PGIM
Total Return Bond ETF
PROSPECTUS
— October 28, 2022
INVESTMENT
OBJECTIVE
Total
return
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PGIM
TOTAL RETURN BOND ETF | ||||||||
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Ticker
Symbol: PTRB |
Listing
Exchange: NYSE Arca, Inc. |
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The
Securities and Exchange Commission
(“SEC”)
has not approved or disapproved the
Fund's
shares, nor has the SEC determined
that
this prospectus is complete or accurate.
It is
a criminal offense to state otherwise. Exchange-traded
funds are distributed by
Prudential
Investment Management Services
LLC
(“PIMS”), member SIPC. PGIM Fixed
Income
is a unit of PGIM, Inc. (“PGIM”), a
registered
investment adviser. PIMS and
PGIM
are Prudential Financial companies.
©
2022 Prudential Financial, Inc. and its
related
entities. The Prudential logo and the
Rock
symbol are service marks of Prudential
Financial,
Inc. and its related entities,
registered
in many jurisdictions worldwide. |
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To enroll
in e-delivery, go to pgim.com/investments/resource/edelivery
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Management
fee |
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Distribution
and service (12b-1) fees |
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Other
expenses |
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Total
annual Fund operating expenses |
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Number
of Years You Own Shares |
1
Year |
3
Years |
5
Years |
10
Years |
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$ |
$ |
$ |
$ |
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PGIM Total Return
Bond ETF
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PGIM Total Return
Bond ETF
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PGIM Total Return
Bond ETF
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9
MANAGEMENT
OF THE FUND
The following
individuals are jointly and primarily responsible for the day-to-day management
of the Fund.
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Investment
Manager |
Subadviser |
Portfolio
Managers |
Title |
Service
Date |
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PGIM
Investments LLC |
PGIM Fixed
Income
PGIM
Limited |
Robert
Tipp, CFA |
Managing
Director,
Chief
Investment
Strategist
and Head of
Global
Bonds |
December
2021 |
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Michael J.
Collins, CFA |
Managing
Director
and Senior
Portfolio
Manager |
December
2021 |
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Richard
Piccirillo |
Managing
Director
and Senior
Portfolio
Manager |
December
2021 |
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Gregory
Peters |
Managing
Director
and
Co-Chief
Investment
Officer |
December
2021 |
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Lindsay
Rosner, CFA |
Principal |
December
2021 |
BUYING
AND SELLING FUND SHARES
Individual shares
of the Fund may only be purchased and sold in secondary market transactions
through brokers or other financial intermediaries at market prices and are not
individually redeemable by the ETF. Shares of the Fund are listed for trading on
the Exchange, and because the shares of the Fund trade at market prices rather
than NAV, shares of the Fund may trade at a price greater than NAV (a “premium”)
or less than NAV (a “discount”). You may incur costs attributable to the
difference between the highest price a buyer is willing to pay to purchase
shares of the Fund (“bid”) and the lowest price a seller is willing to accept
for shares of the Fund (“ask”) when buying or selling shares in the secondary
market (the “bid-ask spread”).
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PGIM Total Return
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TAX
INFORMATION
Dividends,
Capital Gains and Taxes. The Fund's
dividends and distributions are taxable and will be taxed as ordinary income or
capital gains, unless you are investing through a tax-deferred arrangement, such
as a 401(k) plan or an individual retirement account. Such tax-deferred
arrangements may be taxed later upon withdrawal of monies from those
arrangements.
PAYMENTS
TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIaries
If you purchase
shares of the Fund through a broker-dealer or other financial intermediary (such
as a bank), PGIM or other related companies may pay the intermediary for
marketing activities and presentations, educational training programs,
conferences, the development of technology platforms and reporting systems or
other services related to the sale or promotion of the Fund. These payments may
create a conflict of interest by influencing the broker-dealer or other
intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your financial intermediary’s website for more
information.
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11
MORE ABOUT THE
FUND'S PRINCIPAL AND NON-PRINCIPAL INVESTMENT STRATEGIES, INVESTMENTS AND
RISKS
INVESTMENT
STRATEGIES AND INVESTMENTS
The Fund's
investment objective is to seek total return. The Fund seeks to achieve its
objective through a mix of current income and capital appreciation as determined
by the Fund's subadviser. The Fund invests, under normal circumstances, at least
80% of its investable assets in bonds. For purposes of this policy, bonds
include all fixed income securities, other than preferred stock, with a maturity
at date of issue of greater than one year (including bonds acquired by the Fund
with a maturity at date of issue of greater than one year, but a remaining
maturity of one year or less). The term “investable assets” refers to the Fund’s
net assets plus any borrowings for investment purposes. The Fund’s investable
assets will be less than its total assets to the extent that it has borrowed
money for non-investment purposes, such as to meet anticipated redemptions. The
Fund is an actively managed exchange-traded fund (“ETF”) and, thus, does not
seek to replicate the performance of a specified index.
The Fund seeks to
achieve its objective by investing in fixed income securities whereby issuers
borrow money from investors in return for either a fixed or variable rate of
interest and eventual repayment of the amount borrowed. The Fund will invest in
different sectors of the fixed income securities markets, including (but not
limited to) U.S.
Government securities, mortgage-related securities, asset-backed securities
(including collateralized debt obligations and collateralized loan obligations),
corporate debt securities and foreign debt securities (mainly sovereign debt),
including emerging market debt securities. The Fund is not
obligated to invest in all of these sectors at a given time and, at times, may
invest all of its assets in only one sector.
In managing the Fund’s assets, the
subadviser uses a combination of top-down economic analysis and bottom-up
research in conjunction with proprietary quantitative models and risk management
systems. In the top-down economic analysis, the subadviser develops views on
economic, policy and market trends by continually evaluating economic data that
affect the movement of markets and securities prices. This top-down
macroeconomic analysis is integrated into the subadviser’s bottom-up research
which informs security selection. In its bottom-up research, the subadviser
develops an internal rating and outlook on issuers. The rating and outlook are
determined based on a thorough review of the financial health and trends of the
issuer, which includes a review of the composition of revenue, profitability,
cash flow margin, and leverage.
The subadviser may
also consider investment factors such as expected total return, yield, duration,
spread and potential for price appreciation as well as credit quality, maturity
and risk. The Fund may invest in a security based upon the expected total return
rather than the yield of such security.
The subadviser may
also utilize proprietary quantitative tools to support relative value trading
and asset allocation for portfolio management as well as various risk models to
support risk management.
A corporation that
wishes to raise cash may choose to issue a corporate
debt security whereby the
corporation pays the investor a fixed or variable rate of interest and must
repay the amount borrowed at maturity.
The Fund may invest
up to 30% of its investable assets in foreign
debt securities, which include
securities that are issued by foreign governments and corporations. Foreign
government debt securities include securities issued by quasi-governmental
entities, governmental agencies, supranational entities and other governmental
entities denominated in foreign currencies or U.S. dollars.
The Fund may invest in investment grade
debt securities.
Investment grade debt securities are debt securities rated BBB or higher or Baa
or higher or the equivalent by a nationally recognized statistical rating
organization (“NRSRO”), such as S&P Global Ratings (“S&P”) or Moody's
Investors Service, Inc. (“Moody's”). A rating is an assessment of the likelihood
of the timely payment of interest and repayment of principal and can be useful
when comparing different debt obligations. These ratings are not a guarantee of
quality. In addition to investing in rated securities, the Fund may
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PGIM Total Return
Bond ETF
invest in unrated
securities that the subadviser determines are of comparable quality to the rated
securities that are permissible investments. In the event that a security
receives different ratings from different NRSROs, the Fund will treat the
security as being rated in the highest rating category received from a
NRSRO.
The Fund may invest up to 30% of
its investable assets in speculative, high risk, below investment grade
securities. Obligations rated BB by S&P or Ba by Moody's or lower are
considered to be speculative with respect to their capacity to pay interest and
principal and are commonly referred to as high yield debt
securities or
junk
bonds. If the rating
of a debt security is downgraded after the Fund purchases it (or if the debt
security is no longer rated), the Fund will not have to sell the security, but
the subadviser will take this into consideration in deciding whether the Fund
should continue to hold the security. The Fund does not intend to retain
investment grade securities that are downgraded to junk bond status if 30% or
more of its investable assets would be invested in junk bonds.
The Fund may invest
in debt
obligations issued or guaranteed by the U.S. Government and U.S.
Government- related entities.
