumstances, at least 80% of its Net Assets in equity
investments in U.S. and non-U.S. companies that the Investment Adviser believes
are associated, at the time the investment is first added to the Fund’s
portfolio, with seeking to address environmental problems. Securities or other
instruments that provide exposure (directly or indirectly) to such companies are
treated as such investments for purposes of this policy. Shareholders will be
provided with sixty days’ notice in the manner prescribed by the SEC before any
change in the Fund’s policy to invest at least 80% of its Net Assets in the
particular type of investment suggested by its name.
28
Investment
Management Approach
Equity
investments may include common stock, preferred stock, warrants and other rights
to acquire stock, ADRs, EDRs, and GDRs, underlying funds (including ETFs), and
futures, forwards, options and other instruments with similar economic
exposures. The Fund may invest in underlying ETFs, ETPs and/or money market
funds, including those that currently exist or that may become available for
investment in the future for which the Investment Adviser or an affiliate now or
in the future acts as investment adviser or principal underwriter. The Fund may
also invest in unaffiliated ETFs, ETPs and/or money market funds.
The Fund
generally intends to invest in companies that the Investment Adviser believes
are aligned with the key themes associated with seeking to address environmental
problems, which include, but are not limited to, clean energy, resource
efficiency, sustainable consumption, the circular economy and water
sustainability (the “Key Themes”). The Investment Adviser considers a company
aligned to the Key Themes if it believes the company provides, invests in or
helps create products, services or technologies consistent with one or more of
the Key Themes as described below.
The Key
Themes currently are:
Clean
Energy: represents
companies that, in the Investment Adviser’s view, provide, invest in or help
create products, services or technologies in areas including but not limited to
solar energy, wind energy, bioenergy, energy storage, grid services and carbon
sequestration.
Resource
Efficiency: represents
companies that, in the Investment Adviser’s view, provide, invest in or help
create products, services or technologies in areas including but not limited to
electric and autonomous vehicles, sustainable manufacturing, logistics and smart
cities.
Sustainable
Consumption: represents
companies that, in the Investment Adviser’s view, provide, invest in or help
create products, services or technologies in areas including but not limited to
agriculture, food, tourism and fashion.
Circular
Economy: represents
companies that, in the Investment Adviser’s view, provide, invest in or help
create products, services or technologies in areas including but not limited to
recycling and reuse, waste management and single-use substitution.
Water
Sustainability: represents
companies that, in the Investment Adviser’s view, provide, invest in or help
create products, services or technologies in areas including but not limited to
water treatment, water distribution and desalination.
The Key
Themes and related areas of investment may change over time at the sole
discretion of the Investment Adviser without prior notice to shareholders. In
addition, the Fund is permitted to make investments that are not aligned with
the Key Themes. In selecting investments, the Investment Adviser will not seek
to allocate a specified portion of the Fund’s portfolio to each particular Key
Theme, and the allocation of the Fund’s investments across the Key Themes will
vary over time in the Investment Adviser’s sole discretion. The Fund may not
allocate its investments to each Key Theme at all times and an investment may be
aligned with multiple Key Themes at the same time.
Alignment
with the Key Themes is generally assessed at or around the time of initial
purchase. The Investment Adviser’s belief may be informed by, among other
things, company disclosure, third-party research, engagement with the companies,
or subjective criteria including the Investment Adviser’s own research,
expectations, or opinions. A company in which the Fund invests may not currently
or in the future derive any revenue from its efforts to address environmental
problems.
When
creating the investment universe, the Investment Adviser generally focuses on
“what” each issuer is creating or producing and may not emphasize “how” the
issuer is creating or producing services, products or technologies. Accordingly,
the Investment Adviser may determine that an issuer is aligned with one or more
of the Key Themes, even when the issuer’s profile reflects negative, or a
mixture of positive and negative, ESG characteristics.
The Fund
may have significant exposure to specific sectors including, but not limited to,
the industrials, materials and technology sectors. The Fund’s sector exposures
may change over time and the Fund may have significant exposure to any region,
country or sector at any time.
Goldman Sachs Future
Real Estate and Infrastructure Equity ETF
The Fund
invests, under normal circumstances, at least 80% of its Net Assets in equity
investments in U.S. and non-U.S. real estate and infrastructure companies.
Shareholders will be provided with sixty days’ notice in the manner prescribed
by the SEC before any change in the Fund’s policy to invest at least 80% of its
Net Assets in the particular type of investment suggested by its
name.
The
Investment Adviser generally defines a real estate company as a company in the
real estate sector and an infrastructure company as one which owns or operates
infrastructure assets. Real estate companies may include REITs, REIT-like
structures, or real estate operating companies whose businesses and services are
related to the real estate industry. Infrastructure companies may include, but
are not limited to, companies within the utilities industries. The Investment
Adviser may use the classifications assigned by third parties but is not
required to do so.
29
The Fund generally intends
to invest in real estate and infrastructure companies that the Investment
Adviser believes are aligned with key themes associated with secular growth
drivers for real estate and infrastructure assets, which include, but are not
limited to, tech innovation, environmental sustainability, new age consumer, and
future of health care (the “Real Estate Key Themes”).
The Key
Themes currently are:
Tech
Innovation:
represents real estate and infrastructure companies that, in the Investment
Adviser’s view, facilitate technological innovation-driven demand including but
not limited to towers
and digital
storage.
Environmental
Sustainability: represents real estate
and infrastructure companies that, in the Investment Adviser’s view, facilitate
sustainability-driven demand in areas including but not limited to utilities
enabling energy transition, alternative energy producers, water utilities,
energy storage, and grid services.
New
Age
Consumer: represents real estate
and infrastructure companies that, in the Investment Adviser’s view, facilitate
different and
evolving
priorities
and spending
habits of younger consumers, including but not limited to logistics, cold
storage, transportation infrastructure, self storage, rental housing, leisure
hotels and studio office.
Future
of Health Care: represents real estate
and infrastructure companies that, in the Investment Adviser’s view, facilitate
health care innovation and aging demographic trends including but not limited to
lab office, life science office and senior housing.
The Key
Themes and related areas of investment may change over time at the sole
discretion of the Investment Adviser without prior notice to shareholders. In
addition, the Fund is permitted to make investments that are not aligned with
the Key Themes. In selecting investments, the Investment Adviser will not seek
to allocate a specified portion of the Fund’s portfolio to each particular Key
Theme, and the allocation of the Fund’s investments across the Key Themes will
vary over time in the Investment Adviser’s sole discretion. The Fund may not
allocate its investments to each Key Theme at all times and an investment may be
aligned with multiple Key Themes at the same time.
The
Investment Adviser’s belief may be informed by, among other things, company
disclosure, third-party research, engagement with the companies, or subjective
criteria including the Investment Adviser’s own research, expectations, or
opinions. A company in which the Fund invests may not currently or in the future
derive any revenue from its association with secular growth drivers for real
estate and infrastructure assets.
Equity
investments may include common stock, preferred stock, warrants and other rights
to acquire stock, REITs, ADRs, EDRs and GDRs, underlying funds (including ETFs),
and futures, forwards, options and other instruments with similar economic
exposures. The Fund may also invest in companies that only recently began to
trade publicly. The Fund may invest in underlying ETFs, ETPs and/or money market
funds that currently exist or that may become available for investment in the
future for which the Investment Adviser or an affiliate now or in the future
acts as investment adviser or principal underwriter. The Fund may also invest in
unaffiliated ETFs, ETPs and/or money market funds.
The Fund
concentrates its investments (i.e., holds more than 25% of its total assets) in
the group of industries that comprise the real estate and utilities sectors.
Therefore, under normal circumstances, the Fund will invest at least 25% of its
total assets in securities of issuers in this group of industries. The Fund may,
however, invest less than 25% of its total assets in securities of issuers in
this group of industries as a temporary defensive position.
Goldman Sachs Future
Tech Leaders Equity ETF
The Fund
invests, under normal circumstances, at least 80% of its Net Assets in equity
investments in U.S. and non-U.S. technology companies, as described below. The
Fund seeks to focus on investments in public stock market capitalizations (based
upon shares available for trading on an unrestricted basis at the time of
purchase) of less than $100 billion. Shareholders will be provided with 60 days’
notice in the manner prescribed by the SEC before any change in the Fund’s
policy to invest at least 80% of its Net Assets in the particular type of
investment suggested by its name.
The
Investment Adviser generally defines a technology company as a company in the
information technology or communication services sectors, or in the internet and
direct marketing retail or healthcare technology industries. The Investment
Adviser may use the classifications assigned by third parties but is not
required to do so. The Fund seeks to achieve its investment objective by
investing in technology companies that the Investment Adviser believes are
driving technological innovation or benefitting from the enablement of
technology, and have the potential to grow their business over many years. The
Investment Adviser seeks to identify companies at various growth stages that are
developing differentiated technology to either disrupt existing markets, serve
existing markets more efficiently, or apply proven business models to new
geographies. The Investment Adviser also invests in companies that use
technology to drive long-term compounding revenue growth, as well as more mature
technology companies that are evolving their business models to exploit new
growth opportunities.
30
Investment
Management Approach
Equity
investments may include common stock, preferred stock, warrants and other rights
to acquire stock, ADRs, EDRs and GDRs, underlying funds (including ETFs), and
futures, forwards, options and other instruments with similar economic
exposures. The Fund may also invest in companies that only recently began to
trade publicly. The Fund may invest in underlying ETFs, ETPs and/or money market
funds that currently exist or that may become available for investment in the
future for which the Investment Adviser or an affiliate now or in the future
acts as investment adviser or principal underwriter. The Fund may invest in
underlying ETFs, exchange-traded products (“ETPs”) and/or money market funds,
including those that currently exist or that may become available for investment
in the future for which the Investment Adviser or an affiliate now or in the
future acts as investment adviser or principal underwriter. The Fund may also
invest in unaffiliated ETFs, ETPs and/or money market funds.
The Fund’s
fundamental equity investment process involves evaluating potential investments
based on specific characteristics believed to indicate high-quality businesses
with sustainable growth, including strong business franchises, favorable
long-term prospects, and excellent management. The Investment Adviser believes
that as a company matures, sustainable free cash flow generation is an
indication of quality and sustainable growth and therefore analyzes and
forecasts, among others, a company’s gross profit, operating profit, free cash
flow, net cash on its balance sheet, and return on invested capital. The
Investment Adviser will also consider the valuation of companies when
determining whether to buy and/or sell securities. The Investment Adviser may
decide to sell a position for various reasons, including when a company’s
fundamental outlook deteriorates, because of valuation and price considerations,
for risk management purposes, if a company is deemed to be misallocating
capital, or if a more attractive risk/reward opportunity becomes
available.
The
Investment Adviser’s belief may be informed by, among other things, company
disclosure, third-party research, engagement with the companies, or subjective
criteria including the Investment Adviser’s own research, expectations, or
opinions. A company in which the Fund invests may not currently or in the future
derive any revenue from its efforts to drive technological innovation or benefit
from the enablement of technology.
The Fund
concentrates its investments (i.e., holds more than 25% of its total assets) in
securities of issuers in the information technology industries. Therefore, under
normal circumstances, the Fund will invest at least 25% of its total assets in
securities of issuers in these industries. The Fund may, however, invest less
than 25% of its total assets in securities of issuers in these industries as a
temporary defensive position.
All Funds
The
Investment Adviser employs a fundamental investment process that may integrate
ESG factors with traditional fundamental factors. No one factor or consideration
is determinative in the stock selection process.
Each Fund
intends to have investments economically tied to at least three countries,
including the United States, and may invest in the securities of issuers
economically tied to emerging market countries. Each Fund may invest without
restriction as to company capitalization and may invest significantly in small-
and mid-capitalization companies.
In
determining whether an issuer is economically tied to a particular country, the
Investment Adviser will consider whether the issuer:
◼
Has a class
of securities whose principal securities market is in that country;
◼
Has its
principal office in that country;
◼
Derives 50%
or more of its total revenue or profit from goods produced, sales made or
services provided in that country;
◼
Maintains
50% or more of its assets in that country; or
◼
Is
otherwise determined to be economically tied to that country by the Investment
Adviser in its discretion. For example, the Investment Adviser may use the
classifications assigned by third parties, including an issuer’s “country of
risk” as determined by Bloomberg or the classifications assigned to an issuer by
a Fund’s benchmark index provider. These classifications are generally based on
a number of criteria, including an issuer’s country of domicile, the primary
stock exchange on which an issuer’s securities trade, the location from which
the majority of an issuer’s revenue is derived, and an issuer’s reporting
currency. Although the Investment Adviser may rely on these classifications, it
is not required to do so.
EACH FUND
IS NON-DIVERSIFIED UNDER THE INVESTMENT COMPANY ACT, AND MAY INVEST A LARGER
PERCENTAGE OF ITS ASSETS IN FEWER ISSUERS THAN DIVERSIFIED FUNDS.
Each Fund
is an actively managed ETF, which is a fund that trades like other
publicly-traded securities. The Funds are not index funds and do not seek to
replicate the performance of a specified index.
Each Fund
may also invest up to 20% of its Net Assets in securities and other instruments
that are not part of a Fund’s principal investment strategies described
above.
31
The Funds
may, from time to time, take temporary defensive positions that are inconsistent
with a Fund’s principal investment strategies in attempting to respond to
adverse market, political or other conditions. For temporary defensive purposes,
each Fund may invest up to 100% of its total assets in securities issued or
guaranteed by the U.S. government, its agencies, instrumentalities or sponsored
enterprises (“U.S. Government Securities”), commercial paper rated at least A-2
by S&P Global Ratings (“Standard & Poor’s”), P-2 by Moody’s Investors
Service, Inc. (“Moody’s”) or having a comparable credit rating by another
nationally recog-nized statistical rating organization (“NRSRO”) (or if unrated,
determined by the Investment Adviser to be of comparable credit quality),
certificates of deposit, bankers’ acceptances, repurchase agreements,
non-convertible preferred stocks and non-convertible corporate bonds with a
remaining maturity of less than one year, certain ETFs and other investment
companies and cash items. When
a Fund’s assets are invested in such instruments, the Fund may not be achieving
its investment objective.
Additional
Information
The Goldman
Sachs Future Consumer Equity ETF’s benchmark index is the MSCI All Country World
Index (“ACWI”) Growth Index.
The Goldman
Sachs Future Health Care Equity ETF’s benchmark index is the MSCI ACWI Health
Care Index.
The Goldman
Sachs Future Planet Equity ETF’s benchmark is the MSCI ACWI Index (Net, USD,
Unhedged).
The Goldman
Sachs Future Real Estate and Infrastructure Equity ETF’s benchmark is 50% FTSE
Global Core Infrastructure 50/50 Index + 50% FTSE EPRA Nareit Developed
Index.
The Goldman
Sachs Future Tech Leaders Equity ETF’s benchmark is the MSCI ACWI Index. The
MSCI ACWI Index is a free float-adjusted market capitalization weighted index
that is designed to measure the equity market performance of developed and
emerging markets. The Fund’s secondary benchmark index is the custom MSCI ACWI
Select Information Technology + Communication Services + Internet & Direct
Marketing Retail (Excluding ˃$100bn Market Capitalization) Index. The custom
benchmark is comprised of those companies classified within the Information
Technology sector, Communications Services sector and Internet and Direct
Marketing Retail industry within the MSCI ACWI Index and excludes companies with
a market capitalization over $100 billion.
References
in the Prospectus to a Fund’s benchmark are for informational purposes only, and
unless otherwise noted, are not an indication of how the Fund is
managed.
GSAM Fundamental
Equity Team’s Investment Philosophy
|
Belief |
How
the Investment Adviser Acts on This Belief |
|
◼ Excess
returns can be generated by conducting thorough fundamental
research
and individual stock selection |
Seeks
to generate excess returns through a research culture which includes
regular
conversations with existing and potential investee companies’
executives
and their competitors, suppliers and clients. |
|
◼ A
team-based approach enriches debate and enhances the quality of
investment
decisions |
Conducts
stock level research in a team-orientated structure with frequent
and
open communication. |
|
◼ Focused
and differentiated portfolios provide the potential to generate
excess
returns |
Builds
portfolios that seek to have the majority of excess returns driven by
stock
selection. |
|
◼ Companies
aligned with key secular growth themes provide attractive
investment
opportunities |
Seeks
to identify long-term secular growth themes and conducts
fundamental
research to identify companies that in its view are aligned with
those
themes. |
The GSAM
Fundamental Equity Team’s investment philosophy is grounded in the belief that
we can achieve a competitive edge through selecting stocks. We seek to discover
a broad range of investment ideas while being flexible, nimble and avoiding
complacency. We believe a company’s prospective ability to generate high returns
on invested capital will strongly influence investment success.