The Fund invests in
mortgage-related
securities issued or
guaranteed by U.S. governmental entities or private issuers. These securities
are usually pass-through instruments that pay investors a share of all interest
and principal payments from an underlying pool of fixed or adjustable rate
mortgages. Mortgage-related securities issued by the U.S. Government include
GNMAs and mortgage-related securities issued by agencies of the U.S. Government
as well as FNMAs and debt securities issued by FHLMC. Privately issued
mortgage-related securities that are not guaranteed by U.S. governmental
entities generally have one or more types of credit enhancement to ensure timely
receipt of payments and to protect against default. Private issuer
mortgage-backed securities may include loans on commercial or residential
properties.
Mortgage
pass-through securities include collateralized mortgage obligations, multi-class
pass-through securities and stripped mortgage-backed securities. A collateralized
mortgage obligation (“CMO”) is a security
backed by an underlying portfolio of mortgages or mortgage-backed securities
that may be issued or guaranteed by a bank or by U.S. governmental entities. A
multi-class
pass-through security is an equity
interest in a trust composed of underlying mortgage assets. Payments of
principal of and interest on the mortgage assets and any reinvestment income
thereon provide funds to pay debt service on the CMO or to make scheduled
distributions on the multi-class pass-through security. A stripped
mortgage-backed security (“MBS strip”) may be issued by
U.S. governmental entities or by private institutions. MBS strips take the
pieces of a debt security (principal and interest) and break them apart. The
resulting securities may be sold separately and may perform
differently.
The Fund may invest
up to 35% of its investable assets in asset-backed securities. An asset-backed
security is another type of
pass-through instrument that pays interest based upon the cash flow of an
underlying pool of assets, such as automobile loans or credit card receivables.
Asset-backed securities can also be collateralized by a portfolio of corporate
debt, including bonds, junk bonds, corporate loans, or other types of corporate
debt securities.
The Fund engages in
active trading—that is, frequent trading of its securities—in order to take
advantage of new investment opportunities. The Fund expects to be more heavily
involved in active trading during periods of market volatility seeking to
preserve gains or limit losses.
The
Fund’s investment objective is not a fundamental policy, and therefore may be
changed by the Board without shareholder approval. The Fund will provide 60
days’ prior written notice to shareholders of a change in its non-fundamental
policy of investing at least 80% of its investable assets in bonds.
Structured
Product Securities
Structured product
securities include secured loans backed by commercial real estate, residential
real estate, commercial or consumer loans such as agency and non-agency
mortgage-backed securities (“MBS”) (including commercial mortgage-backed
securities (“CMBS”), residential mortgage-backed securities (“RMBS”), and CMOs),
asset-backed securities (“ABS”) (including collateralized debt obligations
(“CDOs”) such as collateralized bond
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13
obligations
(“CBOs”) and collateralized loan obligations (“CLOs”)), and other similar
securities and related instruments. The Fund generally may not invest more than
5% of its total assets in unregistered or privately issued structured product
securities (excluding structured products offered and sold in the U.S. in
reliance on Rule 144A or Regulation S under the Securities Act of 1933) that, at
the time of purchase, (i) are classified as illiquid, and (ii) for which there
is no current market price (“Other Unregistered Structured Products”). If an
identifiable market for the structured product develops after the Fund’s
purchase of the security, the structured product will no longer be subject to
this 5% limitation.
Zero
Coupon Bonds, Pay-in-Kind (PIK) and Deferred Payment Securities
The Fund may invest
in zero coupon bonds, pay-in-kind (“PIK”) or deferred payment securities. Zero
coupon bonds do not pay interest during the life of the security. An investor
purchases the security at a price that is less than the amount the investor will
receive when the borrower repays the amount borrowed (face value). PIK
securities pay interest in the form of additional securities. Deferred payment
securities pay regular interest after a predetermined date. The Fund records the
amount these securities rise in price each year (phantom income) for accounting
and federal income tax purposes, but does not receive income currently. Because
the Fund is required under federal tax laws to distribute income to its
shareholders, in certain circumstances, the Fund may have to dispose of its
portfolio securities under disadvantageous conditions or borrow to generate
enough cash to distribute phantom income and the value of the paid-in-kind
interest.
Municipal
Bonds and Notes
Municipal bonds and
notes are issued by state and local governments and their agencies, authorities
and other instrumentalities. Municipal bonds and notes may be general obligation
or revenue bonds. General obligation bonds or notes are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable from the revenues derived from a particular
facility or class of facilities or from the proceeds of a special excise tax or
other specific revenue source but not from the general taxing power. Municipal
notes also include tax-exempt or municipal commercial paper, which may be issued
to meet seasonal working capital needs of a municipality or interim construction
financing and may be paid from the general revenues of the municipality or
refinanced with long-term debt. Municipal commercial paper may be backed by
letters of credit, lines of credit, lending agreements, note repurchase
agreements or other credit facility agreements offered by banks or other
institutions.
Convertible
Securities
The Fund may invest
in convertible securities, which include convertible preferred stocks and debt
securities of a corporation that may be converted into underlying shares of
common stock either because they have warrants attached or otherwise permit the
holder to buy common stock of the corporation at a set price. Convertible
securities provide an income stream (usually lower than non-convertible bonds)
and give investors opportunities to participate in the capital appreciation of
the underlying common stock. Convertible securities typically offer greater
potential for appreciation than non-convertible debt securities.
Money
Market Instruments
The Fund may hold
cash and/or invest in money market instruments, including commercial paper of a
U.S. or non-U.S. company, non-U.S. government securities, certificates of
deposit, bankers' acceptances, time deposits of domestic and non-U.S. banks, and
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. These obligations may be U.S. dollar-denominated or
denominated in a non-U.S. currency. Money market instruments typically have a
maturity of one year or less as measured from the date of purchase.
Credit-Linked
Securities
The Fund may invest
in credit-linked securities. Credit-linked securities are securities whose
payments are derived from the performance of designated reference obligations,
which may be corporate debt securities or a pool of assets such as mortgage
loans. The Fund has the right to receive periodic interest payments from the
issuer of the credit-linked security at an agreed-upon interest rate, and a
return of principal as contractually agreed at the maturity date. The source of
payment for credit-linked securities may be dependent on both the performance of
the reference obligations and the viability of the issuer.
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Repurchase
Agreements
The Fund may enter
into repurchase agreements, where a party agrees to sell a security to the Fund
and then repurchases it at an agreed-upon price at a stated time. This creates a
fixed return for the Fund, and is, in effect, a loan by the Fund. Repurchase
agreements are used for cash management purposes only.
Reverse
Repurchase Agreements
The Fund may enter
into reverse repurchase agreements, where the Fund sells a security with an
obligation to repurchase it at an agreed-upon price and time. Reverse repurchase
agreements that involve borrowing to take advantage of investment opportunities,
a practice known as leverage, could magnify losses. If the Fund borrows money to
purchase securities and those securities decline in value, then the value of the
Fund's shares will decline faster than if the Fund were not leveraged. In
addition, interest costs and investment fees relating to leverage may exceed
potential investment gains.
Dollar
Rolls
The Fund may enter
into dollar rolls in which the Fund sells securities to be delivered in the
current month and repurchases substantially similar (same type and coupon)
securities to be delivered on a specified future date by the same party. The
Fund is paid the difference between the current sales price and the forward
price for the future purchase as well as the interest earned on the cash
proceeds of the initial sale.
Derivative
Strategies
Derivatives are financial
instruments whose value depends upon, or is derived from, the value of something
else, such as one or more underlying investments, indices or currencies. The
Fund may use various derivative strategies to try to improve the Fund's returns.
The subadviser may also use hedging techniques to try to protect the Fund's
assets. A derivative contract will obligate or entitle the Fund to deliver or
receive an asset or cash payment based on the change in value of one or more
investments, indices or currencies. Derivatives may be traded on organized
exchanges, or in individually negotiated transactions with other parties (these
are known as “over-the-counter” derivatives). The Fund may be limited in its use
of derivatives by rules adopted by the SEC governing derivatives transactions.
Although the Fund has the flexibility to make use of derivatives, it may choose
not to for a variety of reasons, even under very volatile market
conditions.
Foreign
Currency Forward Contracts. The Fund may enter
into foreign currency forward contracts to protect the value of its assets
against future changes in the level of foreign exchange rates or to enhance
returns. A foreign currency forward contract is an obligation to buy or sell a
given currency on a future date and at a set price or to make or receive a cash
payment based on the value of a given currency at a future date. Delivery of the
underlying currency is expected, the terms are individually negotiated, the
counterparty is not a clearing corporation or an exchange, and payment on the
contract is made upon delivery, rather than daily.
Futures
Contracts and Related Options. The Fund may
purchase and sell financial futures contracts and related options on financial
futures. A futures contract is an agreement to buy or sell a set quantity of an
underlying asset at a future date, or to make or receive a cash payment based on
the value of a securities index, or some other asset, at a stipulated future
date. The terms of futures contracts are standardized. In the case of a
financial futures contract based upon a broad index, there is no delivery of the
securities comprising the underlying index, margin is uniform, a clearing
corporation or an exchange is the counterparty and the Fund makes daily margin
payments based on price movements in the index. An option gives the purchaser
the right to buy or sell securities or currencies, or in the case of an option
on a futures contract, the right to buy or sell a futures contract in exchange
for a premium.