From a
valuation perspective, the Investment Adviser generally looks for companies
where the Investment Adviser’s estimate of their earnings, asset value or cash
flow is meaningfully different from consensus; or where the Investment Adviser
believes a company’s intrinsic value is not reflected in the share price. Within
the valuation framework, the Investment Adviser actively searches for companies
that it believes can produce above average returns over the full market cycle.
As such, the Investment Adviser generally seeks companies that exhibit strong
corporate governance, such that minority shareholders may benefit from
returns.
The GSAM Fundamental Equity
Team may integrate ESG factors alongside traditional fundamental factors as part
of its fundamental research process to seek to assess overall business quality
and valuation, as well as potential risks. Traditional fundamental factors that
the GSAM Fundamental Equity Team may consider include, but are not limited to,
cash flows, balance sheet leverage, return on invested capital, industry
dynamics, earnings quality and profitability. ESG factors that the GSAM
Fundamental Equity Team may consider include, but are not limited to, carbon
intensity and emissions profiles, workplace health and safety, community impact,
32
Investment
Management Approach
governance practices and
stakeholder relations, employee relations, board structure, transparency and
management incentives. The identification of a risk related to an ESG factor
will not necessarily exclude a particular security or sector that, in the GSAM
Fundamental Equity Team’s view, is otherwise suitable and attractively priced
for investment, and the GSAM Fundamental Equity Team may invest in a security or
sector without integrating ESG factors or considerations into its fundamental
investment process. The relevance of specific traditional fundamental factors
and ESG factors to the fundamental investment process varies across asset
classes, sectors and strategies. The GSAM Fundamental Equity Team may utilize
data sources provided by third-party vendors and/or engage directly with issuers
when assessing the above factors.
The GSAM Fundamental Equity
Team employs a fundamental investment process that considers a wide range of
factors, and no one factor or consideration is determinative.
As a
stakeholder, each Fund has a vested interest in helping the companies in which
it invests unlock value by improving corporate practices and being thoughtful
stewards of capital. As part of its focus on long-term, active ownership, the
Investment Adviser may, in certain circumstances, use proxy voting and
engagement as some of the tools available to encourage positive corporate
decision making and productive change, where possible.
GSAM Quantitative
Investment Strategies (“QIS”) ETF Team’s Management Process
In managing
the Funds, the Investment Adviser may incorporate tax considerations into its
investment process. Specifically, in implementing the GSAM Fundamental Equity
Team’s security selection, the GSAM QIS ETF Team may employ tax management
overlay strategies to seek tax efficiency for each Fund and its shareholders.
These strategies generally seek to minimize taxable capital gain distributions
to shareholders and include:
◼
Use of a
Fund’s in-kind redemption mechanism to effect changes to the
portfolio
◼
Offsetting
long-term and short-term capital gains with long-term and short-term capital
losses and creating loss carryforward positions
There is no
guarantee that such tax management overlay strategies will be effective or will
materially reduce the amount of taxable capital gains distributed by a Fund to
shareholders.
|
OTHER
INVESTMENT PRACTICES AND
SECURITIES |
Although
each Fund’s principal investment strategies are described in each Fund’s
Summary—Principal Investment Strategies and Investment Management
Approach—Principal Investment Strategies sections of the Prospectus, the
following tables identify some of the investment techniques that may (but are
not required to) be used by the Funds in seeking to achieve their investment
objectives.
The Funds
may be subject to additional limitations on its investments not shown here.
Numbers in these tables show allowable usage only; for actual usage, consult the
Funds’ annual/semi-annual reports (when available). For more information about
these and other investment practices and securities, see Appendix A.
On each
business day, before commencement of trading in Fund Shares on NYSE Arca, each
Fund will disclose on its website (http://www.gsamfunds.com) the identities and
quantities of the portfolio securities and other assets held by the Fund that
will form the basis for the Funds’ calculation of NAV at the end of the business
day. In addition, a description of the Fund’s policies and procedures with
respect to the disclosure of the Funds’ portfolio holdings is available in the
Funds’ Statement of Additional Information (“SAI”).
33
|
10 Percent
of total assets (including securities lending collateral) (italic
type)
10 Percent
of net assets (excluding borrowings for investment purposes) (roman
type)
• No
specific percentage limitation on usage; limited only by the objective and
strategies
of the Fund |
Future
Consumer
Equity
ETF |
Future
Health Care
Equity
ETF |
Future
Planet
Equity
ETF |
Future
Real Estate and
Infrastructure
Equity ETF |
Future
Tech Leaders
Equity
ETF |
|
Investment
Practices |
|
|
|
|
|
|
Borrowings |
33 1∕3 |
33 1∕3 |
33 1∕3 |
33 1∕3 |
33 1∕3 |
|
Cross
Hedging of Currencies |
• |
• |
• |
• |
• |
|
Custodial
Receipts and Trust Certificates |
• |
• |
• |
• |
• |
|
Direct
Equity Investment |
• |
• |
• |
• |
• |
|
Equity,
Index and Currency Swaps |
• |
• |
• |
• |
• |
|
Foreign
Currency Transactions (including forward
contracts) |
• |
• |
• |
• |
• |
|
Futures
Contracts and Options and Swaps on
Futures
Contracts |
• |
• |
• |
• |
• |
|
Illiquid
Investments* |
15 |
15 |
15 |
15 |
15 |
|
Initial
Public Offerings (“IPO”) |
• |
• |
• |
• |
• |
|
Investment
Company Securities (including ETFs)1
|
10 |
10 |
10 |
10 |
10 |
|
Options
on Foreign Currencies |
• |
• |
• |
• |
• |
|
Options2
|
• |
• |
• |
• |
• |
|
Preferred
Stock, Warrants and Stock Purchase
Rights |
• |
• |
• |
• |
• |
|
Repurchase
Agreements |
• |
• |
• |
• |
• |
|
Securities
Lending |
33 1∕3 |
33 1∕3 |
33 1∕3 |
33 1∕3 |
33 1∕3 |
|
Short
Sales Against the Box |
• |
• |
• |
• |
• |
|
Unseasoned
Companies |
• |
• |
• |
• |
• |
|
When-Issued
Securities and Forward Commitments |
• |
• |
• |
• |
• |
*
Illiquid
investments are any investments that a Fund reasonably expects cannot be sold or
disposed of in current market conditions in seven calendar days or less without
the sale or disposition significantly changing the market value of the
investment.
1
This
percentage limitation does not apply to a Fund’s investments in other investment
companies (including ETFs) where a higher percentage limitation is permitted
under the Investment Company Act or rules,
regulations
or
exemptive
relief
thereunder.
2
Each
Fund may sell call and put options and purchase call and put options on
securities and other instruments in which a Fund may invest or any index
consisting of securities or other instruments in which it may
invest.
34
Investment
Management Approach
|
10 Percent
of total assets (italic type)
10 Percent
of net assets (including borrowings for investment purposes) (roman
type)
• No
specific percentage limitation on usage; limited only by the objectives
and
strategies
of the Fund
— Not
permitted |
Future
Consumer
Equity
ETF |
Future
Health Care
Equity
ETF |
Future
Planet
Equity
ETF |
Future
Real Estate and
Infrastructure
Equity ETF |
Future
Tech Leaders
Equity
ETF |
|
Investment
Securities |
|
|
|
|
|
|
American,
European and Global Depositary Receipts |
• |
• |
• |
• |
• |
|
Asset
Backed and Mortgage Backed Securities1
|
• |
• |
• |
• |
• |
|
Bank
Obligations1
|
• |
• |
• |
• |
• |
|
Convertible
Securities2
|
• |
• |
• |
• |
• |
|
Corporate
Debt Obligations1
|
• |
• |
• |
• |
• |
|
Emerging
Country Securities |
• |
• |
• |
• |
• |
|
Equity
Investments |
80+ |
80+ |
80+ |
80+ |
80+ |
|
Fixed
Income Securities3
|
20 |
20 |
20 |
20 |
20 |
|
Foreign
Government Securities |
• |
• |
• |
• |
• |
|
Foreign
Securities |
• |
• |
• |
• |
• |
|
Non-Investment
Grade Fixed Income Securities4
|
20 |
20 |
20 |
20 |
20 |
|
Other
Investment Companies (including ETFs) |
10 |
10 |
10 |
10 |
10 |
|
Pre-IPO
Investments (including late-stage private
equity
securities) |
• |
• |
• |
• |
• |
|
Real
Estate Investment Trusts (“REITs”) |
|
|
• |
• |
|
|
Structured
Securities (which may include equity or
credit-linked
notes)5
|
• |
• |
• |
• |
• |
|
Temporary
Investments |
• |
• |
• |
• |
• |
|
U.S.
Government Securities |
• |
• |
• |
• |
• |
1
Limited
by the amount a Fund invests in fixed income securities.
2
The
Funds use the same rating criteria for convertible and non-convertible debt
securities.
3
Except
as noted under “Non-Investment Grade Fixed Income Securities,” fixed income
securities must be investment grade (i.e., BBB– or higher by Standard &
Poor’s, Baa3 or higher by Moody’s or have a comparable credit rating by another
NRSRO or, if unrated, determined by the Investment Adviser to be of comparable
credit quality).
4
May
be BB+ or lower by Standard & Poor’s, Ba1 or lower by Moody’s or have a
comparable credit rating by another NRSRO at the time of investment.
5
Structured
securities are not subject to the same minimum credit quality requirements as
the Funds’ investments in fixed income securities.
35
Risks of
the Funds
Loss of
money is a risk of investing in the Fund (which, for the remainder of this
Prospectus, refers to one or more of the Funds offered in this Prospectus). An
investment in the Fund is not a bank deposit and is not insured or guaranteed by
the FDIC or any other governmental agency. The principal risks of the Fund are
discussed in the Summary sections of the Prospectus. The following section
provides additional information on the risks that apply to the Fund, which may
result in a loss of your investment. The risks applicable to the Fund are
presented below in alphabetical order, and not in the order of importance or
potential exposure. The Fund should not be relied upon as a complete investment
program. There can be no assurance that the Fund will achieve its investment
objective. Investments in the Fund involve substantial risks which prospective
investors should consider carefully before investing.
The Fund is
an actively managed ETF, which is a fund that trades like other publicly-traded
securities. The Fund is not an index fund and does not seek to replicate
the performance of a specified index.
Goldman
Sachs and its affiliates advise accounts and funds which have investment
objectives, investment strategies and/or policies similar to those of the Fund,
and such accounts and funds will have portfolio holdings that overlap with the
Fund. Due to differences in tax management considerations and implementation
techniques, trades of the Fund’s portfolio are generally executed after those of
such accounts and funds. As a result, the Fund’s investment results may be
higher or lower, and potentially significantly lower, than those of such
accounts and funds.
The
investment results of the Fund may be higher or lower than, and there is no
guarantee that the investment results of the Fund will be comparable to, similar
funds advised by Goldman Sachs or its affiliates. A new fund or a fund with
fewer assets under management may be more significantly affected by purchases
and redemptions of its Creation Units than a fund with relatively greater assets
under management would be affected by purchases and redemptions of its shares.
As compared to a larger fund, a new or smaller fund is more likely to sell a
comparatively large portion of its portfolio to meet significant Creation Unit
redemptions, or invest a comparatively large amount of cash to facilitate
Creation Unit purchases, in each case when the fund otherwise would not seek to
do so. Such transactions may cause funds to make investment decisions at
inopportune times or prices or miss attractive investment opportunities. Such
transactions may also accelerate the realization of taxable income if sales of
securities resulted in gains and the fund redeems Creation Units for cash, or
otherwise cause a fund to perform differently than intended. While such risks
may apply to funds of any size, such risks are heightened in funds with fewer
assets under management. In addition, new funds may not be able to fully
implement their investment strategy immediately upon commencing investment
operations, which could reduce investment performance.
36
Risks
of the Funds
|
✓ Principal
Risk
• Additional
Risk |
Future
Consumer
Equity
ETF |
Future
Health Care
Equity
ETF |
Future
Planet
Equity
ETF |
Future
Real Estate and
Infrastructure
Equity ETF |
Future
Tech Leaders
Equity
ETF |
|
Absence
of Active Market Risk |
• |
• |
• |
• |
• |
|
Authorized
Participant Concentration Risk |
• |
• |
• |
• |
• |
|
Credit/Default
Risk |
• |
• |
• |
• |
• |
|
Cybersecurity
Risk |
• |
• |
• |
• |
• |
|
Depositary
Receipts Risk |
✓ |
✓ |
✓ |
• |
✓ |
|
Derivatives
Risk |
• |
• |
• |
• |
• |
|
Emerging
Countries Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
|
ESG
Integration Risk |
• |
• |
• |
• |
• |
|
Foreign
Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Foreign
Custody Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Geographic
Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Health
Care Sector Risk |
|
✓ |
|
|
|
|
Industry
Concentration Risk |
✓ |
✓ |
|
✓ |
✓ |
|
Infrastructure
Company Risk |
|
|
|
✓ |
|
|
Interest
Rate Risk |
• |
• |
• |
• |
• |
|
Investment
Style Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
|
IPO
Risk |
• |
• |
• |
• |
• |
|
Issuer
Concentration Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Large
Shareholder Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Liquidity
Risk |
• |
• |
• |
• |
• |
|
Management
Risk |
• |
• |
• |
• |
• |
|
Market
Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Market
Trading Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Mid-Cap
and Small-Cap Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Non-Diversification
Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Non-Investment
Grade Fixed Income Securities Risk |
• |
• |
• |
• |
• |
|
Other
Investment Companies Risk |
• |
• |
• |
• |
• |
|
Real
Estate Industry Risk |
|
|
|
✓ |
|
|
REIT
Risk |
|
|
|
✓ |
|
|
Secondary
Listing Risk |
• |
• |
• |
• |
• |
|
Sector
Risk |
|
|
✓ |
|
|
|
Seed
Investor Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Stock
Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Technology
Sector Risk |
|
|
|
|
✓ |
|
Thematic
Investing Risk |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Trading
Issues Risk |
• |
• |
• |
• |
• |
|
U.S.
Government Securities Risk |
• |
• |
• |
• |
• |
|
Utilities
Industry Risk |
|
|
|
✓ |
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◼
Absence
of Active Market Risk—There can
be no assurance that active trading markets for the Shares will develop or be
maintained by market makers or authorized participants, and there are no
obligations of market makers to make a market in the Fund’s Shares or of
authorized participants to submit purchase or redemption orders for Creation
Units. ALPS Distributors, Inc., the distributor of the Shares (the
“Distributor”), does not maintain a secondary market in the Shares.
Although
market makers will generally take advantage of differences between the NAV and
the trading price of Fund Shares through arbitrage opportunities, there is no
guarantee that they will do so. Decisions by market makers or authorized
participants to reduce their role or “step away” from market making or
creation/redemption activities in times of market stress could inhibit the
effectiveness of the arbitrage process in maintaining the relationship between
the underlying value of the Fund’s portfolio securities and the Fund’s market
price. This reduced effectiveness could result in Shares trading at a discount
to NAV and also in greater than normal intraday bid/ask spreads for Shares.
Market makers and authorized participants may be less willing to create or
redeem Fund Shares if there is a lack of an active market for the Shares or its
underlying investments, which may also contribute to the Fund’s Shares trading
at a premium or discount to NAV.
◼
Authorized
Participant Concentration Risk—Only an
authorized participant may engage in creation or redemption transactions
directly with the Fund, and the Fund may have a limited number of financial
institutions that act as authorized participants. None of those authorized
participants is obligated to engage in creation and/or redemption transactions.