Swap
Transactions. The Fund may enter
into swap transactions. Swap agreements are two-party contracts entered into
primarily by institutional investors for periods typically ranging from a few
weeks to more than one year. In a standard “swap” transaction, two parties agree
to exchange the returns (or differentials in rates of return) earned or realized
on particular predetermined investments or instruments, which may be adjusted
for an interest factor. There are various types of swaps, including but not
limited to credit default swaps, interest rate swaps, total return swaps and
index swaps.
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Options. The Fund may
purchase and sell put and call options on debt securities, aggregates of debt
securities, financial indices, and currencies traded on U.S. or foreign
securities exchanges or in the over-the-counter market. An option gives the
purchaser the right to buy or sell securities or such currencies in exchange for
a premium. The Fund will sell only covered options.
Equity
and Equity-Related Securities
From time to time,
the Fund may purchase or hold equity or equity-related securities incidental to
the purchase or ownership of fixed income instruments or in connection with a
reorganization of a borrower. These include common stock, preferred stock or
securities that may be converted into or exchanged for common stock—known as
convertible securities—like rights and warrants.
Short
Sales
The Fund may make
short sales of a security. This means that the Fund may sell a security that it
does not own, which it may do, for example, when the subadviser thinks the value
of the security will decline. The Fund generally borrows the security to deliver
to the buyers in a short sale. The Fund must then replace the borrowed security
by purchasing it at the market price at the time of replacement. The Fund may
make short sales “against the box.” In a short sale against the box, at the time
of sale, the Fund owns or has the right to acquire the identical security at no
additional cost through conversion or exchange of other securities it
owns.
When-Issued
and Delayed-Delivery Securities
The Fund may
purchase securities, including money market obligations, bonds or other
obligations, on a when-issued, delayed-delivery or forward commitment basis.
When the Fund purchases delayed-delivery securities, the price and interest rate
are fixed at the time of purchase. For both when-issued and delayed-delivery
securities, delivery and payment for the obligations take place at a later time.
The Fund does not earn interest income until the date the obligations are
expected to be delivered.
Floating Rate
and Other
Loans
The Fund may invest
in fixed and floating rate loans (secured or unsecured) arranged through private
negotiations between a company as the borrower and one or more financial
institutions as lenders. These types of investments can be in the form of loan
participations or assignments.
Loan participations
and assignments are nonconvertible corporate debt instruments of varying
maturities. With participations, the Fund has the right to receive payments of
principal, interest and fees from the lender conditioned upon the lender's
receipt of payment from the borrower. In participations, the Fund generally does
not have direct rights against the borrower on the loan, which means that if the
borrower does not pay back the loan or otherwise comply with the loan agreement,
the Fund will not have the right to make it do so. With assignments, the Fund
has direct rights against the borrower on the loan, but its rights may be more
limited than the original lender's.
Temporary
Defensive Investments
In response to
adverse market, economic or political conditions, the Fund may take a temporary
defensive position and invest up to 100% of its investable assets in money
market instruments, including short-term obligations of, or securities
guaranteed by, the U.S. Government, its agencies or instrumentalities, or in
high-quality obligations of U.S. or non-U.S. banks and corporations, and may
hold up to 100% of its investable assets in cash or cash equivalents. Although
the subadviser has the ability to take defensive positions, it may choose not to
do so for a variety of reasons, even during volatile market conditions.
Investing heavily in these securities is inconsistent with and limits the Fund's
ability to achieve its investment objective, but may help to preserve the Fund's
assets.
Investments
in Affiliated Funds
The Fund may invest
its assets in affiliated funds, including exchange-traded funds, that are
registered investment companies under the Investment Company Act of 1940 (the
“1940 Act”). The Fund can invest its free cash balances in affiliated short-term
bond funds and/or money market funds to obtain income on short-term cash
balances while awaiting attractive investment opportunities, to provide
liquidity in preparation for anticipated redemptions or for defensive purposes.
Such an investment could also allow the Fund to obtain the benefits of a more
diversified portfolio
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PGIM Total Return
Bond ETF
available in the affiliated funds
than might otherwise be available through direct investments in those asset
classes, and will subject the Fund to the risks associated with the particular
asset class. To the extent the Fund serves as an underlying investment for other
registered funds, the Fund may be prohibited from investing in certain
registered funds and private funds.
As a shareholder in the affiliated
funds, the Fund will pay its proportional share of the expenses of the
affiliated funds. The affiliated short-term bond funds and certain money market
funds do not pay a management fee to the investment manager, since the
investment manager only receives reimbursement for its expenses. Thus,
shareholders of the Fund are not paying management fees for both the Fund and
the affiliated short-term bond funds and money market funds. The investment
results of the portions of the Fund’s assets invested in the affiliated funds
will be based on the investment results of the affiliated funds.
Securities
Lending
Consistent with
applicable regulatory requirements, the Fund may lend portfolio securities with
a value up to 33 1∕3% of its total
assets to brokers, dealers and other financial organizations to earn additional
income. Loans of portfolio securities will be collateralized by cash. Cash
collateral will be invested in an affiliated prime money market
fund.
Other
Investments
In addition to the
strategies and securities discussed above, the Fund may use other strategies or
invest in other types of securities as described in the Statement of Additional
Information (“SAI”). The Fund might not use all of the strategies or invest in
all of the types of securities as described in the Prospectus or in the
SAI.
The table below
summarizes the investment limits applicable to the Fund’s principal investment
strategies and certain non-principal investment strategies.
|
Principal
Strategies: Investment Limits |
|
◾Bonds:
At least 80% of investable assets ◾Mortgage-related
securities: Percentage varies ◾High
Yield Debt Securities (Junk Bonds): Up to 30% of investable
assets ◾Asset-Backed
Securities: Up to 35% of investable assets ◾Foreign
Debt Securities: Up to 30% of investable
assets |
|
Certain
Non-Principal Strategies: Investment Limits |
|
◾Derivatives
(including swaps): Up to 25% of net assets (subject to the Fund’s
operation under the requirements of Rule
18f-4
under the Investment Company Act of 1940) ◾Bank
Loan Investments: Up to 10% of net assets ◾Money
market instruments: Up to 20% of investable assets ◾Short
Sales: Up to 25% of net assets (not including short sales “against
the box”) ◾Zero
coupon bonds, PIK and deferred payment securities: Percentage
varies ◾Illiquid
investments: Up to 15% of net assets ◾When-issued
and delayed-delivery securities: Percentage varies ◾Convertible
Securities, Preferred Stock, and Credit Linked Securities: Percentage
varies ◾Municipal
Securities: Up to 5% of net assets ◾Other
Unregistered Structured Products: Up to 5% of total
assets ◾Credit-linked
securities: Up to 15% of investable
assets |
RISKS
OF INVESTING IN THE FUND
The order of the
below risk factors does not indicate the significance of any particular risk
factor.
Active
Trading Risk. The Fund actively
and frequently trades its portfolio securities. High portfolio turnover results
in higher transaction costs, which can affect the Fund’s performance and have
adverse tax consequences. In addition, high portfolio turnover may also mean
that a proportionately greater amount of distributions to shareholders will be
taxed as ordinary income rather than long-term capital gains compared to
investment companies with lower portfolio turnover.
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Authorized
Participant Concentration Risk. Only an Authorized
Participant (as defined in “How to Buy and Sell Shares of the Fund” in the
Fund’s Prospectus) may engage in creation or redemption transactions directly
with the Fund. The Fund has a limited number of intermediaries that act as
Authorized Participants and none of these Authorized Participants is or will be
obligated to engage in creation or redemption transactions. To the extent that
these Authorized Participants exit the business or are unable to or choose not
to proceed with creation and/or redemption orders with respect to the Fund and
no other Authorized Participant creates or redeems, shares of the Fund may trade
at a substantial discount or premium to net asset value (“NAV”), may trade at
larger spreads, and possibly face trading halts and/or delisting.
Cash
Transactions Risk. Unlike certain
ETFs, the Fund may effect its creations and redemptions in cash or partially in
cash. As a result, an investment in the Fund may be less tax-efficient than an
investment in other ETFs. Other ETFs generally make in-kind redemptions and
avoid realizing gains in connection with transactions designed to raise cash to
meet redemption requests. If the Fund effects a portion of redemptions for cash,
it may be required to sell portfolio securities in order to obtain the cash
needed to distribute redemption proceeds, which involves transaction costs. If
the Fund recognizes gain on these sales, this generally will cause the Fund to
recognize gain it might not otherwise have recognized if it were to distribute
portfolio securities in-kind, or to recognize such gain sooner than would
otherwise be required. The Fund generally intends to distribute these gains to
shareholders to avoid being taxed on this gain at the Fund level and otherwise
comply with the special tax rules that apply to it. This strategy may cause
shareholders to be subject to tax on gains they would not otherwise be subject
to, or at an earlier date than, if they had made an investment in a different
ETF.
Collateralized
Loan Obligations (“CLOs”) Risk. CLOs are subject
to credit, interest rate, valuation, and prepayment and extension risks. These
securities also are subject to risk of default on the underlying asset,
particularly during periods of economic downturn. The market value of CLOs may
be affected by, among other things, changes in the market value of the
underlying assets held by the CLO, changes in the distributions on the
underlying assets, defaults and recoveries on the underlying assets, capital
gains and losses on the underlying assets, prepayments on underlying assets and
the availability, prices and interest rate of underlying assets.
Convertible
Securities Risk. The market value of
a convertible security performs like that of a regular debt security; that is,
if market interest rates rise, the value of a convertible security usually
falls. In addition, convertible securities are subject to the risk that the
issuer will not be able to pay interest or dividends when due, and their market
value may change based on changes in the issuer's credit rating or the market's
perception of the issuer's creditworthiness. Since it derives a portion of its
value from the common stock into which it may be converted, a convertible
security is also subject to the same types of market and issuer risks that apply
to the underlying common stock.
“Covenant-Lite”
Risk. Some of the
loans or debt obligations in which the Fund may invest or get exposure to may be
“covenant-lite”, which means the loans or obligations contain fewer financial
maintenance covenants than other loans or obligations (in some cases, none) and
do not include terms which allow the lender to monitor the borrower’s
performance and declare a default if certain criteria are breached. An
investment by the Fund in a covenant-lite loan may potentially hinder the
ability to reprice credit risk associated with the issuer and reduce the ability
to restructure a problematic loan and mitigate potential loss. The Fund may also
experience difficulty, expenses or delays in enforcing its rights on its
holdings of covenant-lite loans or obligations. As a result of these risks, the
Fund’s exposure to losses may be increased, which could result in an adverse
impact on the Fund’s net income and NAV.
Credit-Linked
Securities Risk. Credit-linked
securities are subject to the risk that the issuer of the credit-linked security
may default or go bankrupt, as well as the credit risk of the corporate issuer
underlying the credit default swaps. In addition, credit-linked securities are
usually issued in privately negotiated transactions, resulting in limited or no
liquidity. Credit-linked securities are also subject to market risk, interest
rate risk, prepayment risk and extension risk.
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Credit
Risk. This is the risk
that the issuer, the guarantor or the insurer of a fixed income security, or the
counterparty to a contract, may be unable or unwilling to make timely principal
and interest payments, or to otherwise honor its obligations. Additionally,
fixed income securities could lose value due to a loss of confidence in the
ability of the issuer, guarantor, insurer or counterparty to pay back debt. The
lower the credit quality of a bond, the more sensitive it is to credit
risk.
Currency
Risk.
The Fund's net asset value could decline as a result of changes in exchange
rates, which could adversely affect the Fund’s investments in currencies, or in
securities that trade in, and receive revenues related to, currencies, or in
derivatives that provide exposure to currencies. Certain foreign countries may
impose restrictions on the ability of issuers of foreign securities to make
payment of principal and interest or dividends to investors located outside the
country, due to blockage of foreign currency exchanges or
otherwise.
Cyber
Security Risk. Failures or
breaches of the electronic systems of the Fund, the Fund's manager, subadviser,
distributor, and other service providers, or the issuers of securities in which
the Fund invests have the ability to cause disruptions and negatively impact the
Fund's business operations, potentially resulting in financial losses to the
Fund and its shareholders. While the Fund has established business continuity
plans and risk management systems seeking to address system breaches or
failures, there are inherent limitations in such plans and systems. Furthermore,
the Fund cannot control the cyber security plans and systems of the Fund's
service providers or issuers of securities in which the Fund
invests.
Debt Obligations
Risk. Debt obligations
are subject to credit risk, market risk and interest rate risk. The Fund's
holdings, share price, yield and total return may also fluctuate in response to
bond market movements. The value of bonds may decline for issuer-related
reasons, including management performance, financial leverage and reduced demand
for the issuer’s goods and services. Certain types of fixed income obligations
also may be subject to “call and
redemption risk,” which is the risk that the issuer
may call a bond held by the Fund for redemption before it matures and the Fund
may not be able to reinvest at the same rate of interest and therefore would
earn less income.
Derivatives
Risk. Derivatives
involve special risks and costs and may result in losses to the Fund. The
successful use of derivatives requires sophisticated management, and, to the
extent that derivatives are used, the Fund will depend on the subadviser’s
ability to analyze and manage derivatives transactions. The prices of
derivatives may move in unexpected ways, especially in abnormal market
conditions. Some derivatives are “leveraged” or may create economic leverage for
the Fund. and therefore may magnify or otherwise increase investment losses to
the Fund. The Fund's use of derivatives may also increase the amount of taxes
payable by shareholders.
Other risks arise from the
potential inability to terminate or sell derivatives positions. A liquid
secondary market may not always exist for the Fund's derivatives positions. In
fact, many over-the-counter derivative instruments will not have liquidity
beyond the counterparty to the instrument. Over-the-counter derivative
instruments also involve the risk that the other party will not meet its
obligations to the Fund. The use of derivatives also exposes the Fund to
operational issues, such as documentation and settlement issues, systems
failures, inadequate control and human error.
Derivatives may also involve legal risks, such
as insufficient documentation, the lack of capacity or authority of a
counterparty to execute or settle a transaction, and the legality and
enforceability of derivatives contracts. The U.S. Government and foreign
governments have adopted (and may adopt further) regulations governing
derivatives markets, including mandatory clearing of certain derivatives, margin
and reporting requirements and risk exposure limitations. Regulation of
derivatives may make derivatives more costly, limit their availability or
utility to the Fund, or otherwise adversely affect their performance or disrupt
markets.
Dollar
Rolls Risk. Dollar rolls
involve the risk that the market value of the securities that the Fund is
committed to buy may decline below the price of the securities the Fund has
sold. If the buyer of securities under a dollar roll files for bankruptcy or
becomes insolvent, the Fund's right to purchase or repurchase securities under a
dollar roll may be restricted. Successful use of dollar rolls depends on the
ability to correctly predict interest rates and prepayments, depending on the
underlying security. These transactions may involve leverage.
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Economic
and Market Events Risk. Events in the U.S.
and global financial markets, including actions taken by the U.S. Federal
Reserve or foreign central banks to stimulate or stabilize economic growth or
the functioning of the securities markets, may at times result in unusually high
market volatility, which could negatively impact performance. Relatively reduced
liquidity in credit and fixed income markets could adversely affect issuers
worldwide.
Emerging
Markets Risk. The risks of
foreign investments are greater for investments in or exposed to emerging
markets. Emerging market countries typically have economic and political systems
that are less fully developed, and can be expected to be less stable, than those
of more developed countries. For example, the economies of such countries can be
subject to rapid and unpredictable rates of inflation or deflation. Low trading
volumes may result in a lack of liquidity and price volatility. Emerging market
countries may have policies that restrict investment by non-U.S. investors, or
that prevent non-U.S. investors from withdrawing their money at
will.
The Fund may invest
in some emerging markets that subject it to risks such as those associated with
illiquidity, custody of assets, different settlement and clearance procedures
and asserting legal title under a developing legal and regulatory regime to a
greater degree than in developed markets or even in other emerging
markets.
Equity
and Equity-Related Securities Risk. Equity and
equity-related securities may be subject to changes in value, and their values
may be more volatile than those of other asset classes. In addition to an
individual security losing value, the value of the equity markets or a sector in
which the Fund invests could go down. Different parts of a market can react
differently to adverse issuer, market, regulatory, political and economic
developments.
ETF
Shares Trading Risk. Fund shares are
listed for trading on NYSE Arca, Inc. (the “Exchange”) and the shares are bought
and sold in the secondary market at market prices. The market prices of the
shares of the Fund are expected to fluctuate in response to changes in the
Fund's NAV, the intraday value of the Fund's holdings and supply and demand for
shares of the Fund. We cannot predict whether shares of the Fund will trade
above, below or at their NAV. Trading on the Exchange, including trading of Fund
shares, may be halted in certain circumstances and shareholders may not be able
to sell Fund shares at the time or price desired. During periods of stressed
market conditions, the market for the shares of the Fund may become less liquid
in response to deteriorating liquidity in the markets for the Fund's portfolio
investments. This adverse effect on the liquidity of the Fund's shares could
lead to differences between the market price of the Fund's shares and the NAV of
those shares. There can be no assurance that the requirements of the Exchange to
maintain the listing of shares of the Fund will continue to be met. At times,
trading in the securities of ETFs has become volatile and unpredictable and the
price of ETF shares has diverged from market driven fundamentals.