To the extent that those authorized
37
participants
exit the business or are unable to or choose not to process creation and/or
redemption orders, and no other authorized participant is able to step forward
to create and redeem Shares, there may be a significantly diminished trading
market for Shares. As a result, Shares may trade at a discount (or premium) to
NAV and possibly face trading halts and/or de-listing.
◼
Credit/Default
Risk—An issuer
or guarantor of fixed income securities or instruments held by the Fund
(which may have low credit ratings) may default on its obligation to pay
interest and repay principal or default on any other obligation. The credit
quality of the Fund’s portfolio securities or instruments may meet the Fund’s
credit quality requirements at the time of purchase but then deteriorate
thereafter, and such a deterioration can occur rapidly. In certain instances,
the downgrading or default of a single holding or guarantor of the Fund’s
holding may impair the Fund’s liquidity and have the potential to cause
significant deterioration in NAV. These risks are heightened in market
environments where interest rates are rising as well as in connection with the
Fund’s investments in non-investment grade fixed income
securities.
◼
Cybersecurity
Risk—The Fund
may be susceptible to operational and information security risks resulting from
cyber-attacks. Cyber-attacks include, among others, stealing or corrupting
confidential information and other data that is maintained online or digitally
for financial gain, denial-of-service attacks on websites causing operational
disruption, and the unauthorized release of confidential information and other
data. Cyber-attacks have the ability to cause significant disruptions and impact
business operations; to result in financial losses; to prevent shareholders from
transacting business; to interfere with the Fund’s calculation of NAV; and to
lead to violations of applicable privacy and other laws, regulatory fines,
penalties, reputational damage, reimbursement or other compensation costs and/or
additional compliance costs. Cyber-attacks affecting the Fund or its Investment
Adviser, custodian, Transfer Agent, or other third-party service providers may
adversely impact the Fund and its shareholders.
◼
Depositary
Receipts Risk—Foreign securities may
trade in the form of depositary receipts, including ADRs, GDRs and EDRs
(collectively " Depositary Receipts"). To the extent the Fund acquires
Depositary Receipts through banks which do not have a contractual relationship
with the foreign issuer of the security underlying the Depositary Receipts to
issue and service such unsponsored Depositary Receipts, there may be an
increased possibility that the Fund would not become aware of and be able to
respond to corporate actions such as stock splits or rights offerings involving
the foreign issuer in a timely manner. In addition, the lack of information may
result in inefficiencies in the valuation of such instruments. Investment in
Depositary Receipts does not eliminate all the risks inherent in investing in
securities of non-U.S. issuers. The market value of Depositary Receipts is
dependent upon the market value of the underlying securities and fluctuations in
the relative value of the currencies in which the Depositary Receipts and the
underlying securities are quoted. The Fund will not invest in any Depositary
Receipts that the Investment Adviser deems to be illiquid or for which pricing
information is not readily available. The
issuers of
Depositary Receipts may discontinue issuing new Depositary Receipts and withdraw
existing Depositary Receipts at any time, which may result in costs and delays
in the distribution of the underlying assets to the Fund and may negatively
impact the Fund’s performance.
◼
Derivatives
Risk—The
Fund’s use of derivatives and other similar instruments (collectively
referred to in this paragraph as “derivatives”) may result in losses, including
due to adverse market movements. Derivatives, which may pose risks in addition
to and greater than those associated with investing directly in securities,
currencies or other assets and instruments, may increase market exposure and be
illiquid or less liquid, volatile, difficult to price and leveraged so that
small changes in the value of the underlying assets or instruments may produce
disproportionate losses to the Fund. Certain derivatives are also subject to
counterparty risk, which is the risk that the other party in the transaction
will not fulfill,
or lacks the
capacity or authority to fulfill,
its
contractual obligations, liquidity risk,
which includes
the risk that the Fund will not be able to close its derivatives position when
it is advantageous to do so, and risks arising from margin requirements, which
include the risk that the Fund will be required to pay additional margin or set
aside additional collateral to maintain open derivative positions.
The use of
derivatives is a highly specialized activity that involves investment techniques
and risks different from those associated with investments in more traditional
securities and instruments, and there is no guarantee that the use of
derivatives will achieve their intended result. If the Investment Adviser is
incorrect in its expectation of the timing or level of fluctuation in securities
prices, interest rates, currency prices or other variables, the use of
derivatives could result in losses, which in some cases may be significant. A
lack of correlation between changes in the value of derivatives and the value of
the portfolio assets (if any) being hedged could also result in losses. In
addition, there is a risk that the performance of the derivatives or other
instruments used by the Investment Adviser to replicate the performance of a
particular asset class may not accurately track the performance of that asset
class. In addition, the Fund’s use of derivatives may increase or accelerate the
amount of taxes payable by shareholders.
The use of derivatives is
also subject to operational and legal risks. Operational risks generally refer
to risks related to potential operational issues, including documentation
issues, settlement issues, system failures, inadequate controls, and human
error. Legal risks generally refer to risks of loss resulting from insufficient
documentation or legality or enforceability of a contract.
Many of the
protections afforded to cleared transactions, such as the security afforded by
transacting through a clearing house, might not be available in connection with
over-the-counter (“OTC”) transactions. Therefore, in those instances in which
the Fund enters into OTC transactions, the Fund will be subject to the risk that
its direct counterparty will not perform its obligations under the transactions
and that the Fund will sustain losses.
38
Risks
of the Funds
◼
Emerging
Countries Risk—Investments in securities
of issuers located in, or otherwise economically tied to, emerging countries are
subject to the risks associated with investments in foreign securities. The
securities markets of most emerging countries are less liquid, developed and
efficient, are subject to greater price volatility, and have smaller market
capitalizations. In addition, emerging markets and frontier countries may have
more or less government regulation and generally do not impose as extensive and
frequent accounting, auditing, financial and other reporting requirements as the
securities markets of more developed countries. As a result, there could be less
information available about issuers in emerging and frontier market countries,
which could negatively affect the Investment Adviser’s ability to evaluate local
companies or their potential impact on the Fund’s performance. Further,
investments in securities of issuers located in certain emerging countries
involve the risk of loss resulting from problems in share registration,
settlement or custody, substantial economic, political and social disruptions
and the imposition of sanctions or exchange controls (including repatriation
restrictions). The legal remedies for investors in emerging and frontier markets
may be more limited than the remedies available in the U.S., and the ability of
U.S. authorities (e.g., SEC and the U.S.
Department of Justice) to bring actions against bad actors may be limited. These
risks are not normally associated with investments in more developed countries.
These risks may be greater for frontier markets. For more information about
these risks, see Appendix A.
◼
ESG
Integration Risk—The Investment Adviser
employs a fundamental investment process that may integrate ESG factors with
traditional fundamental factors. The relevance and weightings of specific
ESG factors to or within the fundamental investment process varies across asset
classes, sectors and strategies and no one factor or consideration is
determinative. When integrating ESG factors into the investment process,
the Investment Adviser may rely on third-party data that it believes to be
reliable, but it does not guarantee the accuracy of such third-party
data. ESG information from third-party data providers may be incomplete,
inaccurate or unavailable, which may adversely impact the investment
process. Moreover, ESG information, whether from an external and/or
internal source, is, by nature and in many instances, based on a qualitative and
subjective assessment. An element of subjectivity and discretion is
therefore inherent to the interpretation and use of ESG data. The process for
conducting ESG assessments and implementation of ESG views in client/fund
portfolios, including the format and content of such analysis and the tools
and/or data used to perform such analysis, may also vary among the Investment
Adviser’s portfolio management teams. While the Investment Adviser believes that
the integration of material ESG factors into the Fund’s investment process has
the potential to identify financial risks and contribute to the Fund’s long-term
performance, ESG factors may not be considered for each and every investment
decision, and there is no guarantee that the integration of ESG factors will
result in better performance. Investors can differ in their views of what
constitutes positive or negative ESG characteristics. Moreover, the current
lack of common standards may result in different approaches to integrating ESG
factors. As a result, the Fund may invest in companies that do not reflect
the beliefs and values of any particular investor. The Investment Adviser’s
approach to ESG integration may evolve and develop over time, both due to a
refinement of investment decision-making processes to address ESG factors and
risks, and because of legal and regulatory developments.
◼
Foreign
Risk—When the
Fund invests in foreign securities, it may be subject to risk of loss not
typically associated with U.S. issuers. Loss may result because of more or less
foreign government regulation; less public information; less stringent investor
protections; less stringent accounting, corporate governance, financial
reporting and disclosure standards; less liquid, developed or efficient trading
markets; greater volatility; and less economic, political and social stability
in the countries in which the Fund invests. Loss may also result from, among
other things, deteriorating economic and business conditions in other countries,
including the United States, regional and global conflicts, the imposition of
sanctions, exchange controls (including repatriation restrictions), foreign
taxes, confiscation of assets and property, trade restrictions (including
tariffs), expropriations and other government restrictions by the United States
and other governments, higher transaction costs, difficulty enforcing
contractual obligations or from problems in share registration, settlement or
custody. The type and severity of sanctions and other similar measures,
including counter sanctions and other retaliatory actions, that may be imposed
could vary broadly in scope, and their impact is impossible to predict. These
types of measures may include, but are not limited to, banning a sanctioned
country from global payment systems that facilitate cross-border payments,
restricting the settlement of securities transactions by certain investors, and
freezing the assets of particular countries, entities, or persons. The
imposition of sanctions and other similar measures could, among other things,
cause a decline in the value and/or liquidity of securities issued by the
sanctioned country or companies located in or economically tied to the
sanctioned country, downgrades in the credit ratings of the sanctioned country
or companies located in or economically tied to the sanctioned country,
devaluation of the sanctioned country’s currency, and increased market
volatility and disruption in the sanctioned country and throughout the world.
Sanctions and other similar measures could limit or prevent the Fund from buying
and selling securities
(in the
sanctioned country and other markets), significantly delay or prevent the
settlement of securities transactions, and significantly impact the Fund’s
liquidity and performance. The Fund or the Investment Adviser may determine not
to invest in, or may limit its overall investment in, a particular issuer,
country or geographic region due to, among other things, heightened risks
regarding sanctions, repatriation restrictions, confiscation of assets and
property, expropriation or nationalization. Geopolitical developments in certain
countries in which the Fund may invest have caused, or may in the future cause,
significant volatility in financial markets. For example, the United Kingdom
(“UK”) withdrew from the European Union (“EU”) on January 31, 2020 (commonly
known as “Brexit”), which has resulted in ongoing market volatility and caused
additional market disruption on a global basis. The UK and the EU signed the
EU-UK Trade and Cooperation Agreement (“TCA”), which is an agreement on the
terms governing certain aspects of the EU’s and UK’s relationship post Brexit.
39
However, under the TCA,
many aspects of the EU-UK relationship remain subject to further negotiation.
Although the full effects of Brexit are unknown at this time, Brexit may
continue to result in fluctuations of exchange rates, increased illiquidity,
inflation, and changes in legal and regulatory regimes to which the Fund’s
assets are subject. These and other geopolitical developments,
including
ongoing region armed conflict in Europe, could negatively impact the value of
the Fund’s investments.
The Fund's
investments in foreign securities may also be subject to foreign currency risk,
the risk of negative foreign currency rate fluctuations, which may cause the
value of securities denominated in such foreign currency (or other instruments
through which the Fund may have exposure to foreign currencies) to decline in
value. Currency exchange rates may fluctuate significantly over short
periods of time. Foreign risks will normally be greatest when the Fund invests
in securities of issuers located in emerging countries. For more information
about these risks, see Appendix A.
◼
Foreign
Custody Risk—The Fund
may hold foreign securities and cash with foreign banks, agents, and securities
depositories appointed by the Fund’s custodian (each a “Foreign Custodian”).
Some Foreign Custodians may be recently organized or new to the foreign custody
business. In some countries, Foreign Custodians may be subject to little or no
regulatory oversight over or independent evaluation of their operations.
Further, the laws of certain countries may place limitations on the Fund’s
ability to recover its assets if a Foreign Custodian enters bankruptcy.
Investments in emerging markets may be subject to even greater custody risks
than investments in more developed markets. Custody services in emerging
countries are very often under-developed and may be considerably less well
regulated than in more developed countries, and thus may not afford the same
level of investor protection as would apply in developed
countries.
◼
Geographic
Risk—If the Fund
focuses its investments in securities of issuers located in a particular country
or geographic region, it will subject the Fund, to a greater extent than if its
investments were less focused, to the risks of volatile economic cycles and/or
conditions and developments that may be particular to that country or region,
such as: adverse securities markets; adverse exchange rates; adverse social,
political, regulatory, economic, business, environmental or other developments;
or natural disasters.
◼
Health
Care Sector Risk—The Fund
will be subject to greater sensitive to the overall condition of the health care
sector because of its concentration. Companies in the health care sector may be
affected by extensive government regulations, restrictions on government
reimbursement for medical expenses, rising costs of medical products and
services, pricing pressure, an increased emphasis on outpatient services,
limited number of products, industry innovation, changes in technologies and
other market developments. Many health care companies are heavily dependent on
patent protection and are subject to extensive litigation based on product
liability and similar claims. Health care companies can be subject to
competitive pricing forces. New products in the health care sector may be
subject to long and costly regulatory approvals. Companies in the health care
sector may be thinly capitalized and may be susceptible to product
obsolescence.
◼
Industry
Concentration Risk—The Fund
concentrates its investments in specific industries or groups of industries that
have historically experienced substantial price volatility. The Fund is subject
to greater risk of loss as a result of adverse economic, business, political,
environmental or other developments than if its investments were diversified
across different industries or groups of industries. Securities of issuers held
by the Fund may lack sufficient market liquidity to enable the Fund to sell the
securities at an advantageous time or without a substantial drop in
price.
◼
Infrastructure
Company Risk—Infrastructure
companies are susceptible to various factors that may negatively impact their
businesses or operations, including costs associated with compliance with and
changes in environmental, governmental and other regulations, rising interest
costs in connection with capital construction and improvement programs,
government budgetary constraints that impact publicly funded projects, the
effects of general economic conditions throughout the world, surplus capacity
and depletion concerns, increased competition from other providers of services,
uncertainties regarding the availability of fuel and other natural resources at
reasonable prices, the effects of energy conservation policies, unfavorable tax
laws or accounting policies and high leverage.
◼
Interest
Rate Risk—When
interest rates increase, fixed income securities or instruments held by the Fund
(which may include inflation protected securities) will generally decline in
value. Long-term fixed income securities or instruments will normally have more
price volatility because of this risk than short-term fixed income securities or
instruments. A wide variety of market factors can cause interest rates to rise,
including central bank monetary policy, rising inflation and changes in general
economic conditions. The risks associated with changing interest rates may have
unpredictable effects on the markets and the Fund’s investments, and funds with
longer average portfolio durations will generally be more sensitive to changes
in interest rates than funds with a shorter average portfolio duration. In
addition, changes in monetary policy may exacerbate the risks associated with
changing interest rates.
Fluctuations
in interest rates may also affect the liquidity of fixed income securities and
instruments held by the Fund.
Although
interest rates
in the United States remain at relatively low levels, they are expected to
increase in the future. Certain countries have experienced negative interest
rates on certain fixed-income instruments. Changing interest rates
may result in
heightened market volatility and may detract from Fund performance to the extent
the Fund is exposed to such interest rates and/or volatility.
40
Risks
of the Funds
◼
Investment
Style Risk—Different
investment styles (e.g.,
“growth”, “value” or “quantitative”) tend to shift in and out of favor depending
upon market and economic conditions as well as investor sentiment. The Fund may
outperform or underperform other funds that invest in similar asset classes but
employ different investment styles. The Fund intends to employ a blend of growth
and value investment styles depending on market conditions, either of which may
fall out of favor from time to time. Growth stocks may be more volatile than
other stocks because they are more sensitive to investor perceptions of the
issuing company’s growth of earnings potential. Growth companies are often
expected by investors to increase their earnings at a certain rate. When these
expectations are not met, investors can punish the stocks inordinately even if
earnings showed an absolute increase. Also, since growth companies usually
invest a high portion of earnings in their business, growth stocks may lack the
dividends of some value stocks that can cushion stock prices in a falling
market. Growth oriented funds will typically underperform when value investing
is in favor. Value stocks are those that are undervalued in comparison to their
peers due to adverse business developments or other factors.
◼
IPO
Risk—The market
value of shares issued in an IPO will fluctuate considerably due to factors such
as the absence of a prior public market, unseasoned trading, the small number of
shares available for trading and limited information about a company’s business
model, quality of management, earnings growth potential, and other criteria used
to evaluate its investment prospects. The purchase of IPO shares may involve
high transaction costs. Investments in IPO shares, which are subject to market
risk and liquidity risk, involve greater risks than investments in shares of
companies that have traded publicly on an exchange for extended periods of time.
When the Fund’s asset base is small, a significant portion of the Fund’s
performance could be attributable to investments in IPOs, because such
investments would have a magnified impact on the Fund. As the Fund’s assets
grow, the effect of the Fund’s investments in IPOs on the Fund’s performance
probably will decline, which could reduce the Fund’s
performance.
◼
Issuer
Concentration Risk—The Fund’s
portfolio may be comprised of a relatively small number of companies in
comparison to other funds. As a result of the relatively small number of issuers
in which the Fund generally invests, it may be subject to greater risks than the
fund that invests in a greater number of issuers. A change in the value of any
single investment held by the Fund may affect the overall value of the Fund more
than it would affect a fund that holds more investments. In particular, the Fund
may be more susceptible to adverse developments affecting any single issuer in
the Fund and may be susceptible to greater losses because of these
developments.
◼
Large
Shareholder Risk—Certain
large shareholders, including other funds advised by the Investment Adviser, may
from time to time own a substantial amount of the Fund’s Shares. In addition, a
third party investor, the Investment Adviser or an affiliate of the Investment
Adviser, an authorized participant, a lead market maker, or another
entity (i.e., a seed
investor) may invest in the Fund and hold its investment solely to facilitate
commencement of the Fund or to facilitate the Fund’s achieving a specified size
or scale. Any such investment may be held for a limited period of time.
There can be no assurance that any large shareholder would not redeem its
investment. Dispositions of a large number of Shares by these shareholders,
which may occur rapidly or unexpectedly, may adversely affect the Fund’s
liquidity and net assets to the extent such transactions are executed directly
with the Fund in the form of redemptions through an authorized participant,
rather than executed in the secondary market. To the extent effected in cash,
these redemptions may also force the Fund to sell portfolio securities when it
might not otherwise do so, which may negatively impact the Fund’s NAV and
increase the Fund’s brokerage costs. Such cash redemptions may also accelerate
the realization of taxable income to shareholders, which could make investments
in Shares less tax-efficient than an investment in an ETF that is able to effect
redemptions in-kind. Similarly, large Fund share purchases through an authorized
participant may adversely affect the performance of the Fund to the extent that
the Fund is delayed in investing new cash or otherwise maintains a larger cash
position than it ordinarily would. To the extent these large shareholders
transact in Shares on the secondary market, such transactions may account for a
large percentage of the trading volume on NYSE Arca and may, therefore, have a
material upward or downward effect on the market price of the
Shares.
◼
Liquidity
Risk—The Fund
may invest in securities or instruments that trade in lower volumes,
that are less
liquid than other investments
and/or that
may become illiquid or less liquid in response to market developments or adverse
investor perceptions. Investments that are illiquid or that trade in lower
volumes may be more difficult to value. When there is no willing buyer and
investments cannot be readily sold at the desired time or price, the Fund may
have to accept a lower price or may not be able to sell the security or
instrument at all. An inability to sell one or more portfolio positions can
adversely affect the Fund’s value.
Illiquidity
can be caused
by a drop in overall market trading volume, an inability to find a willing
buyer, or legal restrictions on the securities’ resale. To the extent the Fund
engages in cash redemptions, then liquidity risk may also refer to the risk that
the Fund will not be able to pay redemption proceeds within the allowable time
period or without significant dilution to remaining investors’ interests because
of unusual market conditions, an unusually high volume of redemption requests, a
redemption request by a large shareholder (such as a seed investor) or other
reasons. If the Fund is forced to sell securities at an unfavorable time and/or
under unfavorable conditions, such sales may adversely affect the Fund’s NAV and
dilute remaining investors’ interests.
◼
Management
Risk—A
strategy used by the Investment Adviser may fail to produce the intended
results.
41
◼
Market
Risk—The value
of the securities in which the Fund invests may go up or down in response to the
prospects of individual companies, particular sectors or governments and/or
general economic conditions throughout the world. Price changes may be temporary
or last for extended periods. The Fund's investments may be overweighted from
time to time in one or more sectors or countries, which will increase the
Fund's exposure to risk of loss from adverse developments affecting those
sectors or countries.
Global economies and
financial markets are becoming increasingly interconnected, and conditions and
events in one country, region or financial market may adversely impact issuers
in a different country, region or financial market. Furthermore, local, regional
and global events such as war, military conflict, acts of terrorism, social
unrest, natural disasters, recessions, inflation, rapid interest rate changes,
supply chain disruptions, sanctions, the spread of infectious illness or other
public health threats could also adversely impact issuers, markets and
economies, including in ways that cannot necessarily be foreseen. The Fund could
be negatively impacted if the value of a portfolio holding were harmed by such
political or economic conditions or events. In addition, governmental and
quasi-governmental organizations have taken a number of unprecedented actions
designed to support the markets. Such conditions, events and actions may result
in greater market risk.
◼
Market
Trading Risk—The NAV of the Fund and
the value of your investment may fluctuate. Market prices of Shares may
fluctuate, in some cases significantly, in response to the Fund’s NAV, the
intraday value of the Fund’s holdings and supply and demand for Shares. The Fund
faces numerous market trading risks, including disruptions to creations and
redemptions, the existence of extreme market volatility or potential lack of an
active trading market for Shares. If a shareholder purchases Shares at a time
when the market price is at a premium to the NAV or sells Shares at a time when
the market price is at a discount to the NAV, the shareholder may pay more for,
or receive less than, they underlying value of the Shares, respectively. The
Investment Adviser cannot predict whether Shares will trade below, at or above
their NAV. Price differences may be due, in large part, to the fact that supply
and demand forces at work in the secondary trading market for Shares will be
closely related to, but not identical to, the same forces influencing the prices
of the securities in the Fund's portfolio trading individually or in the
aggregate at any point in time. While the creation/redemption feature is
designed to make it more likely that the Fund’s Shares normally will trade on
stock exchanges at prices close to the Fund’s next calculated NAV, exchange
prices are not expected to correlate exactly with the Fund’s NAV due to timing
reasons, supply and demand imbalances, perception of unreliability of disclosed
NAV, and other factors. Any of these factors, among others, may result in Shares
trading at a significant premium or discount to NAV, which will be reflected in
the intraday bid/ask spreads and/or the closing price of Shares as compared to
NAV. In addition, because liquidity in certain underlying securities may
fluctuate, Shares may trade at a larger premium or discount to NAV than Shares
of other kinds of ETFs. Additionally, in stressed market conditions, the market
for Shares may become less liquid in response to deteriorating liquidity in the
markets for the Fund’s underlying portfolio holdings. There are various methods
by which investors can purchase and sell Shares and various orders that may be
placed. Investors should consult their financial intermediary before purchasing
or selling Shares of the Fund.
An investor
that buys or sells Shares through a broker will likely incur a brokerage
commission or other charge imposed by the broker. In addition, the market price
of Shares, like other exchange-traded securities, includes a “bid-ask spread”
(the difference between the price at which investors are willing to buy Shares
and the price at which investors are willing to sell Shares). The bid-ask spread
will vary over time based on the Fund’s trading volume and market liquidity and
may increase as a result of a decrease in the Fund’s trading volume, the spread
of the Fund’s underlying securities, or market liquidity. The bid-ask spread may
increase significantly in times of market disruption, meaning that Shares may
trade at a discount to the Fund’s NAV and that discount is likely to be greatest
during significant market volatility. During such periods, you may be
unable to sell your Shares or may incur significant losses if you sell your
Shares.
Shares of
the Fund, like other publicly-traded securities, may be sold short. Shares are
therefore subject to the risk of price decreases and increased volatility
associated with being sold short.
◼
Mid-Cap
and Small-Cap Risk—The
securities of mid-capitalization and small-capitalization companies involve
greater risks than those associated with larger, more established companies and
may be subject to more abrupt or erratic price movements. Smaller technology
companies may not be widely followed by the investment community, which can
lower the demand for their stocks. In addition, smaller technology companies
tend to have fewer key suppliers and customers, products, markets, distribution
channels or financial resources, and management of such technology companies may
be dependent upon one or a few key people. As a result, any changes to these
factors may have a greater impact on a smaller technology company’s stock price
than on a larger company. Securities of such issuers may lack sufficient
market liquidity to enable the Fund to effect sales at an advantageous time or
without a substantial drop in price. Both mid-capitalization and
small-capitalization companies often have narrower markets and more limited
managerial and financial resources than larger, more established companies. As a
result, their performance can be more volatile and they face greater risk of
business failure, which could increase the volatility of the Fund's portfolio.
Generally, the smaller the company size, the greater these risks
become.
◼
Non-Diversification
Risk—The Fund is
non-diversified, meaning that it is permitted to invest a larger percentage of
its assets in one or more issuers or in fewer issuers than diversified funds.
Thus, the Fund may be more susceptible to adverse developments affecting any
single issuer held in its portfolio, and may be more susceptible to greater
losses because of these developments.
42
Risks
of the Funds
◼
Non-Investment
Grade Fixed Income Securities Risk—Non-investment
grade fixed income securities and unrated securities of comparable credit
quality (commonly known as “junk bonds”) are considered speculative and are
subject to the increased risk of an issuer’s inability to meet principal and
interest payment obligations. These securities may be subject to greater price
volatility due to such factors as specific issuer developments, interest rate
sensitivity, negative perceptions of the junk bond markets generally and less
liquidity.
◼
Other
Investment Companies Risk—By investing in other
investment companies (including ETFs) indirectly through the Fund, investors
will incur a proportionate share of the expenses of the other investment
companies held by the Fund (including operating costs and investment management
fees) in addition to the fees regularly borne by the Fund. In addition, the Fund
will be affected by the investment policies, practices and performance of such
investment companies in direct proportion to the amount of assets the Fund
invests therein.
◼
Real
Estate Industry Risk—The Fund is
subject to certain risks associated with real estate in general. These risks
include, among others: possible declines in the value of real estate; risks
related to general and local economic conditions; possible lack of availability
of mortgage financing; variations in rental income, neighborhood values or the
appeal of property to tenants; limits on rents; interest rates; overbuilding;
extended vacancies of properties; increases in competition, property taxes and
operating expenses; and changes in zoning laws. In addition, real estate
industry companies that hold mortgages may be affected by the quality of any
credit extended. Real estate industry companies are dependent upon management
skill, may not be diversified, and are subject to heavy cash flow dependency,
default by borrowers and self-liquidation. Real estate industry companies whose
underlying properties are concentrated in a particular industry or geographic
region are also subject to risks affecting such industries and regions. The real
estate industry is particularly sensitive to economic downturns. The values of
securities of companies in the real estate industry may go through cycles of
relative under-performance and out-performance in comparison to equity
securities markets in general.
◼
REIT
Risk— Investing
in REITs involves certain unique risks in addition to those risks associated
with investing in the real estate industry in general. REITs whose underlying
properties are concentrated in a particular industry or geographic region are
also subject to risks affecting such industries and regions. The securities of
REITs involve greater risks than those associated with larger, more established
companies and may be subject to more abrupt or erratic price movements because
of interest rate changes, economic conditions and other factors. REITs may also
fail to qualify for tax free pass-through of income or may fail to maintain
their exemptions from investment company registration. Securities of such
issuers may lack sufficient market liquidity to enable the Fund to effect sales
at an advantageous time or without a substantial drop in
price.
◼
Secondary
Listing Risk—The Fund’s
Shares may be listed or traded on U.S. and non-U.S. stock exchanges other than
the U.S. stock exchange where the Fund’s primary listing is maintained. There
can be no assurance that the Fund’s Shares will continue to trade on any such
stock exchange or in any market or that the Fund’s Shares will continue to meet
the requirements for listing or trading on any exchange or in any market. The
Fund’s Shares may be less actively traded in certain markets than in others, and
investors are subject to the execution and settlement risks and market standards
of the market where they or their broker direct their trades for execution.
Certain information available to investors who trade Fund Shares on a U.S. stock
exchange during regular U.S. market hours may not be available to investors who
trade in other markets, which may result in secondary market prices in such
markets being less efficient. Shares of the Fund may trade in the secondary
market outside of the trading hours of the Fund’s primary exchange. At such
times, Shares may trade with more significant premiums or discounts than might
be experienced otherwise.
◼
Sector
Risk— To the
extent the Fund focuses its investments in securities of issuers in one or more
sectors (such as the industrials, materials or technology sectors), the Fund
will be subject, to a greater extent than if its investments were diversified
across different sectors, to the risks of volatile economic cycles and/or
conditions and developments that may be particular to that sector, such as:
adverse economic, business, political, environmental or other
developments.
◼
Industrials
Sector—The value
of securities issued by industrials companies may be adversely affected by
supply and demand changes related to their products or services, obsolescence
due to rapid technological developments and frequent new product introduction,
intense competition, government regulations, global events, trade disputes,
changes in economic conditions and exchange rates, liability for environmental
damage and product liability claims, among other factors.
◼
Materials
Sector—The value
of securities issued by materials companies may be adversely affected by
commodity price volatility, changes in demand, exchange rates, social and
political unrest, import controls, increased competition, depletion of
resources, obsolescence of production methods due to technological developments,
labor relations and government regulations, mandated expenditures for safety and
pollution control, and liability for environmental damage and product liability
claims, among other factors.
43
◼
Technology
Sector—The value
of securities issued by technology and technology-related companies may be
adversely affected by intense market volatility, aggressive competition and
pricing, consumer preferences, short product cycles, lack of commercial success
for new products, product obsolescence or incompatibility, government regulation
and excessive investor optimism or pessimism, among other
factors.
◼
Seed
Investor Risk—GSAM
and/or its affiliates may make payments to one or more investors that contribute
seed capital to the Fund. Such payments may continue for a specified period of
time and/or until a specified dollar amount is reached. Those payments will be
made from the assets of GSAM and/or such affiliates (and not the Fund). Seed
investors may contribute all or a majority of the assets in the Fund. There is a
risk that such seed investors may redeem all or part of their investments in the
Fund, particularly after payments from GSAM and/or its affiliates have ceased.
The timing of a redemption by a seed investor could benefit the seed investor.
As with redemptions by other large shareholders, such redemptions could have a
significant negative impact on the Fund, including by reducing the Fund's
liquidity, causing the Fund to realize gains that will be distributed and
taxable to remaining shareholders and increasing the Fund's transaction costs. A
large redemption may also have a material upward or downward effect on the
market price of the Fund's Shares.
◼
Stock
Risk—Stock
prices have historically risen and fallen in periodic cycles. U.S. and
foreign stock markets have experienced periods of substantial price volatility
in the past and may do so again in the future. Stock prices may fluctuate from
time to time in response to the activities of individual companies and in
response to general market and economic conditions. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments, and the stock prices of such companies may suffer a decline in
response.
◼
Technology
Sector Risk—The stock
prices of technology and technology-related companies and therefore the value of
the Technology Opportunities Fund may experience significant price movements as
a result of intense market volatility, worldwide competition, consumer
preferences, product compatibility, product obsolescence, government regulation,
excessive investor optimism or pessimism, or other factors. Many of the products
and services offered by technology companies are subject to the risk of short
product cycles. Certain technology-related companies may face special risks that
their products or services may not prove to be commercially successful. Such
companies also may be subject to risks relating to research and development
costs and the availability and price of components. As product cycles shorten
and manufacturing capacity increases, these companies could become increasingly
subject to aggressive pricing and competition, which hampers
profitability.
◼
Thematic
Investing Risk—The Fund’s
thematic investment strategy limits the universe of investment opportunities
available to the Fund and will affect the Fund’s exposure to certain companies,
sectors, regions, and countries, which may result in the Fund forgoing
opportunities to buy or sell certain securities when it might otherwise be
advantageous to do so. Adhering to the Fund’s thematic investment strategy may
also affect the Fund’s performance relative to similar funds that do not seek to
invest in companies exposed to the applicable themes.