Disruptions to creations and redemptions, the
existence of significant market volatility or potential lack of an active
trading market for the shares of the Fund (including through a trading halt), as
well as other factors, may result in the Fund's shares trading on the Exchange
significantly above (at a premium) or below (at a discount) to NAV or to the
intraday value of the Fund's holdings. Premiums and discounts relate to
differences between the market price and NAV of the Fund's shares. During such
periods, you may incur significant losses if you sell your shares of the Fund.
The securities held by the Fund may be traded in markets that close at a
different time than the Exchange and may trade outside of a collateralized
settlement system. Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time when the Exchange is open
but after the applicable market closing, fixing or settlement times, bid-ask
spreads for the Fund's shares on the Exchange and the corresponding premium or
discount between the market price for Fund shares and their NAV may widen.
Additionally, during times when the Exchange is open but after the applicable
market is closed, there may be changes between the last quote from the closed
foreign market and the value of such security during the Fund's trading day on
the Exchange and this may lead to differences between the market price of the
Fund's shares and the underlying value of those shares.
Cost
of Buying or Selling Shares. When you buy or
sell shares of the Fund through a broker, you will likely incur a brokerage
commission or other charges imposed by brokers. In addition, the market price of
shares of the Fund, like the price of any exchange-traded security, includes a
“bid-ask spread” charged by the market makers or other participants that trade
the particular security. The spread of the Fund's shares varies over time based
on the Fund's trading volume, the spread of the Fund's underlying securities,
and market liquidity and may increase if the Fund's
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trading volume, the
spread of the Fund's underlying securities, or market liquidity decreases. In
times of severe market disruption, including when trading of the Fund's holdings
may be halted, the bid-ask spread may increase significantly. This means that
the shares may trade at a discount to the Fund's NAV, and the discount is likely
to be greatest during significant market volatility.
No Guarantee of
Active Trading Market Risk. While shares of the Fund are
listed on the Exchange, there can be no assurance that active trading markets
for the shares will develop or be maintained by market makers or by Authorized
Participants. The distributor of the Fund's shares does not maintain a secondary
market in the shares.
Floating Rate
and Other Loans Risk.
The Fund's ability to receive payments of principal and interest and other
amounts in connection with loans (whether through participations, assignments or
otherwise) will depend primarily on the financial condition of the borrower. The
failure by the Fund to receive scheduled interest or principal payments on a
loan because of a default, bankruptcy or any other reason would adversely affect
the income of the Fund and would likely reduce the value of its assets. Even
with loans secured by collateral, there is the risk that the value of the
collateral may decline, may be insufficient to meet the obligations of the
borrower, or be difficult to liquidate. In the event of a default, the Fund may
have difficulty collecting on any collateral and would not have the ability to
collect on any collateral for an uncollateralized loan. Further, the Fund's
access to collateral, if any, may be limited by bankruptcy laws. Due to the
nature of the private syndication of senior loans, including, for example, lack
of publicly-available information, some senior loans are not as easily purchased
or sold as publicly-traded securities. In addition, loan participations
generally are subject to restrictions on transfer, and only limited
opportunities may exist to sell loan participations in secondary markets. As a
result, it may be difficult for the Fund to value loans or sell loans at an
acceptable price when it wants to sell them. Loans trade in an over-the-counter
market, and confirmation and settlement, which are effected through standardized
procedures and documentation, may take significantly longer than seven days to
complete. Extended trade settlement periods may, in unusual market conditions
with a high volume of shareholder redemptions, present a risk to shareholders
regarding the Fund's ability to pay redemption proceeds in a timely manner. In
some instances, loans and loan participations are not rated by independent
credit rating agencies; in such instances, a decision by the Fund to invest in a
particular loan or loan participation could depend exclusively on the
subadviser's credit analysis of the borrower, or in the case of a loan
participation, of the intermediary holding the portion of the loan that the Fund
has purchased. To the extent the Fund invests in loans of non-U.S. issuers, the
risks of investing in non-U.S. issuers are applicable. Loans may not be
considered to be “securities” and as a result may not benefit from the
protections of the federal securities laws, including anti-fraud protections and
those with respect to the use of material non-public information, so that
purchasers, such as the Fund, may not have the benefit of these protections. If
the Fund is in possession of material non-public information about a borrower as
a result of its investment in such borrower’s loan, the Fund may not be able to
enter into a transaction with respect to a publicly-traded security of the
borrower when it would otherwise be advantageous to do so.
Foreign
Securities Risk.
Investments in securities of non-U.S. issuers (including those denominated in
U.S. dollars) may involve more risk than investing in
securities of U.S. issuers. Foreign political, economic and legal systems,
especially those in developing and emerging market countries, may be less stable
and more volatile than in the United States. Foreign legal systems generally
have fewer regulatory requirements than the U.S. legal system, particularly
those of emerging markets. In general, less information is publicly available
with respect to non-U.S. companies than U.S. companies. Non-U.S. companies
generally are not subject to the same accounting, auditing, and financial
reporting standards as are U.S. companies. Additionally, the changing value of
foreign currencies and changes in exchange rates could also affect the value of
the assets the Fund holds and the Fund's performance. Certain foreign countries
may impose restrictions on the ability of issuers of foreign securities to make
payment of principal and interest or dividends to investors located outside the
country, due to blockage of foreign currency exchanges or otherwise. Investments
in emerging markets are subject to greater volatility and price
declines.
In addition, the
Fund's investments in non-U.S. securities may be subject to the risks of
nationalization or expropriation of assets, imposition of currency exchange
controls or restrictions on the repatriation of non-U.S. currency, confiscatory
taxation and adverse diplomatic developments. Special U.S. tax considerations
may apply.
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Forward
Commitments Risk. Forward commitments
are subject to the risk that the counterparty to the forward commitment may fail
to make payment or delivery in a timely manner or at all. Forward commitments
are also subject to the risk that the value of the security to be purchased may
decline prior to the settlement date.
Interest
Rate Risk. The value of your
investment may go down when interest rates rise. A rise in rates tends to have a
greater impact on the prices of longer term or duration debt securities. For
example, a fixed income security with a duration of three years is expected to
decrease in value by approximately 3% if interest rates increase by 1%. This is
referred to as “duration
risk.”
When
interest rates fall, the issuers of debt obligations may prepay principal more
quickly than expected, and the Fund may be required to reinvest the proceeds at
a lower interest rate. This is referred to as “prepayment
risk.”
For premium bonds (bonds acquired at prices that exceed their par or principal
value) purchased by the Fund, prepayment risk may be enhanced. When interest
rates rise, debt obligations may be repaid more slowly than expected, and the
value of the Fund's holdings may fall sharply. This is referred to as
“extension
risk.”
The Fund may lose money if short-term or long-term interest rates rise sharply
or in a manner not anticipated by the subadviser.
Junk
Bonds Risk. High-yield,
high-risk bonds have predominantly speculative characteristics, including
particularly high credit risk. Junk bonds tend to have lower market liquidity
than higher-rated securities. The liquidity of particular issuers or industries
within a particular investment category may shrink or disappear suddenly and
without warning. The non-investment grade bond market can experience sudden and
sharp price swings and become illiquid due to a variety of factors, including
changes in economic forecasts, stock market activity, large sustained sales by
major investors, a high profile default or a change in the market's
psychology.
Large
Shareholder and Large Scale Redemption Risk. Certain
individuals, accounts, funds (including funds affiliated with the Manager) or
institutions, including the Manager and its affiliates, may from time to time
own or control a substantial amount of the Fund’s shares. There is no
requirement that these entities maintain their investment in the
Fund.
Certain of these
entities may use predetermined, nondiscretionary mathematical formulas in their
investment process that may result in large-scale asset flows into and out of
the Fund. These shareholders may also pledge or loan Fund shares (to secure
financing or otherwise), which may result in the shares becoming concentrated in
another party. There is a risk that such large shareholders or that the Fund’s
shareholders generally may redeem all or a substantial portion of their
investments in the Fund in a short period of time, which could have a
significant negative impact on the Fund’s NAV, liquidity, and brokerage costs.