The
Investment Adviser seeks to identify and invest in companies that it believes
are aligned or associated with certain themes. However, investors’ views may
differ as to what may be aligned with these themes. There is no guarantee that
the Investment Adviser’s views, security selection criteria or investment
judgment will reflect the beliefs or values of any particular investor. In
addition, there can be no assurance that companies in which the Fund invests
will be successful in their efforts to align or associate with these themes.
When assessing whether an issuer meets the Fund’s investment strategy and
criteria, the Investment Adviser may rely on third-party data that it believes
to be reliable, but it does not guarantee the accuracy of such third party data.
Certain investments may be dependent on U.S. and foreign government policies,
including tax incentives and subsidies, which may change without notice. The
Fund’s thematic investment strategy and criteria may be changed without
shareholder approval.
In
addition, the Investment Adviser is not required to monitor on an ongoing basis
whether a current holding continues to be aligned with or is otherwise
associated with certain themes. The Fund is not required to sell, and may
instead add to, positions in holdings that no longer continue to be aligned with
or associated with these themes.
◼
Trading
Issues Risk—Trading in
Shares on NYSE Arca 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 NYSE Arca is subject to trading halts caused by
extraordinary market volatility pursuant to NYSE Arca's “circuit breaker” rules.
If a trading halt or unanticipated closing of the exchange occurs, a
shareholder may be unable to purchase or sell Shares. There can be no assurance
that the requirements of NYSE Arca necessary to maintain the listing of the Fund
will continue to be met or will remain unchanged.
◼
U.S.
Government Securities Risk—The U.S.
government may not provide financial support to U.S. government agencies,
instrumentalities or sponsored enterprises if it is not obligated to do so by
law. U.S. Government Securities issued by those agencies, instrumentalities and
sponsored enterprises, including those issued by the Federal National Mortgage
Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie
Mac”) and the Federal Home Loan Banks, are neither issued nor guaranteed by the
U.S. Treasury and, therefore, are not backed by the full faith and credit of the
United States. The maximum potential liability of the issuers of some U.S.
Government Securities held by the Fund may greatly exceed their current
resources, including any legal right to support from the U.S. Treasury. It is
possible that issuers of U.S. Government Securities will not have
44
Risks
of the Funds
the funds
to meet their payment obligations in the future. Fannie Mae and Freddie Mac have
been operating under conservatorship, with the Federal Housing Finance Agency
(“FHFA”) acting as their conservator, since September 2008. The entities are
dependent upon the continued support of the U.S. Department of the Treasury and
FHFA in order to continue their business operations. These factors, among
others, could affect the future status and role of Fannie Mae and Freddie Mac
and the value of their securities and the securities which they guarantee.
Additionally, the U.S. government and its agencies and instrumentalities do not
guarantee the market values of their securities, which may
fluctuate.
◼
Utilities
Industry Risk—Securities
in the utilities industry can be very volatile and can be impacted significantly
by supply and demand for services or fuel, government regulation, conservation
programs, commodity price fluctuations and other factors. Government regulation
of utility companies may limit those companies’ profits or the dividends they
can pay to investors. In addition, utility companies may face regulatory
restrictions with respect to expansion to new markets, limiting their growth
potential. Technological developments may lead to increased competition, which
could impact a company’s performance.
◼
Valuation
Risk—The sale
price the Fund could receive for a security may differ from the Fund’s valuation
of the security, particularly for securities that trade in low volume or
volatile markets or that are valued using a fair value methodology.Because
non-U.S. exchanges may be open on days when the Fund does not price its Shares,
the value of foreign securities or assets in the Fund's portfolio may change on
days when investors will not be able to purchase or sell the Fund's Shares. The
Fund relies on various sources to calculate its NAV. The information may be
provided by third parties that are believed to be reliable, but the information
may not be accurate due to errors by such pricing sources, technological issues
or otherwise. NAV calculation may also be impacted by operational risks arising
from factors such as failures in systems and technology.
45
Tax
Advantaged Product Structure
Unlike many
conventional mutual funds which are only bought and sold at closing NAVs, the
Shares of the Fund, like Shares of certain other ETFs, have been designed to be
redeemed principally in-kind in Creation Units at each day’s market close. These
in-kind arrangements are designed to mitigate adverse effects on the Fund’s
portfolio that could arise from frequent cash redemption transactions that
affect the NAV of the Fund. Moreover, in contrast to conventional mutual funds,
where frequent redemptions can have an adverse tax impact on taxable
shareholders because of the need to sell portfolio securities which, in turn,
may generate taxable gain, the in-kind redemption mechanism of the Fund to the
extent used, generally is not expected to lead to a tax event for shareholders
whose Shares are not being redeemed. There is no guarantee that these tax
advantages will be realized or will materially reduce the amount of taxable
capital gains distributed by the Fund to shareholders.
46
Service
Providers
|
INVESTMENT
ADVISER |
|
Investment
Adviser |
Funds |
|
Goldman
Sachs Asset Management, L.P.
200
West Street
New
York, NY 10282 |
Goldman
Sachs Future Consumer Equity ETF
Goldman
Sachs Future Health Care Equity ETF
Goldman
Sachs Future Planet Equity ETF
Goldman
Sachs Future Real Estate and Infrastructure Equity ETF
Goldman
Sachs Future Tech Leaders Equity
ETF |
GSAM has been registered as
an investment adviser with the SEC since 1990 and is an indirect, wholly-owned
subsidiary of The Goldman Sachs Group, Inc. and an affiliate of Goldman
Sachs & Co. LLC (“Goldman Sachs”). Founded in 1869, The Goldman Sachs
Group, Inc. is a publicly-held financial holding company and a leading global
investment banking, securities and investment management firm. As of September
30, 2022, GSAM, including its investment advisory affiliates, had assets under
supervision of approximately $2.19 trillion.
The
Investment Adviser is responsible for the day-to-day management of the Fund and
places purchase and sale orders for the Fund’s portfolio transactions in U.S.
and foreign markets. As permitted by applicable law, these orders may be
directed to any executing brokers, dealers, futures commission merchants
(“FCMs”) or other counterparties, including Goldman Sachs and its affiliates.
While the Investment Adviser is ultimately responsible for the management of the
Fund, it is able to draw upon the research and expertise of its asset management
affiliates with respect to managing certain portfolio securities. In addition,
the Investment Adviser has access to proprietary tools developed by Goldman
Sachs (subject to legal, internal, regulatory and Chinese wall restrictions),
and will apply quantitative and qualitative analysis in determining the
appropriate allocations among categories of issuers and types of
securities.
The Investment Adviser also
performs the following additional services for the Fund, to the extent such
services are not required to be performed by others pursuant to the fund
administration and accounting agreement, the custodian agreement, the transfer
agency agreement, distribution agreement or such other agreements with service
providers to the Fund that the Board has approved:
◼
Supervises non-advisory
operations of the Fund, including oversight of vendors hired by the Fund,
oversight of Fund liquidity and risk management, oversight of regulatory
inquiries and requests with respect to the Fund made to the Investment Adviser,
valuation and accounting oversight and oversight of ongoing compliance with
federal and state securities laws, tax regulations, and other applicable
law
◼
Provides personnel to
perform such executive, administrative and clerical services as are reasonably
necessary to provide effective administration of the Fund
◼
Arranges
for: (a) the preparation of all required tax returns, (b) the preparation and
submission of reports to existing shareholders, (c) the periodic updating of
prospectuses and statements of additional information and (d) the preparation of
reports to be filed with the SEC and other regulatory authorities
◼
Maintains
the records of the Fund
◼
Provides
office space and necessary office equipment and services for the Investment
Adviser
◼
Markets the
Fund
An
investment in the Fund may be negatively impacted because of the operational
risks arising from factors such as processing errors and human errors,
inadequate or failed internal or external processes, failures in systems and
technology, changes in personnel, and errors caused by third-party service
providers or trading counterparties. Although the Fund attempts to minimize such
failures through controls and oversight, it is not possible to identify all of
the operational risks that may affect the Fund or to develop processes and
controls that completely eliminate or mitigate the occurrence of such failures.
The Fund and its shareholders could be negatively impacted as a
result.
GSAM may manage other
funds, accounts, additional pooled vehicles and/or separate accounts that have
similar investment strategies to those of the Fund. These funds, pooled vehicles
or accounts may perform differently than the Fund despite their similar
strategies. Because the pooled vehicles may not be registered under the
Investment Company Act, they are subject to fewer regulatory restraints than the
Fund (e.g., fewer trading constraints) and may employ strategies that are not
subject to the same constraints as the Fund.
47
GSAM and/or
its affiliates expect to make payments to one or more investors that contribute
seed capital to the Fund for so long as such capital remains invested in the
Fund. Such payments will be made from the assets of GSAM and/or such affiliates
and will be based on revenues generated by GSAM in providing services to one or
more ETFs for which it serves as investment adviser. Seed investors may
contribute all or a majority of the assets in the Fund. There is a risk that
such seed investors may redeem their investments in the Fund. As with
redemptions by other large shareholders, such redemptions could have a
significant negative impact on the Fund.
From time to time, Goldman
Sachs or any of its affiliates may purchase and hold Shares of the Fund. Goldman
Sachs and its affiliates reserve the right to redeem or sell at any time some or
all of the Shares acquired for their own accounts.
|
MANAGEMENT
FEE AND OTHER EXPENSES |
Pursuant to
the Fund’s Management Agreement, as compensation for its services to the Fund,
the Investment Adviser is entitled to a management fee, computed daily and
payable monthly, at an annual rate listed below (as a percentage of the Fund’s
average daily net assets). Under the Management Agreement, the Investment
Adviser is responsible for substantially all the expenses of the Fund, excluding
payments under the Fund’s 12b-1 plan (if any), interest expenses, taxes,
acquired fund fees and expenses, brokerage fees, costs of holding shareholder
meetings and litigation, indemnification and extraordinary expenses.
|
Fund |
Fee
as a
Percentage
of
Average
Daily Net
Assets |
|
Goldman
Sachs Future Consumer Equity ETF
Goldman
Sachs Future Health Care Equity ETF
Goldman
Sachs Future Planet Equity ETF
Goldman
Sachs Future Real Estate and Infrastructure Equity ETF
Goldman
Sachs Future Tech Leaders Equity ETF |
0.75%
0.75%
0.75%
0.75%
0.75% |
For the fiscal year ended
August 31,
2022, the
effective net unitary management fee rate (as a percentage of the Fund’s average
daily net assets) was 0.75% for each Fund.
The Investment Adviser may waive a portion of its management fee, including fees earned as the Investment Adviser to any of the affiliated funds in which the Fund invests, except those management fees it earns from the Fund’s investments of cash collateral received in connection with securities lending transactions in affiliated funds, from time to time, and may discontinue or modify any such waivers in the future, consistent with the terms of any fee waiver arrangements that may be in place.
The Investment Adviser may waive a portion of its management fee, including fees earned as the Investment Adviser to any of the affiliated funds in which the Fund invests, except those management fees it earns from the Fund’s investments of cash collateral received in connection with securities lending transactions in affiliated funds, from time to time, and may discontinue or modify any such waivers in the future, consistent with the terms of any fee waiver arrangements that may be in place.
A discussion regarding the
basis for the Board of Trustees’ approval of the Management Agreement for
Goldman Sachs Future Consumer Equity ETF, Goldman Sachs Future Health Care
Equity ETF, Goldman Sachs Future Real Estate and Infrastructure Equity ETF and
Goldman Sachs Future Tech Leaders Equity ETF is available in the Funds'
semi-annual report dated
February
28, 2022.
A
discussion
regarding the
basis for the Board of Trustees’ approval of the Management Agreement for
Goldman Sachs Future Planet Equity ETF is available in the Fund's annual report
dated August 31, 2021.
48
Service
Providers
|
FUND
MANAGERS |
The
individuals jointly and primarily responsible for the day-to-day management of
the Fund are listed below. The Fund’s portfolio managers' individual
responsibilities may differ and may include, among other things, security
selection, asset allocation, risk budgeting, selecting the composition of
creation and redemption baskets, general oversight of the implementation
processes and management of the Fund’s portfolio.
|
Name
and Title |
Fund
Responsibility |
Years
Primarily
Responsible |
Five
Year Employment History |
|
Jenny
Chang
Vice
President |
Co-Portfolio
Manager—
Future
Health Care Equity
ETF |
Since
2021 |
Ms.
Chang joined the Investment Adviser in 2016. |
|
Sung
Cho
Managing
Director |
Co-Portfolio
Manager—
Future
Tech Leaders Equity
ETF |
Since
2021 |
Mr.
Cho joined the Investment Adviser in 2004. He is a
portfolio
manager on the Fundamental Equity Team and has
broad
research responsibilities. |
|
Charles
“Brook” Dane
Managing
Director |
Co-Portfolio
Manager—
Future
Tech Leaders Equity
ETF |
Since
2021 |
Mr.
Dane joined the Investment Adviser in 2010. He is a
portfolio
manager on the Fundamental Equity Team and has
broad
research responsibilities. |
|
Alexis
Deladerrière, CFA
Managing
Director |
Co-Portfolio
Manager—
Future
Consumer Equity ETF
Future
Planet Equity ETF |
Since
2021
2021 |
Mr.
Deladerrière is the Head of International Developed
Markets
Equity within the Fundamental Equity Team and a
portfolio
manager of Global and International Equity
strategies.
Mr. Deladerrière joined the Investment Adviser in
July
2002. |
|
Laura
Destribats
Vice
President |
Co-Portfolio
Manager—
Future
Consumer Equity ETF |
Since
2021 |
Ms.
Destribats is Co-Lead Portfolio Manager of the GSAM
Global
Millennials Equity Strategy and lead research analyst
for
the Global Equity team with responsibilities in
ConsumerDiscretionary,
Internet and Business Services. Ms.
Destribats
joined the Investment Adviser in 2012. |
|
Raj
Garigipati
Managing
Director |
Co-Portfolio
Manager—
Future
Consumer Equity ETF
Future
Health Care Equity
ETF
Future
Planet Equity ETF
Future
Real Estate and
Infrastructure
Equity ETF
Future
Tech Leaders Equity
ETF |
Since
2021
2021
2021
2021
2021 |
Mr.
Garigipati joined the ETF Portfolio Management team
within
the QIS team in 2015. Prior to joining the ETF
Portfolio
Management team, he had been the Chief Risk
Officer
of the QIS team since 2011. |
|
Kristin
Kuney
Managing
Director |
Co-Portfolio
Manager—
Future
Real Estate and
Infrastructure
Equity ETF |
Since
2021 |
Ms.
Kuney joined the Investment Adviser in 2000. She is a
portfolio
manager on the Fundamental Equity Team and has
research
responsibilities for the liquid real assets business
and
sectors. |
|
Nathan
Lin
Vice
President |
Co-Portfolio
Manager—
Future
Consumer Equity ETF
Future
Tech Leaders Equity
ETF |
Since
2021
2021 |
Mr.
Lin is Co-Lead Portfolio Manager of the GSAM Global
Future
Technology Leaders Strategy and the GSAM Global
Millennials
Equity Strategy. Mr. Lin joined the Investment
Adviser
in 2008. |
|
Anant
Padmanabhan
Vice
President |
Co-Portfolio
Manager—
Future
Health Care Equity
ETF |
Since
2021 |
Ms.
Padmanabhan joined the Investment Adviser in
2014. |
|
Abhinav
Zutshi, CFA
Vice
President |
Co-Portfolio
Manager—
Future
Real Estate and
Infrastructure
Equity ETF |
Since
2021 |
Mr.
Zutshi joined the Investment Adviser in 2009. He is a
portfolio
manager on the Fundamental Equity Team and has
research
responsibilities for the liquid real assets business
and
sectors. |
For
information about portfolio manager compensation, other accounts managed by a
portfolio manager and portfolio manager ownership of securities in the Fund, see
the SAI.
|
DISTRIBUTOR |
ALPS Distributors, Inc.,
1290 Broadway, Suite 1000, Denver, Colorado 80203, serves as the exclusive
distributor of Creation Units of Shares of the Fund pursuant to a “best efforts”
arrangement as provided by a distribution agreement with the Trust on behalf of
the Fund. Shares of the Fund are offered and sold on a continuous basis by the
Distributor, acting as agent. The Distributor does not maintain a secondary
market in the Fund’s Shares.
49
|
TRANSFER
AGENT, CUSTODIAN AND
PROVIDER
OF ADMINISTRATIVE SERVICES |
The Bank of
New York Mellon (“BNYM”), 240 Greenwich Street, New York, New York 10286, serves
as the Trust’s transfer and dividend disbursing agent. Under its transfer agency
agreement with the Trust, BNYM has undertaken with the Trust to provide the
following services with respect to the Fund: (i) perform and facilitate the
performance of purchases and redemptions of Creation Units, (ii) prepare and
transmit by means of Depository Trust Company’s (“DTC”) book-entry system
payments for dividends and distributions on or with respect to the Shares
declared by the Trust on behalf of the Fund, (iii) prepare and deliver reports,
information and documents as specified in the transfer agency agreement, (iv)
perform the customary services of a transfer agent and dividend disbursing
agent, and (v) render certain other miscellaneous services as specified in the
transfer agency agreement or as otherwise agreed upon.
BNYM is the
custodian of the Trust’s portfolio securities and cash. The custodian of the
Trust may change from time to time. BNYM also maintains the Trust’s accounting
records. BNYM may appoint domestic and foreign sub-custodians and use
depositories from time to time to hold securities and other instruments
purchased by the Trust in foreign countries and to hold cash and currencies for
the Trust.
BNYM
provides administrative services pursuant to a fund administration agreement
with the Trust (the “Fund Administration and Accounting Agreement”) pursuant to
which BNYM provides certain services, including, among others, (i) preparation
of certain shareholder reports and communications; (ii) preparation of certain
reports and filings with the SEC; (iii) certain NAV computation services; and
(iv) such other services for the Trust as may be mutually agreed upon between
the Trust and BNYM. For its services under the Fund Administration and
Accounting Agreement, BNYM receives such fees based on a stated percentage of
net assets as are agreed upon from time to time between the parties. In
addition, BNYM is reimbursed for reasonable out-of-pocket expenses incurred in
connection with the Fund Administration and Accounting Agreement. In addition,
an affiliate of BNYM will also provide certain other services for the Trust,
including, (i) providing foreign exchange transaction services and (ii)
executing trades in connection with certain creation and redemption transactions
effected partially in cash. For these services, the BNYM affiliate will receive
compensation based on levels that are negotiated with the Trust and/or the
Investment Adviser. BNYM also provides certain middle office services to GSAM
pursuant to a service agreement.
|
ACTIVITIES
OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER
ACCOUNTS
MANAGED BY GOLDMAN SACHS |
The
involvement of the Investment Adviser, Goldman Sachs and their affiliates in the
management of, or their interest in, other accounts and other activities of
Goldman Sachs will present conflicts of interest with respect to the Fund and
will, under certain circumstances, limit the Fund’s investment activities.
Goldman Sachs is a worldwide, full service investment banking, broker dealer,
asset management and financial services organization and a major participant in
global financial markets that provides a wide range of financial services to a
substantial and diversified client base that includes corporations, financial
institutions, governments and individuals. As such, it acts as a broker-dealer,
investment adviser, investment banker, underwriter, research provider,
administrator, financier, adviser, market maker, trader, prime broker,
derivatives dealer, clearing agent, lender, counterparty, agent, principal,
distributor, investor or in other commercial capacities for accounts or
companies or affiliated or unaffiliated investment funds (including pooled
investment vehicles and private funds) in which one or more accounts, including
the Fund, invest. In those and other capacities, Goldman Sachs and its
affiliates advise and deal with clients and third parties in all markets and
transactions and purchase, sell, hold and recommend a broad array of
investments, including securities, derivatives, loans, commodities, currencies,
credit default swaps, indices, baskets and other financial instruments and
products for their own accounts or for the accounts of their customers and have
other direct and indirect interests in the global fixed income, currency,
commodity, equities, bank loans and other markets in which the Fund directly and
indirectly invests. Thus, it is expected that the Fund will have multiple
business relationships with and will invest in, engage in transactions with,
make voting decisions with respect to, or obtain services from entities for
which Goldman Sachs and its affiliates perform or seek to perform investment
banking or other services. The Investment Adviser and/or certain of its
affiliates are the managers of the Goldman Sachs Funds. The Investment Adviser
and its affiliates earn fees from this and other relationships with the Fund.
Although management fees paid by the Fund to the Investment Adviser and certain
other fees paid to the Investment Adviser’s affiliates are based on asset
levels, the fees are not directly contingent on Fund performance, and the
Investment Adviser and its affiliates will still receive significant
compensation from the Fund even if shareholders lose money. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds which
have investment objectives, principal investment strategies and/or policies
similar or substantially similar to those of the Fund and/or engage in and
compete for transactions in the same types of securities, currencies and
instruments as the Fund. Due to differences in tax management considerations and
implementation techniques, trades of the Fund’s portfolio holdings may be
executed on a delayed basis relative to such accounts and funds advised by
Goldman Sachs and its affiliates with investment objectives, principal
investment strategies and/or policies substantially similar to those of the
Fund. This may cause trades of the Fund’s portfolio holdings to be executed at
inopportune times and/or prices. In addition, Goldman Sachs and its affiliates
will not have any obligation to make available any information regarding their
proprietary
50
Service
Providers
activities
or strategies, or the activities or strategies used for other accounts managed
by them, for the benefit of the management of the Fund. The results of the
Fund’s investment activities, therefore, will likely differ from those of
Goldman Sachs, its affiliates and other accounts managed by Goldman Sachs, and
it is possible that the Fund could sustain losses during periods in which
Goldman Sachs and its affiliates and other accounts achieve significant profits
on their trading for proprietary or other accounts. In addition, the Fund may
enter into transactions in which Goldman Sachs and its affiliates or their other
clients have an adverse interest. For example, the Fund may take a long position
in a security at the same time that Goldman Sachs and its affiliates or other
accounts managed by the Investment Adviser or its affiliates take a short
position in the same security (or vice versa). These and other transactions
undertaken by Goldman Sachs, its affiliates or Goldman Sachs-advised clients
may, individually or in the aggregate, adversely impact the Fund. Transactions
by one or more Goldman Sachs-advised clients or the Investment Adviser may have
the effect of diluting or otherwise disadvantaging the values, prices or
investment strategies of the Fund. The Fund’s activities will, under certain
circumstances, be limited because of regulatory restrictions applicable to
Goldman Sachs and its affiliates, and/or their internal policies designed to
comply with such restrictions. As a global financial services firm, Goldman
Sachs and its affiliates also provide a wide range of investment banking and
financial services to issuers of securities and investors in securities. Goldman
Sachs, its affiliates and others associated with it are expected to create
markets or specialize in, have positions in and/or effect transactions in,
securities of issuers held by the Fund, and will likely also perform or seek to
perform investment banking and financial services for one or more of those
issuers. Goldman Sachs and its affiliates are expected to have business
relationships with and purchase or distribute or sell services or products from
or to distributors, consultants or others who recommend the Fund or who engage
in transactions with or for the Fund.
For more information about conflicts of interest, see the section entitled “Potential Conflicts of Interest” in the SAI.
For more information about conflicts of interest, see the section entitled “Potential Conflicts of Interest” in the SAI.
The Fund
will, from time to time, make brokerage and other payments to Goldman Sachs and
its affiliates in connection with the Fund’s portfolio investment transactions,
in accordance with applicable law.
The Fund’s
Board of Trustees may approve a securities lending program where an affiliate of
the Investment Adviser is retained to serve as the securities lending agent for
the Fund to the extent that the Fund engages in the securities lending program.
For these services, the lending agent would receive a fee from the Fund,
including a fee based on the returns earned on the Fund’s investment of the cash
received as collateral for the loaned securities.
51
Distributions
The Fund
pays distributions from its investment income and from net realized capital
gains.
Distributions from net
investment income, if any, are normally declared and paid annually for the
Goldman Sachs Future Consumer Equity ETF, Goldman Sachs Future Health Care
Equity ETF,
Goldman Sachs
Future Planet Equity ETF and Goldman Sachs Future Tech Leaders Equity ETF and
semi-annually for the Goldman Sachs Future Real Estate and Infrastructure Equity
ETF and distributions from net capital gains, if any, are normally declared and
paid annually for each Fund. In addition, the Fund may occasionally make a
distribution at a time when it is not normally made.
In addition to the net
investment income dividends paid annually or semi-annually, as applicable, the
Fund may also earn additional net investment income throughout the year. Any
additional net investment income will be distributed annually as a declared
event and paid to shareholders of record for such events.
From time
to time a portion of the Fund’s distributions may constitute a return of capital
for tax purposes, and/or may include amounts in excess of the Fund’s net
investment income for the period calculated in accordance with generally
accepted accounting principles (“GAAP”).
Dividends
and other distributions on Shares of the Fund are distributed on a pro rata
basis to beneficial owners of such Shares. Dividend payments are made through
DTC Participants and Indirect Participants (each as described in the Book Entry
section below) to beneficial owners then of record with proceeds received from
the Fund.
No dividend
reinvestment service is provided by the Fund. Broker-dealers may make available
the DTC book-entry dividend reinvestment service for use by beneficial owners of
the Fund for reinvestment of their dividend distributions. Beneficial owners
should contact their broker to determine the availability and costs of the
service and the details of participation therein. Brokers may require beneficial
owners to adhere to specific procedures and timetables. If this service is
available and used, dividend distributions of both income and realized gains
will be automatically reinvested in additional whole Shares of the Fund
purchased in the secondary market.
52
Shareholder
Guide
|
Buying
and Selling Shares |
Shares of
the Fund may be acquired or redeemed directly from the Fund at NAV only in
Creation Units or multiples thereof, as discussed in the Creations and
Redemptions section of the Prospectus. Only an Authorized Participant (as
defined in the Creations and Redemptions section below) may engage in creation
or redemption transactions directly with the Fund. Once created, Shares of the
Fund generally trade in the secondary market in amounts less than a Creation
Unit.
Shares of
the Fund are listed for trading on a national securities exchange during the
trading day. Shares can be bought and sold throughout the trading day at market
price like Shares of other publicly traded companies. However, there can be no
guarantee that an active trading market will develop or be maintained, or that
the Fund Shares listing will continue or remain unchanged. The Trust does not
impose any minimum investment for Shares of the Fund purchased on an exchange.
Buying or selling the Fund’s Shares involves certain costs that apply to all
securities transactions. When buying or selling Shares of the Fund through a
financial intermediary, you may incur a brokerage commission or other charges
determined by your financial intermediary. Due to these brokerage costs, if any,
frequent trading may detract significantly from investment returns. In addition,
you may also incur the cost of the spread (the difference between the bid price
and the ask price). The commission is frequently a fixed amount and may be a
significant cost for investors seeking to buy or sell small amounts of Shares.
The spread varies over time for Shares of the Fund based on its trading volume
and market liquidity, and is generally less if the Fund has more trading volume
and market liquidity and more if the Fund has less trading volume and market
liquidity.
The Fund’s primary listing
exchange is NYSE Arca. NYSE Arca is open for trading Monday through Friday and
is closed on the following holidays: New Year’s Day, Martin Luther King, Jr.
Day, Presidents’ Day, Good Friday, Memorial Day, Juneteenth National
Independence Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
A “business
day” with respect to the Fund is each day the New York Stock Exchange, NYSE
Arca, and the Trust are open and includes any day that the Fund is required to
be open under Section 22(e) of the Investment Company Act. Orders from
Authorized Participants to create or redeem Creation Units will only be accepted
on a business day. On days when NYSE Arca closes earlier than normal, the Fund
may require orders to create or redeem Creation Units to be placed earlier in
the day. See the SAI for more information.
The Trust’s
Board of Trustees has not adopted a policy of monitoring for frequent purchases
and redemptions of Fund Shares (“frequent trading”) that appear to attempt to
take advantage of potential arbitrage opportunities presented by a lag between a
change in the value of the Fund’s portfolio securities after the close of the
primary markets for the Fund’s portfolio securities and the reflection of that
change in the Fund’s NAV (“market timing”). The Trust believes this is
appropriate because ETFs, such as the Fund, are intended to be attractive to
arbitrageurs, as trading activity is critical to ensuring that the market price
of Fund Shares remains at or close to NAV. Since the Fund issues and redeems
Creation Units at NAV plus applicable transaction fees, and the Fund’s Shares
may be purchased and sold on NYSE Arca at prevailing market prices, the risks of
frequent trading are limited.
Section 12(d)(1) of the
Investment Company Act restricts investments by registered investment companies
and companies relying on Sections 3(c)(1) or 3(c)(7) of the Investment Company
Act in the securities of other investment companies. Registered investment
companies are permitted to invest in the Fund beyond the limits set forth in
Section 12(d)(1), subject to certain terms and conditions, including that such
investment companies enter into an agreement with the Trust.
The Fund
and the Distributor will have the sole right to accept orders to purchase Shares
and reserve the right to reject any purchase order in whole or in
part.
|
Payments
to Broker-Dealers and Other Financial
Intermediaries |
GSAM and/or
the Distributor (upon direction of the Fund) may make payments to
broker-dealers, registered investment advisers or other financial intermediaries
(each, a “Financial Intermediary”) related to activities that are designed to
make registered representatives, other professionals and individual investors
more knowledgeable about the Fund or for other activities, such as participation
in marketing activities and presentations, educational training programs, the
support or purchase of technology platforms/software and/or reporting systems.
GSAM and/or the Distributor (upon direction of the Fund) may also make payments
to Financial Intermediaries for certain printing, publishing and mailing costs
associated with the Fund or materials relating to exchange-traded funds in
general and/or for the provision of analytical or other data to GSAM or its
affiliates relating to the sales of Fund Shares. In addition, GSAM and/or the
Distributor may make payments to Financial Intermediaries that make Fund Shares
available to their clients or for otherwise promoting the Fund, including
through provision of consultative services to GSAM or its affiliates relating to
marketing of the Fund and/or sale of Fund Shares and other Goldman Sachs Funds.
Such payments, which may be significant to the Financial Intermediary, are not
made by the Fund. Rather, such payments are made by GSAM and/or the Distributor
from their own resources, which may come directly or indirectly in part from
management fees paid by the Fund. Payments of this type are sometimes
53
referred to
as marketing support or revenue-sharing payments. A Financial Intermediary may
make decisions about which investment options it recommends or makes available,
or the level of services provided, to its customers based on the marketing
support payments it is eligible to receive. Therefore, such payments to a
Financial Intermediary create conflicts of interest between the Financial
Intermediary and its customers and may cause the Financial Intermediary to
recommend the Fund over another investment. More information regarding these
payments is contained in the SAI. A shareholder should contact his or her
Financial Intermediary’s salesperson or other investment professional for more
information regarding any such payments the Financial Intermediary firm may
receive from GSAM and/or the Distributor.
|
Net
Asset Value |
The Fund
generally calculates its NAV as follows:
|
NAV
= |
(Value
of Assets of the Fund)
–
(Liabilities of the Fund) |
|
|
Number
of Outstanding Shares of the
Fund |
The Fund’s NAV per share is
generally calculated by the Fund’s provider of administrative services on each
business day as of the close of regular trading on the New York Stock Exchange
(normally 4:00 p.m. Eastern time) or such other times as the New York Stock
Exchange or NASDAQ market may officially close. The Fund’s investments for which
market quotations are readily available are valued at market value on the basis
of quotations provided by pricing sources. If accurate quotations are not
readily available, if the Fund’s provider of administrative services is unable
for other reasons to facilitate pricing of individual securities or calculate
the Fund’s NAV, or if the Investment Adviser believes that such quotations do
not accurately reflect fair value, the fair value of the Fund’s investments may
be determined in good faith under valuation procedures approved by the Board of
Trustees. Thus, such pricing may be based on subjective judgments and it is
possible that the prices resulting from such valuation procedures may differ
materially from the value realized on a sale. Cases where there is no clear
indication of the value of the Fund’s investments include, among others,
situations where a security or other asset or liability does not have a price
source or a price is unavailable.