Such redemptions may cause the Fund to have to sell securities at inopportune
times or prices. These transactions may adversely affect the Fund’s performance
and increase transaction costs. In addition, large redemption requests may
exceed the cash balance of the Fund and result in credit line borrowing fees
and/or overdraft charges to the Fund until the sales of portfolio securities
necessary to cover the redemption request settle. To the extent a large
shareholder in the Fund is an entity subject to domestic and/or international
regulations governing banking, insurance,
or
other financial institutions, changes in those regulations (e.g., capital
requirements) or in the shareholder’s financial status may cause or require the
shareholder to redeem its investment in the Fund when it otherwise would not
choose to redeem that investment. It is also possible that a significant
redemption could result in an increase in Fund expenses on account of being
spread over a smaller asset base, and therefore make it more difficult for the
Fund to implement its investment strategy. Large redemptions could also result
in tax consequences to shareholders. The Fund’s ability to pursue its investment
objective after one or more large scale redemptions may be impaired and, as a
result, the Fund may invest a larger portion of its assets in cash or cash
equivalents.
Liquidity
Risk.
The Fund may invest in instruments that trade in lower volumes and are more
illiquid than other investments. If the Fund is forced to sell these investments
to pay redemption proceeds or for other reasons, the Fund may lose money. In
addition, when there is no willing buyer and investments cannot be readily sold
at the desired time or price, the Fund may have to accept a lower price or may
not be able to sell the instrument at all. An inability to sell a portfolio
position can adversely affect the Fund's value or prevent the Fund from being
able to take advantage of other investment opportunities.
Management
Risk. The value of your
investment may decrease if judgments by the subadviser about the attractiveness,
value or market trends affecting a particular security, industry or sector or
about market movements are incorrect.
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Bond ETF
Market
Disruption and Geopolitical Risks. Market disruption can be caused by
economic, financial or political events and factors, including but not limited
to, international wars or conflicts (including Russia’s military invasion of
Ukraine), geopolitical developments (including trading and tariff arrangements,
sanctions and cybersecurity attacks), instability in regions such as Asia,
Eastern Europe and the Middle East, terrorism, natural disasters and public
health epidemics (including the outbreak of COVID-19 globally).
The extent and duration of such
events and resulting market disruptions cannot be predicted, but could be
substantial and could magnify the impact of other risks to the Fund. These and
other similar events could adversely affect the U.S. and foreign financial
markets and lead to increased market volatility, reduced liquidity in the
securities markets, significant negative impacts on issuers and the markets for
certain securities and commodities and/or government intervention. They may also
cause short- or long-term economic uncertainties in the United States and
worldwide. As a result, whether or not the Fund invests in securities of issuers
located in or with significant exposure to the countries directly affected, the
value and liquidity of the Fund’s investments may be negatively impacted.
Further, due to closures of certain markets and restrictions on trading certain
securities, the value of certain securities held by the Fund could be
significantly impacted, which could lead to such securities being valued at
zero.
COVID-19 and the related
governmental and public responses have had and may continue to have an impact on
the Fund’s investments and net asset value and have led and may continue to lead
to increased market volatility and the potential for illiquidity in certain
classes of securities and sectors of the market. They have also had and may
continue to result in periods of business disruption, business closures,
inability to obtain raw materials, supplies and component parts, and reduced or
disrupted operations for the issuers in which the Fund invests. The occurrence,
reoccurrence and pendency of public health epidemics could adversely affect the
economies and financial markets either in specific countries or
worldwide.
Market
Risk.
Securities markets may be volatile and the market prices of the Fund’s
securities may decline. Securities fluctuate in price based on changes in an
issuer’s financial condition and overall market and economic conditions. If the
market prices of the securities owned by the Fund fall, the value of your
investment in the Fund will decline.
Money
Market Instruments Risk. The value of money
market instruments may be affected by changing interest rates and by changes in
the credit ratings of those instruments. If a significant amount of the Fund's
assets are invested in money market instruments, it will be more difficult for
the Fund to achieve its investment objective.
Mortgage-Backed
and Asset-Backed Securities Risk. Mortgage-backed
securities are particularly susceptible to prepayment and extension risks,
because prepayments on the underlying mortgages tend to increase when interest
rates fall and decrease when interest rates rise. Prepayments may also occur on
a scheduled basis or due to foreclosure. When market interest rates increase,
mortgage refinancings and prepayments slow, which lengthens the effective
duration of these securities. As a result, the negative effect of the interest
rate increase on the market value of mortgage-backed securities is usually more
pronounced than it is for other types of fixed income securities, potentially
increasing the volatility of the Fund.
Conversely, when
market interest rates decline, while the value of mortgage-backed securities may
increase, the rates of prepayment of the underlying mortgages tend to increase,
which shortens the effective duration of these securities. Mortgage-backed
securities are also subject to the risk that underlying borrowers will be unable
to meet their obligations.
At times, some of
the mortgage-backed securities in which the Fund may invest will have higher
than market interest rates and therefore will be purchased at a premium above
their par value. Prepayments may cause losses on securities purchased at a
premium.
The value of
mortgage-backed securities may be affected by changes in credit quality or value
of the mortgage loans or other assets that support the securities. In addition,
for mortgage-backed securities, when market conditions result in an increase in
the default rates on the underlying mortgages and the foreclosure values of the
underlying real estate are below the outstanding amount of the underlying
mortgages, collection of the full amount of accrued interest and
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principal on these
investments may be doubtful. For mortgage derivatives and structured securities
that have embedded leverage features, small changes in interest or prepayment
rates may cause large and sudden price movements. Mortgage derivatives can also
become illiquid and hard to value in declining markets.
Asset-backed
securities are structured like mortgage-backed securities and are subject to
many of the same risks, including prepayment risk, extension risk, credit risk
and interest rate risk. The ability of an issuer of asset-backed securities to
enforce its security interest in the underlying assets or to otherwise recover
from the underlying obligor may be limited. Certain asset-backed securities
present a heightened level of risk because, in the event of default, the
liquidation value of the underlying assets may be inadequate to pay any unpaid
principal or interest.
Municipal Bonds
Risk. Municipal bonds
are subject to credit risk, market risk and interest rate risk. The Fund's
holdings, share price, yield and total return may also fluctuate in response to
municipal bond market movements. Municipal bonds are also subject to the risk
that potential future legislative changes relating to tax or the rights of
municipal bond holders, for example in connection with an insolvency, could
affect the market for and value of municipal bonds, which may adversely affect
the Fund's yield or the value of the Fund's investments in municipal bonds.
Certain municipal bonds with principal and interest payments that are made from
the revenues of a specific project or facility, and not general tax revenues,
may have increased risks. Factors affecting the project or facility, such as
local business or economic conditions, could have a significant effect on the
project's ability to make payments of principal and interest on these
securities. If the Fund invests a substantial amount of its assets in issuers
located in a single region, state or city, there is an increased risk that
environmental, economic, political and social conditions in those regions will
have a significant impact on the Fund's investment performance. For example,
municipal securities of a particular state are vulnerable to events adversely
affecting that state, including economic, political and regulatory occurrences,
court decisions, terrorism, public health epidemics, social unrest and
catastrophic natural disasters, such as hurricanes or earthquakes. Many
municipal bonds are also subject to prepayment risk, which is the risk that when
interest rates fall, issuers may redeem a security by repaying it early, which
may reduce the Fund's income if the proceeds are reinvested at a lower interest
rate. In addition, income from municipal bonds could be declared taxable because
of non-compliant conduct of a bond issuer.
New/Small
Fund Risk. The Fund recently
commenced operations and has a limited operating history. As a new and
relatively small fund, the Fund's performance may not represent how the Fund is
expected to or may perform in the long term if and when it becomes larger and
has fully implemented its investment strategies. Investment positions may have a
disproportionate impact (negative or positive) on performance in new and smaller
funds. New and smaller funds may also require a period of time before they are
invested in securities that meet their investment objectives and policies and
achieve a representative portfolio composition. Fund performance may be lower or
higher during this “ramp-up” period, and may also be more volatile, than would
be the case after the Fund is fully invested. Similarly, a new or smaller fund's
investment strategy may require a longer period of time to show returns that are
representative of the strategy. New funds have limited performance histories for
investors to evaluate and new and smaller funds may not attract sufficient
assets to achieve investment and trading efficiencies. If the Fund were to fail
to successfully implement its investment strategies or achieve its investment
objective, performance may be negatively impacted, and any resulting liquidation
could create negative transaction costs for the Fund and tax consequences for
investors. Since the Fund is new, an active secondary market for the shares of
the Fund may not develop or may not continue once developed. Shareholders
holding large blocks of shares of the Fund, including the Manager and its
affiliates, may hold their shares for long periods of time, which may lead to
reduced trading volumes, wider trading spreads and impede the development or
maintenance of an active secondary trading market for Fund shares. These large
shareholders may also loan or sell all or a portion of their Fund shares, which
may result in increasing concentration of Fund shares in a small number of
holders, and the potential for large redemptions, decreases in Fund assets and
increased expenses for remaining shareholders.