Equity
securities listed on an exchange are generally valued at the last available sale
price on the exchange on which they are principally traded.
Fixed
income securities are generally valued on the basis of prices (including
evaluated prices) and quotations provided by pricing services or securities
dealers. Pricing services may use matrix pricing or valuation models, which
utilize certain inputs and assumptions, including, but not limited to, yield or
price with respect to comparable fixed income securities, to determine current
value. Pricing services generally value fixed income securities assuming orderly
transactions of an institutional round lot size, but the Fund may hold or
transact in such securities in smaller odd lot sizes. Odd lots may trade at
lower prices than institutional round lots.
Investments
in other open-end registered investment companies (if any), excluding
investments in ETFs, are valued based on the NAV of those open-end registered
investment companies (which may use fair value pricing as discussed in their
prospectuses). Investments in ETFs will generally be valued at the last sale
price or official closing price on the exchange on which they are principally
traded.
In
addition, the Investment Adviser, consistent with its procedures and applicable
regulatory guidance, may (but need not) determine to make an adjustment to the
previous closing prices of securities in light of significant events, to reflect
what it believes to be the fair value of the securities at the time of
determining the Fund’s NAV. Significant events that could affect a large number
of securities in a particular market may include, but are not limited to:
situations relating to one or more single issuers in a market sector;
significant fluctuations in U.S. or foreign markets; market dislocations; market
disruptions or unscheduled market closings; equipment failures; natural or
man-made disasters or acts of God; armed conflicts; governmental actions or
other developments; as well as the same or similar events which may affect
specific issuers or the securities markets even though not tied directly to the
securities markets. Other significant events that could relate to a single
issuer may include, but are not limited to: corporate actions such as
reorganizations, mergers and buy-outs; corporate announcements, including those
relating to earnings, products and regulatory news; significant litigation;
ratings downgrades; bankruptcies; and trading limits or suspensions.
Fair
valuation involves the risk that the values used by the Fund to price its
investments may be different from those used by other investment companies and
investors to price the same investments.
Foreign
securities may trade in their local markets on days the Fund is closed. As a
result, if the Fund holds foreign securities, its NAV may be impacted on days
when investors may not purchase or sell Fund Shares on the secondary market or
purchase or redeem Creation Units through the Fund.
The Fund
relies on various sources to calculate its NAV. The ability of the Fund’s
provider of administrative services to calculate the NAV per share of the Fund
is subject to operational risks associated with processing or human errors,
systems or technology failures, cyber attacks and errors caused by third party
service providers, data sources, or trading counterparties. Such failures may
result in delays in the calculation of the Fund’s NAV and/or the inability to
calculate NAV over extended time periods. The Fund may be unable
54
Shareholder
Guide
to recover
any losses associated with such failures. In addition, if the third party
service providers and/or data sources upon which the Fund directly or indirectly
relies to calculate its NAV or price individual securities are unavailable or
otherwise unable to calculate the NAV correctly, it may be necessary for
alternative procedures to be utilized to price the securities at the time of
determining the Fund’s NAV.
|
Book
Entry |
DTC serves
as securities depository for the Shares. (The Shares may be held only in
book-entry form; stock certificates will not be issued.) DTC, or its nominee, is
the record or registered owner of all outstanding Shares. Beneficial ownership
of Shares will be shown on the records of DTC or its participants (described
below). Beneficial owners of Shares are not entitled to have Shares registered
in their names, will not receive or be entitled to receive physical delivery of
certificates in definitive form and are not considered the registered holder
thereof. Accordingly, to exercise any rights of a holder of Shares, each
beneficial owner must rely on the procedures of: (i) DTC; (ii) “DTC
Participants,” i.e., securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations, some of whom (and/or
their representatives) own DTC; and (iii) “Indirect Participants,” i.e.,
brokers, dealers, banks and trust companies that clear through or maintain a
custodial relationship with a DTC Participant, either directly or indirectly,
through which such beneficial owner holds its interests. The Trust understands
that under existing industry practice, in the event the Trust requests any
action of holders of Shares, or a beneficial owner desires to take any action
that DTC, as the record owner of all outstanding Shares, is entitled to take,
DTC would authorize the DTC Participants to take such action and that the DTC
Participants would authorize the Indirect Participants and beneficial owners
acting through such DTC Participants to take such action and would otherwise act
upon the instructions of beneficial owners owning through them. As described
above, the Trust recognizes DTC or its nominee as the owner of all Shares for
all purposes.
|
Creations
and Redemptions |
Prior to
trading in the secondary market, Shares of the Fund are “created” at NAV by
market makers, large investors and institutions only in block-size Creation
Units or multiples thereof. Each “creator” or “Authorized Participant” enters
into an authorized participant agreement with the Fund’s
Distributor.
A creation
transaction, which is subject to acceptance by BNYM, as the Trust’s transfer
agent, generally takes place when an Authorized Participant deposits into the
Fund a designated portfolio of securities (including any portion of such
securities for which cash may be substituted) and a specified amount of cash in
exchange for a specified number of Creation Units.
Similarly,
Shares can be redeemed only in Creation Units, generally for a designated
portfolio of securities (including any portion of such securities for which cash
may be substituted) held by the Fund and a specified amount of cash. Except when
aggregated in Creation Units, Shares are not redeemable by the Fund.
The prices
at which creations and redemptions occur are based on the next calculation of
NAV after a creation or redemption order is received in an acceptable form under
the authorized participant agreement.
Please note
the following with respect to the price at which transactions are
processed:
◼
NAV per
Share is generally calculated by the Fund's fund accounting agent on each
business day as of the close of regular trading on the New York Stock Exchange
(normally 4:00 p.m. Eastern time) or such other times as the New York Stock
Exchange or NASDAQ market may officially close. Fund Shares will generally not
be priced on any day the New York Stock Exchange is closed.
◼
The Trust
reserves the right to reprocess creation and redemption transactions that were
processed at a NAV that is subsequently adjusted, and to recover amounts from
(or distribute amounts to) Authorized Participants accordingly based on the
official closing NAV, as adjusted.
◼
The Trust
reserves the right to advance the time by which creation and redemption orders
must be received for same business day credit as otherwise permitted by the
SEC.
◼
Consistent
with industry practice, investment transactions not settling on the same day are
recorded and factored into the Fund’s NAV on the business day following trade
date (T+1). The use of T+1 accounting generally does not, but may, result in a
NAV that differs materially from the NAV that would result if all transactions
were reflected on their trade dates.
55
Note:
The time at which transactions and Shares are priced and the time by which
orders must be received may be changed in case of an emergency or if regular
trading on the New York Stock Exchange is stopped at a time other than its
regularly scheduled closing time. In the event the New York Stock Exchange does
not open for business, the Trust may, but is not required to, open the Fund for
creation and redemption transactions if the Federal Reserve wire payment system
is open. To learn whether the Fund is open for business during this situation,
please call the appropriate phone number located on the back cover of the
Prospectus.
Only an
Authorized Participant may create or redeem Creation Units directly with the
Fund.
In the
event of a system failure or other interruption, including disruptions at market
makers or Authorized Participants, orders to purchase or redeem Creation Units
either may not be executed according to the Fund’s instructions or may not be
executed at all, or the Fund may not be able to place or change
orders.
To the
extent the Fund engages in in-kind transactions, the Fund intends to comply with
the U.S. federal securities laws in accepting securities for deposit and
satisfying redemptions with redemption securities by, among other means,
assuring that any securities accepted for deposit and any securities used to
satisfy redemption requests will be sold in transactions that would be exempt
from registration under the Securities Act of 1933, as amended (the “Securities
Act”). Further, an Authorized Participant that is not a “qualified institutional
buyer,” as such term is defined under Rule 144A of the Securities Act, will not
be able to receive restricted securities eligible for resale under Rule
144A.
Creations
and redemptions must be made through a firm that is either a member of the
Continuous Net Settlement System of the National Securities Clearing Corporation
or a DTC Participant and has executed an agreement with the Distributor with
respect to creations and redemptions of Creation Unit aggregations. Information
about the procedures regarding creation and redemption of Creation Units
(including the cut-off times for receipt of creation and redemption orders) and
the applicable transaction fees is included in the Fund’s
SAI.
56
Taxation
As with any
investment, you should consider how your investment in the Fund will be taxed.
The tax information below is provided as general information. More tax
information is available in the SAI. You should consult your tax adviser about
the federal, state, local or foreign tax consequences of your investment in the
Fund. Except as otherwise noted, the tax information provided assumes that you
are a U.S. citizen or resident.
Unless your
investment is through an IRA or other tax-advantaged account, you should
carefully consider the possible tax consequences of Fund distributions and
the sale of your Fund Shares.
|
DISTRIBUTIONS |
The Fund
contemplates declaring as dividends each year all or substantially all of its
taxable income. Distributions you receive from the Fund are generally subject to
federal income tax, and may also be subject to state or local taxes. This is
true whether you reinvest your distributions in additional Fund Shares or
receive them in cash. For federal tax purposes, the Fund’s distributions
attributable to net investment income and short-term capital gains are taxable
to you as ordinary income while distributions of long-term capital gains are
taxable to you as long-term capital gains, no matter how long you have owned
your Fund Shares.
Under
current provisions of the Code, the maximum individual rate applicable to
long-term capital gains is generally either 15% or 20%, depending on whether the
individual's income exceeds certain threshold amounts. Fund distributions to
non-corporate shareholders attributable to dividends received by the Fund from
U.S. and certain qualified foreign corporations will generally be taxed at the
long-term capital gain rate, as long as certain other requirements are met. For
these lower rates to apply, the non-corporate shareholder must own their Fund
Shares for at least 61 days during the 121-day period beginning 60 days before
the Fund’s ex-dividend date. The amount of the Fund’s distributions that would
otherwise qualify for this favorable tax treatment will be reduced as a result
of the Fund’s securities lending activities or high portfolio turnover
rate.
Distributions
in excess of the Fund’s current and accumulated earnings and profits are treated
as a tax-free return of your investment to the extent of your basis in the
Shares, and generally as capital gain thereafter. A return of capital, which for
tax purposes is treated as a return of your investment, reduces your basis in
Shares, thus reducing any loss or increasing any gain on a subsequent taxable
disposition of Shares. A distribution will reduce the Fund’s NAV per share and
may be taxable to you as ordinary income or capital gain even though, from an
economic standpoint, the distribution may constitute a return of
capital.
An
additional 3.8% Medicare tax is imposed on certain net investment income
(including ordinary dividends and capital gain distributions received from the
Fund and net gains from redemptions or other taxable dispositions of Fund
Shares) of U.S. individuals, estates and trusts to the extent that such person’s
“modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust) exceeds certain threshold
amounts.
The Fund’s
transactions in derivatives (such as futures contracts and swaps) will be
subject to special tax rules, the effect of which may be to accelerate income to
the Fund, defer losses to the Fund, cause adjustments in the holding periods of
the Fund’s securities and convert short-term capital losses into long-term
capital losses. These rules could therefore affect the amount, timing and
character of distributions to you. The Fund’s use of derivatives may result in
the Fund realizing more short-term capital gains and ordinary income subject to
tax at ordinary income tax rates than it would if it did not use
derivatives.
Although
distributions are generally treated as taxable to you in the year they are paid,
distributions declared in October, November or December but paid in January are
taxable as if they were paid in December. A percentage of the Fund’s dividends
paid to corporate shareholders may be eligible for the corporate
dividends-received deduction. This percentage may, however, be reduced as a
result of the Fund’s securities lending activities or high portfolio turnover
rate. Character and tax status of all distributions will be available to
shareholders after the close of each calendar year.
The Fund may be subject to
foreign withholding or other foreign taxes on income or gain from certain
foreign securities. In general, the Fund may deduct these taxes in computing its
taxable income. Rather than deducting these foreign taxes, if more than 50% of
the Fund’s total assets at the close of a taxable year consists of stock or
securities of foreign corporations, the Fund may make an election to treat
a proportionate amount of those taxes as constituting a distribution to
each shareholder, which would generally allow you either (i) to credit (subject
to certain holding period and other limitations) that proportionate amount of
taxes against your U.S. Federal income tax liability as a foreign tax credit or
(ii) to take that amount as an itemized deduction.
If you buy
Shares of the Fund before it makes a distribution, the distribution will be
taxable to you even though it may actually be a return of a portion of your
investment. This is known as “buying into a dividend.”
57
|
TAXES
ON CREATIONS AND REDEMPTIONS OF CREATION
UNITS |
A person
who exchanges securities for Creation Units generally will recognize a gain or
loss. The gain or loss will be equal to the difference between the market value
of the Creation Units at the time of exchange and the sum of the exchanger’s
aggregate basis in the securities surrendered and the amount of any cash paid
for such Creation Units. A person who exchanges Creation Units for securities
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 the securities received. The Internal Revenue Service , however, may
assert that a loss realized upon an exchange of primarily securities for
Creation Units cannot be deducted currently under the rules governing “wash
sales,” or on the basis that there has been no significant change in economic
position. Persons exchanging securities for Creation Units or redeeming Creation
Units should consult their own tax adviser with respect to whether wash sale
rules apply and when a loss might be deductible and the tax treatment of any
creation or redemption transaction.
Under
current U.S. federal income tax laws, any capital gain or loss realized upon a
redemption (or creation) of Creation Units is generally treated as long-term
capital gain or loss if the Shares (or securities surrendered) have been held
for more than one year and as a short-term capital gain or loss if the Shares
(or securities surrendered) have been held for one year or less.
|
SALES
OF FUND SHARES |
Your sale
of Fund Shares is a taxable transaction for federal income tax purposes, and may
also be subject to state and local taxes. When you sell your Shares, you will
generally recognize a capital gain or loss in an amount equal to the difference
between your adjusted tax basis in the Shares and the amount received.
Generally, this capital gain or loss is long-term or short-term depending on
whether your holding period exceeds one year, except that any loss realized on
Shares held for six months or less will be treated as a long-term capital loss
to the extent of any long-term capital gain dividends that were received on the
Shares. Additionally, any loss realized on a sale, exchange or redemption of
Shares of the Fund may be disallowed under “wash sale” rules to the extent the
Shares disposed of are replaced with other Shares of that Fund within a period
of 61 days beginning 30 days before and ending 30 days after the date of
disposition (such as pursuant to a dividend reinvestment in Shares of the Fund).
If disallowed, the loss will be reflected in an adjustment to the basis of the
Shares acquired.
|
OTHER
INFORMATION |
You may be
subject to backup withholding at a rate of 24% with respect to taxable
distributions if you do not provide your correct taxpayer identification number,
or certify that it is correct, or if you have been notified by the IRS that you
are subject to backup withholding.
Non-U.S.
investors are generally subject to U.S. withholding tax and may be subject to
estate tax with respect to their Fund Shares. However, withholding is generally
not required on properly designated distributions to non-U.S. investors of
long-term capital gains. Non-U.S. investors generally are not subject to U.S.
federal income tax withholding on certain distributions of interest income
and/or short-term capital gains that are designated by the Fund. It is expected
that the Fund will generally make designations of short-term gains, to the
extent permitted, but the Fund does not intend to make designations of any
distributions attributable to interest income. Therefore, all distributions of
interest income will be subject to withholding when paid to non-U.S.
investors.
Withholding
of U.S. tax (at a 30% rate) is required with respect to payments of taxable
dividends made to certain non-U.S. entities that fail to comply (or be deemed
compliant) with extensive reporting and withholding requirements designed to
inform the U.S. Department of the Treasury of U.S.-owned foreign investment
accounts. Shareholders may be requested to provide additional information to
enable the applicable withholding agent to determine whether withholding is
required.
Reporting to you and the
IRS is required annually on Form 1099-B not only with respect to the gross
proceeds of Fund Shares you sell or redeem but also their cost basis.
Shareholders should contact their intermediaries with respect to reporting of
cost basis and available elections with respect to their accounts. You should
carefully review the cost basis information provided by the applicable
intermediary and make any additional basis, holding period or other adjustments
that are required when reporting these amounts on your federal income tax
returns.