Preferred
Securities Risk. Preferred stock
can experience sharp declines in value over short or extended periods of time,
regardless of the success or failure of a company’s operations. A redemption by
the issuer may negatively impact the return of the security held by the Fund.
Preferred stockholders’ liquidation rights are subordinate to the company’s debt
holders and creditors. If interest rates rise, the fixed dividend on preferred
stocks may be less attractive and the
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price of preferred
stocks may decline. Preferred stock usually does not require the issuer to pay
dividends and may permit the issuer to defer dividend payments. Deferred
dividend payments could have adverse tax consequences for the Fund and may cause
the preferred security to lose substantial value. Preferred securities also may
have substantially lower trading volumes and less market depth than many other
securities, such as common stock or U.S. Government securities.
Reference Rate
Risk. The Fund may be
exposed to financial instruments that are tied to the London Interbank Offered
Rate (“LIBOR”) to determine payment obligations, financing terms, hedging
strategies or investment value.
The United Kingdom's Financial
Conduct Authority announced a phase out of LIBOR such that after June 30, 2023,
the overnight, 1-month, 3-month, 6-month and 12-month U.S. dollar LIBOR settings
will cease to be published or will no longer be representative. All other LIBOR
settings and certain other interbank offered rates, such as the Euro Overnight
Index Average (“EONIA”), ceased to be published or representative after December
31, 2021. The Fund may have investments linked to other interbank offered rates
that may also cease to be published in the future. Various financial industry
groups have been planning for the transition away from LIBOR, but there remain
challenges to converting certain securities and transactions to a new reference
rate (e.g., the Secured Overnight Financing Rate (“SOFR”), which is intended to
replace the U.S. dollar LIBOR).
Neither the effect of the LIBOR
transition process nor its ultimate success can yet be known. The transition
process might lead to increased volatility and illiquidity in markets for
instruments whose terms currently include LIBOR as well as loan facilities used
by the Fund. While some existing LIBOR-based instruments may contemplate a
scenario where LIBOR is no longer available by providing for an alternative
rate-setting methodology, there may be significant uncertainty regarding the
effectiveness of any such alternative methodologies to replicate LIBOR. Not all
existing LIBOR-based instruments may have alternative rate-setting provisions
and there remains uncertainty regarding the willingness and ability of issuers
to add alternative rate-setting provisions in certain existing instruments.
Global regulators have advised market participants to cease entering into new
contracts using LIBOR as a reference rate, and it is possible that investments
in LIBOR-based instruments could invite regulatory scrutiny. In addition, a
liquid market for newly-issued instruments that use a reference rate other than
LIBOR still may be developing. There may also be challenges for the Fund to
enter into hedging transactions against such newly-issued instruments until a
market for such hedging transactions develops. All of the aforementioned may
adversely affect the Fund's performance or net asset value.
Repurchase
Agreements Risk. Repurchase
agreements could involve certain risks in the event of default or insolvency of
the seller, including losses and possible delays or restrictions upon the Fund’s
ability to dispose of the underlying securities. To the extent that, in the
meantime, the value of the securities that the Fund has purchased has decreased,
the Fund could experience a loss.
Reverse
Repurchase Agreements Risk. Reverse repurchase
agreements involve the risk that the other party may fail to return the
securities in a timely manner or at all. The Fund could lose money if it is
unable to recover the securities and the value of the collateral held by the
Fund, including the value of investments made with cash collateral, is less than
the value of the securities. These events could also trigger adverse tax
consequences to the Fund. Reverse repurchase agreements also involve leverage,
which may exaggerate the increase or decrease of the value of the Fund’s assets
during the term of the agreement.
Securities
Lending Risk. Securities
lending involves the risk that the borrower may fail to return the securities in
a timely manner or at all. As a result, the Fund may lose money and there may be
a delay in recovering the loaned securities. Additionally, losses could result
from the reinvestment of collateral received on loaned securities in investments
that decline in value, default, or do not perform as well as expected. The
affiliated prime money market fund in which cash collateral generally is
invested may impose liquidity fees or temporary gates on redemptions if its
weekly liquid assets fall below a designated threshold. If this were to occur,
the Fund may lose money on its investment of cash collateral in
Visit our website
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25
the affiliated
prime money market fund, or the Fund may not be able to redeem its investment of
cash collateral in the affiliated prime money market fund, which might cause the
Fund to liquidate other holdings in order to return the cash collateral to the
borrower upon termination of a securities loan. These events could trigger
adverse tax consequences for the Fund.
Short Sales
Risk. Short sales
involve costs and risks. The Fund must pay the lender interest on the security
it borrows, and the Fund will lose money to the extent that the price of the
security increases between the time of the short sale and the date when the Fund
replaces the borrowed security. Although the Fund’s gain is limited to the price
at which it sold the securities short, its potential loss is limited only by the
maximum attainable price of the securities, less the price at which the security
was sold and may, theoretically, be unlimited. The Fund may also make short
sales “against the box.” When selling short against the box, the Fund gives up
the opportunity for capital appreciation in the security.
Structured
Products Risk. Holders of
structured product securities bear risks of the underlying investments, index or
reference obligation. Certain structured products may be thinly traded or have a
limited trading market, and as a result may be characterized as illiquid. The
possible lack of a liquid secondary market for structured securities and the
resulting inability of the Fund to sell a structured security could expose the
Fund to losses and could make structured securities more difficult for the Fund
to value accurately, which may also result in additional costs. Structured
products are also subject to credit risk; the assets backing the structured
product may be insufficient to pay interest or principal. In addition to the
general risks associated with investments in fixed income, structured products
carry additional risks, including, but not limited to: the possibility that
distributions from collateral securities will not be adequate to make interest
or other payments; the quality of the collateral may decline in value or
default; and the possibility that the structured products are subordinate to
other classes. Structured securities are generally privately negotiated debt
obligations where the principal and/or interest or value of the structured
security is determined by reference to the performance of a specific asset,
benchmark asset, market or interest rate (“reference instrument”), and changes
in the reference instrument or security may cause significant price
fluctuations, or could cause the interest rate on the structured security to be
reduced to zero. Holders of structured products indirectly bear risks associated
with the reference instrument, are subject to counterparty risk and typically do
not have direct rights against the reference instrument. Structured products may
also entail structural complexity and documentation risk and there is no
guarantee that the courts or administrators will interpret the priority of
principal and interest payments as expected.
U.S. Government
and Agency Securities Risk. U.S. Government and agency
securities are subject to market risk, interest rate risk and credit risk. Not
all U.S. Government securities are insured or guaranteed by the full faith and
credit of the U.S. Government; some are only insured or guaranteed by the
issuing agency, which must rely on its own resources to repay the debt. Some
agency securities carry no guarantee whatsoever and the risk of default
associated with these securities would be borne by the Fund. The maximum
potential liability of the issuers of some U.S. Government securities held by
the Fund may greatly exceed their current resources, including their legal right
to support from the U.S. Treasury. No assurance can be given that the U.S.
Government would provide financial
support to any such issuers if it is not obligated to do so by law. It is
possible that these issuers will not have the funds to meet their payment
obligations in the future. In addition, the value of U.S. Government securities
may be affected by changes in the credit rating of the U.S.
Government.
When-Issued
and Delayed-Delivery Transactions Risk. When-issued and
delayed-delivery securities involve the risk that the security the Fund buys
will lose value prior to its delivery. There also is the risk that the security
will not be issued or that the other party to the transaction will not meet its
obligation. If this occurs, the Fund may lose both the investment opportunity
for the assets it set aside to pay for the security and any gain in the
security’s price.
Zero Coupon Bond
Risk. Zero coupon
bonds may experience greater volatility in market value due to changes in
interest rates. The Fund accrues income on the discount amortization of these
investments, which it is required to distribute each year. The Fund may be
required to sell investments to obtain cash needed for income
distributions.
Please note that,
in addition to the risks discussed above, there are many other factors that may
impact the Fund’s ability to achieve its investment objective and which could
result in a loss of all or a part of your investment.
26
PGIM Total Return
Bond ETF
More information
about the Fund’s investment strategies and risks appears in the SAI.
Visit our website
at www.pgim.com/investments
27
PRIOR HISTORICAL
PERFORMANCE OF SIMILARLY MANAGED ACCOUNTS
The Fund’s investment objective,
investment policies and strategies are substantially similar to the investment
objectives, strategies, and policies of 24 other accounts (including two mutual
funds and one ETF) managed by the subadviser. The performance of those accounts
is summarized below in the subadviser’s PGIM Core Plus Fixed Income Composite
(the “Composite”). The Composite (inception date January 1, 1996) includes all
discretionary accounts managed by the subadviser with substantially similar
investment objectives, strategies, and policies to those of the
Fund.