58
Other
Information
|
PREMIUM/DISCOUNT
INFORMATION |
When
available, information regarding how often Shares of the Fund traded on NYSE
Arca at a premium or discount during the most recently completed calendar year
and the most recently completed calendar quarter(s) since that year (or the life
of the Fund, if shorter) can be found at www.gsamfunds.com.
|
CONTINUOUS
OFFERING |
The method
by which Creation Units are created and traded may raise certain issues under
applicable securities laws. Because new Creation Units are issued and sold by
the Trust on an ongoing basis, a “distribution,” as such term is used in the
Securities Act, may occur at any point. Broker dealers and other persons are
cautioned that some activities on their part may, depending on the
circumstances, result in their being deemed participants in a distribution in a
manner which could render them statutory underwriters and subject them to the
prospectus delivery and liability provisions of the Securities Act.
For
example, a broker dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Units after placing an order with the
Distributor, breaks them down into constituent Shares, and sells such Shares
directly to customers, or if it chooses to couple the creation of a supply of
new Shares with an active selling effort involving solicitation of secondary
market demand for Shares. A determination of whether one is an underwriter for
purposes of the Securities Act must take into account all the facts and
circumstances pertaining to the activities of the broker dealer or its client in
the particular case, and the examples mentioned above should not be considered a
complete description of all the activities that could lead to a categorization
as an underwriter.
Broker
dealers who are not “underwriters” but are participating in a distribution (as
contrasted to ordinary secondary trading transactions), and thus dealing with
Shares that are part of an “unsold allotment” within the meaning of Section
4(a)(3)(C) of the Securities Act, would be unable to take advantage of the
prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act.
This is because the prospectus delivery exemption in Section 4(a)(3) of the
Securities Act is not available in respect of such transactions as a result of
Section 24(d) of the Investment Company Act. As a result, broker dealer firms
should note that dealers who are not underwriters but are participating in a
distribution (as contrasted with ordinary secondary market transactions) and
thus dealing with the Shares that are part of an overallotment within the
meaning of Section 4(a)(3)(A) of the Securities Act would be unable to take
advantage of the prospectus delivery exemption provided by Section 4(a)(3) of
the Securities Act. Firms that incur a prospectus delivery obligation with
respect to Shares are reminded that, under Rule 153 of the Securities Act, a
prospectus delivery obligation under Section 5(b)(2) of the Securities Act owed
to an exchange member in connection with a sale on NYSE Arca is satisfied by the
fact that the prospectus is available at NYSE Arca upon request. The prospectus
delivery mechanism provided in Rule 153 is only available with respect to
transactions on an exchange.
In
addition, certain affiliates of the Fund and the Investment Adviser may purchase
and resell Fund Shares pursuant to the Prospectus.
|
DISTRIBUTION
AND SERVICE PLAN |
The Board
of Trustees of the Trust has adopted a distribution and service plan (“Plan”)
pursuant to Rule 12b-1 under the Investment Company Act. Under the Plan, the
Fund is authorized to pay distribution fees in connection with the sale and
distribution of its Shares and pay service fees in connection with the provision
of ongoing services to shareholders of the Fund and the maintenance of
shareholder accounts in an amount up to 0.25% of its average daily net assets
each year.
No Rule
12b-1 fees are currently paid by the Fund, and there are no current plans to
impose these fees. However, in the event Rule 12b-1 fees are charged in the
future, because these fees are paid out of the Fund’s assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing Shares subject to distribution fees and service fees, you may pay
more over time than you would by purchasing Shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charge permitted by the rules of
FINRA. The net income attributable to Shares will be reduced by the amount of
distribution fees and service fees and other expenses of the
Fund.
59
Appendix
A
Additional
Information on Portfolio Risks, Securities and Techniques
|
A. General
Portfolio Risks |
The Fund
will be subject to the risks associated with equity investments. “Equity
investments” may include common stocks, preferred stocks, interests in REITs,
convertible debt obligations, convertible preferred stocks, equity interests in
trusts, partnerships, joint ventures, limited liability companies and similar
enterprises, other investment companies (including ETFs), warrants, stock
purchase rights and synthetic and derivative instruments (such as swaps and
futures contracts) that have economic characteristics similar to equity
securities.
In general,
the values of equity investments fluctuate in response to the activities of
individual companies and in response to general market and economic conditions.
Accordingly, the values of the equity investments that the Fund holds may
decline over short or extended periods. The stock markets tend to be cyclical,
with periods when stock prices generally rise and periods when prices generally
decline. This volatility means that the value of your investment in the Fund may
increase or decrease. In recent years, certain stock markets have experienced
substantial price volatility. To the extent the Fund’s net assets decrease or
increase in the future due to price volatility or share redemption or purchase
activity, the Fund’s expense ratio may correspondingly increase or decrease from
the expense ratio disclosed in the Prospectus.
To the
extent the Fund invests in pooled investment vehicles (including investment
companies and ETFs), partnerships and REITs, the Fund will be affected by the
investment policies, practices and performances of such entities in direct
proportion to the amount of assets the Fund invests therein.
To the
extent that the Fund invests in fixed income securities, the Fund will also be
subject to the risks associated with its fixed income securities. These risks
include interest rate risk, credit/default risk and call/extension risk. In
general, interest rate risk involves the risk that when interest rates decline,
the market value of fixed income securities tends to increase (although many
mortgage-related securities will have less potential than other debt securities
for capital appreciation during periods of declining rates). Conversely, when
interest rates increase, the market value of fixed income securities tends to
decline. Credit/default risk involves the risk that an issuer or guarantor could
default on its obligations, and the Fund will not recover its investment. A
rising interest rate environment could cause the value of the Fund’s fixed
income securities, if any, to decrease, and fixed income markets to experience
increased volatility in addition to heightened levels of liquidity risk.
Additionally, decreases in the value of fixed income securities could lead to
increased shareholder redemptions, which could impair the Fund’s ability to
achieve its investment objective. The risks associated with increasing rates are
heightened given that interest rates are near historic lows, but may be expected
to increase in the future with unpredictable effects on the markets and the
Fund’s investments. Call risk and extension risk are normally present in
mortgage-backed securities and asset-backed securities. For example, homeowners
have the option to prepay their mortgages. Therefore, the duration of a security
backed by home mortgages can either shorten (call risk) or lengthen (extension
risk). In general, if interest rates on new mortgage loans fall sufficiently
below the interest rates on existing outstanding mortgage loans, the rate of
prepayment would be expected to increase. Conversely, if mortgage loan interest
rates rise above the interest rates on existing outstanding mortgage loans, the
rate of prepayment would be expected to decrease. In either case, a change in
the prepayment rate can result in losses to investors. The same would be true of
asset-backed securities such as securities backed by car loans.
Non-investment
grade fixed income securities (commonly known as “junk bonds”) are rated below
investment grade (or determined to be of comparable credit quality, if not
rated) at the time of purchase and are therefore considered speculative. Because
non-investment grade fixed income securities are issued by issuers with low
credit ratings, they pose a greater risk of default than investment grade
securities.
The
Investment Adviser will not consider the portfolio turnover rate a limiting
factor in making investment decisions for the Fund. A high rate of portfolio
turnover (100% or more) involves correspondingly greater expenses which must be
borne by the Fund and its shareholders and is also likely to result in higher
short-term capital gains for taxable shareholders. The portfolio turnover rate
is calculated by dividing the lesser of the dollar amount of sales or purchases
of portfolio securities by the average monthly value of the Fund’s portfolio
securities, excluding securities having a maturity at the date of purchase of
one year or less. See “Financial Highlights” in Appendix B for a statement of
the Fund’s historical portfolio turnover rates.
The Fund
may, from time to time, enter into arrangements with certain brokers or other
counterparties that require the segregation of collateral. For operational, cost
or other reasons, when setting up arrangements relating to the
execution/clearing of trades, the Fund may choose to select a segregation model
which may not be the most protective option available in the case of a default
by a broker or counterparty.
60
Appendix
A
The
following sections provide further information on certain types of securities
and investment techniques that may be used by the Fund, including their
associated risks. Additional information is provided in the SAI, which is
available upon request. Among other things, the SAI describes certain
fundamental investment restrictions that cannot be changed without shareholder
approval. You should note, however, that all investment objectives and all
investment policies not specifically designated as fundamental are
non-fundamental, and may be changed without shareholder approval. If there is a
change in the Fund’s investment objective, you should consider whether the Fund
remains an appropriate investment in light of your then current financial
position and needs.
|
B. Other
Portfolio Risks |
Risks
of Investing in Mid-Capitalization and Small-Capitalization
Companies. The Fund
may, to the extent consistent with its investment policies, invest in mid- and
small-capitalization companies. Investments in mid- and small-capitalization
companies involve greater risk and portfolio price volatility than investments
in larger capitalization stocks. Among the reasons for the greater price
volatility of these investments are the less certain growth prospects of smaller
firms and the lower degree of liquidity in the markets for such securities. Mid-
and small-capitalization companies may be thinly traded and may have to be sold
at a discount from current market prices or in small lots over an extended
period of time. In addition, these securities are subject to the risk that
during certain periods the liquidity of particular issuers or industries, or all
securities in particular investment categories, will shrink or disappear
suddenly and without warning as a result of adverse economic or market
conditions, or adverse investor perceptions whether or not accurate. Because of
the lack of sufficient market liquidity, the Fund may incur losses because it
will be required to effect sales at a disadvantageous time and only then at a
substantial drop in price. Mid- and small-capitalization companies include
“unseasoned” issuers that do not have an established financial history; often
have limited product lines, markets or financial resources; may depend on or use
a few key personnel for management; and may be susceptible to losses and risks
of bankruptcy. Mid- and small-capitalization companies may be operating at a
loss or have significant variations in operating results; may be engaged in a
rapidly changing business with products subject to a substantial risk of
obsolescence; may require substantial additional capital to support their
operations, to finance expansion or to maintain their competitive position; and
may have substantial borrowings or may otherwise have a weak financial
condition. In addition, these companies may face intense competition, including
competition from companies with greater financial resources, more extensive
development, manufacturing, marketing, and other capabilities, and a larger
number of qualified managerial and technical personnel. Transaction costs for
these investments are often higher than those of larger capitalization
companies. Investments in mid- and small-capitalization companies may be more
difficult to price precisely than other types of securities because of their
characteristics and lower trading volumes.
Risks
of Foreign Investments. The Fund
may make foreign investments. Foreign investments involve special risks that are
not typically associated with U.S. dollar denominated or quoted securities of
U.S. issuers. Foreign investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such investments
and changes in exchange control regulations (e.g., currency blockage). A decline
in the exchange rate of the currency (i.e., weakening of the currency against
the U.S. dollar) in which a portfolio security is quoted or denominated relative
to the U.S. dollar would reduce the value of the portfolio security. In
addition, if the currency in which the Fund receives dividends, interest or
other payments declines in value against the U.S. dollar before such income is
distributed as dividends to shareholders or converted to U.S. dollars, the Fund
may have to sell portfolio securities to obtain sufficient cash to pay such
dividends.
Certain
foreign markets may rely heavily on particular industries or foreign capital and
are more vulnerable to diplomatic developments, the imposition of economic
sanctions against a particular country or countries, organizations, entities
and/or individuals, changes in international trading patterns, trade barriers,
and other protectionist or retaliatory measures. International trade barriers or
economic sanctions against foreign countries, organizations, entities and/or
individuals may adversely affect the Fund’s foreign holdings or
exposures.
Brokerage
commissions, custodial services and other costs relating to investment in
international securities markets generally are more expensive than in the United
States. In addition, clearance and settlement procedures may be different in
foreign countries and, in certain markets, such procedures have been unable to
keep pace with the volume of securities transactions, thus making it difficult
to conduct such transactions.
Foreign
issuers are not generally subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to U.S. issuers. There may be
less publicly available information about a foreign issuer than about a U.S.
issuer. In addition, there is generally less government regulation of foreign
markets, companies and securities dealers than in the United States, and the
legal remedies for investors may be more limited than the remedies available in
the United States. Foreign securities markets may have substantially less volume
than U.S. securities markets and securities of many foreign issuers are less
liquid and more volatile than securities of comparable domestic issuers.
Furthermore, with respect to certain foreign countries, there is a possibility
of nationalization, expropriation or confiscatory taxation, imposition of
withholding or other taxes on dividend or interest payments (or, in some cases,
capital gains distributions), limitations on the removal of funds or other
assets from such countries, and risks of political or social instability or
diplomatic developments which could adversely affect investments in those
countries.
61
Certain
foreign investments may become less liquid in response to social, political or
market developments or adverse investor perceptions, or become illiquid after
purchase by the Fund, particularly during periods of market turmoil. Certain
foreign investments may become illiquid when, for instance, there are few, if
any, interested buyers and sellers or when dealers are unwilling to make a
market for certain securities. When the Fund holds illiquid investments, its
portfolio may be harder to value, especially in changing markets.
If the Fund
focuses its investments in one or a few countries and currencies it will subject
the Fund to greater risks than if the Fund’s assets were not geographically
focused.
Investments
in foreign securities may take the form of sponsored and unsponsored ADRs, GDRs,
EDRs or other similar instruments representing securities of foreign issuers.
ADRs, GDRs and EDRs represent the right to receive securities of foreign issuers
deposited in a bank or other depository. ADRs and certain GDRs are traded in the
United States. GDRs may be traded in either the United States or in foreign
markets. EDRs are traded primarily outside the United States. Prices of ADRs are
quoted in U.S. dollars. EDRs and GDRs are not necessarily quoted in the same
currency as the underlying security.
Risks
of Sovereign Debt. Investment
in sovereign debt obligations by the Fund involves risks not present in debt
obligations of corporate issuers. The issuer of the debt or the governmental
authorities that control the repayment of the debt may be unable or unwilling to
repay principal or interest when due in accordance with the terms of such debt,
and the Fund may have limited recourse to compel payment in the event of a
default. Periods of economic uncertainty may result in the volatility of market
prices of sovereign debt, and in turn the Fund’s NAV, to a greater extent than
the volatility inherent in debt obligations of U.S. issuers.
A sovereign
debtor’s willingness or ability to repay principal and pay interest in a timely
manner may be affected by, among other factors, its cash flow situation, the
extent of its foreign currency reserves, the availability of sufficient foreign
exchange on the date a payment is due, the relative size of the debt service
burden to the economy as a whole, the sovereign debtor’s policy toward
international lenders, and the political constraints to which a sovereign debtor
may be subject.
Risks
of Emerging Countries. The Fund
may invest in securities of issuers located in, or otherwise economically tied
to, emerging countries. The risks of foreign investment are heightened when the
issuer is located in an emerging country. Emerging countries are generally
located in Africa, Asia, the Middle East, Eastern and Central Europe, and
Central and South America. The Fund’s purchase and sale of portfolio securities
in certain emerging countries may be constrained by limitations relating to
daily changes in the prices of listed securities, periodic trading or settlement
volume and/or limitations on aggregate holdings of foreign investors. Such
limitations may be computed based on the aggregate trading volume by or holdings
of the Fund, the Investment Adviser, or their affiliates and respective clients
and other service providers. The Fund may not be able to sell securities in
circumstances where price, trading or settlement volume limitations have been
reached.
Foreign
investment in the securities markets of certain emerging countries is restricted
or controlled to varying degrees which may limit investment in such countries or
increase the administrative costs of such investments. For example, certain
Asian countries require governmental approval prior to investments by foreign
persons or limit investment by foreign persons to only a specified percentage of
an issuer’s outstanding securities or a specific class of securities which may
have less advantageous terms (including price) than securities of the issuer
available for purchase by nationals. In addition, certain countries may restrict
or prohibit investment opportunities in issuers or industries deemed important
to national interests. Such restrictions may affect the market price, liquidity
and rights of securities that may be purchased by the Fund. The repatriation of
investment income, capital or the proceeds of securities sales from certain
emerging countries is subject to restrictions such as the need for governmental
consents, which may make it difficult for the Fund to invest in such emerging
countries. The Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental approval for such repatriation. In situations
where a country restricts direct investment in securi