The performance of
the Composite is compared to the performance of the Bloomberg US Aggregate Bond
Index which will be the performance benchmark of the Fund. The Bloomberg US
Aggregate Bond Index is unmanaged and represents securities that are taxable and
dollar denominated. It covers the U.S. investment grade fixed rate bond market,
with index components for government and corporate securities, mortgage
pass-through securities, and asset-backed securities. Index returns do not
include the effect of any sales charges, mutual fund operating expenses or
taxes. These returns would be lower if they included the effect of these
expenses. An unmanaged index cannot be purchased directly by investors, and
reflects no deductions for sales charges, fees, expenses, or taxes. The
benchmark returns do not include the effect of any operating expenses of a
mutual fund or taxes payable by investors and would be lower if they included
these effects. In addition, the portfolio holdings of the Fund may differ from
those of the accounts included in the Composite. Such differences do not alter
the conclusion that the Fund’s strategy and the strategy represented in the
Composite are substantially similar in all material respects.
All historical
returns shown below reflect the reinvestment of dividends and other earnings.
Historical investment performance is shown net of fees and gross of fees. The
net of fee performance data is calculated on a monthly basis and reflects the
deduction of the highest investment advisory fee paid to the subadviser and the
highest level of other expenses paid by any account in the Composite. Gross
returns do not reflect the deduction of investment advisory fees or any other
expenses that may be incurred in the management of the accounts in the
Composite.
Fees charged to
clients may vary depending on, among other things, the applicable fee schedule
and the size of the account or fund in the Composite. The net and gross of fee
performance has not been adjusted to reflect any fees or expenses that will be
payable by the Fund, which may be higher or lower than the fees payable by an
account included in the Composite depending on its fee structure, and which will
reduce the returns of the Fund. If the net and gross of fee performance for the
Composite had been adjusted to reflect fees and expenses payable by the Fund,
the returns of the Composite could have been lower than those
shown.
Investors
should not rely on the historical performance data shown below as an indication
of future performance of the Fund. The historical performance information set
forth below does not represent the performance of the Fund.
|
Annualized
Returns | |||
|
As
of June 30, 2022 |
Gross
Return |
Net
Return |
Benchmark |
|
1
Year |
-12.06% |
-13.61% |
-10.29% |
|
3
Year |
-0.83% |
-2.58% |
-0.93% |
|
5
Year |
1.53% |
-0.26% |
0.88% |
|
10
Year |
3.02% |
1.20% |
1.54% |
|
Since
Inception (1/1/1996) |
5.49% |
3.62% |
4.36% |
|
Calendar
Year Returns | |||
|
Year |
Gross
Return |
Net
Return |
Benchmark |
|
2022
(1/1/2022 – 6/30/2022) |
-12.59% |
-13.36% |
-10.35% |
|
2021 |
-0.67% |
-2.42% |
-1.54% |
|
2020 |
8.71% |
6.79% |
7.51% |
|
2019 |
11.57% |
9.60% |
8.72% |
|
2018 |
-0.20% |
-1.96% |
0.01%
|
28
PGIM Total Return
Bond ETF
|
Calendar
Year Returns | |||
|
Year |
Gross
Return |
Net
Return |
Benchmark |
|
2017 |
7.06% |
5.17% |
3.54% |
|
2016 |
5.57% |
3.70% |
2.65% |
|
2015 |
0.44% |
-1.33% |
0.55% |
|
2014 |
7.58% |
5.68% |
5.97% |
|
2013 |
-0.43% |
-2.19% |
-2.02% |
|
2012 |
10.73% |
8.77% |
4.21% |
|
2011 |
8.08% |
6.17% |
7.84% |
|
2010 |
10.74% |
8.78% |
6.54% |
|
2009 |
20.32% |
18.20% |
5.93% |
|
2008 |
-2.62% |
-4.34% |
5.24% |
|
2007 |
5.33% |
3.47% |
6.97% |
|
2006 |
5.45% |
3.59% |
4.33% |
|
2005 |
3.46% |
1.63% |
2.43% |
|
2004 |
5.54% |
3.67% |
4.34% |
|
2003 |
6.93% |
5.04% |
4.10% |
|
2002 |
8.94% |
7.02% |
10.26% |
|
2001 |
7.69% |
5.79% |
8.44% |
|
2000 |
11.26% |
9.29% |
11.63% |
|
1999 |
-0.15% |
-1.92% |
-0.82% |
|
1998 |
6.82% |
4.94% |
8.69% |
|
1997 |
10.04% |
8.09% |
9.65% |
|
1996** |
4.45% |
2.61% |
3.63% |
* The returns shown are for the
period January 1, 1996 through December 31, 1996.
The above historical performance
data is provided solely to illustrate the subadviser’s experience in managing
accounts with an investment objective, strategy, and policies substantially
similar to the investment objective, strategy, and policies of the Fund.
Investors should not rely on this information as an indication of actual
performance of any account or future performance of the Fund. Each of the
accounts (except two accounts that are mutual funds and one ETF) that currently
make up the Composite are not subject to the investment limitations,
diversification requirements and other restrictions imposed on the Fund under
the Investment Company Act of 1940 and the Internal Revenue Code, which, if
applicable, might have adversely affected the performance results of the
Composite.
Composite gross rates of return are
calculated by asset weighting the individual portfolio returns monthly using the
beginning of period values. Composite member portfolio monthly returns are
calculated using the daily time weighted rate of return methodology. Composite
net rates of return are calculated by geometrically linking 1/12th of the
highest standard expense ratio (including the highest advisory fee and highest
other expenses) in effect for the respective period (currently 1.78%) to the
gross composite. Annual rates of return are calculated by geometrically linking
the monthly returns. The annualized rate of return is equivalent to the annual
rate of return which, if earned in each year of the indicated multi-year period,
would produce the actual cumulative rate of return over the time period.
Performance for the Composite has been calculated in a manner that differs from
the performance calculations the SEC requires for registered funds. The
Composite has been calculated consistent with the requirements of the Global
Investment Performance Standards (GIPS®); there is no representation that the
above performance is presented in accordance with GIPS.
Visit our website
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29
The historical
performance information presented is current as of the date indicated, but may
not be current as of the date you are reviewing this information. Performance
results fluctuate, and there can be no assurance that objectives will always be
achieved. Other methods of computing returns may produce different results, and
the results for different periods will vary.
30
PGIM Total Return
Bond ETF
HOW THE FUND IS
MANAGED
BOARD
OF TRUSTEES
The Fund is
overseen by a Board of Trustees (hereafter referred to as “Trustees”, or the
“Board”). The Board oversees the actions of the Manager, subadviser and
distributor and decides on general policies. The Board also oversees the Fund's
officers, who conduct and supervise the daily business operations of the
Fund.
MANAGER
PGIM
Investments LLC (“PGIM Investments”)
655 Broad Street
Newark, NJ 07102-4410
655 Broad Street
Newark, NJ 07102-4410
As manager, PGIM
Investments manages the Fund's investment operations and administers its
business affairs and is responsible for supervising the Fund's subadviser.
Pursuant to the management agreement relating to the Fund, PGIM Investments is
responsible for substantially all expenses of the Fund, except taxes, brokerage
expenses, interest expenses, distribution fees or expenses, expenses incident to
shareholder meetings and extraordinary expenses. The Fund may also pay for any
costs or expenses of investing in other funds. The Fund pays PGIM Investments
management fees at the rate of 0.49% of the Fund's average daily net
assets.
PGIM Investments and its
predecessors have served as a manager or administrator to investment companies
since 1987. As of September 30, 2022, PGIM Investments, a wholly-owned
subsidiary of Prudential, served as the investment manager to all of the
Prudential U.S. and offshore open-end investment companies, and as the manager
or administrator to closed-end investment companies, with aggregate assets of
approximately $276.9 billion.
Subject to the
supervision of the Board, PGIM Investments is responsible for conducting the
initial review of prospective subadvisers for the Fund. In evaluating a
prospective subadviser, PGIM Investments considers many factors, including the
firm's experience, investment philosophy and historical performance. Subject to
the Board’s oversight, PGIM Investments is also responsible for monitoring the
performance of the Fund's subadviser and recommending termination and
replacement when deemed appropriate. PGIM Investments may provide a subadviser
with additional investment guidelines consistent with the Fund's investment
objective and restrictions.
PGIM Investments
and the Fund operate under an exemptive order (the “Order”) from the SEC that
generally permits PGIM Investments to enter into or amend agreements with
unaffiliated subadvisers and certain subadvisers that are affiliates of PGIM
Investments without obtaining shareholder approval. This authority is subject to
certain conditions, including the requirement that the Board must approve any
new or amended agreements with a subadviser. Shareholders of the Fund still have
the right to terminate these agreements at any time by a vote of the majority of
the outstanding shares of the Fund. The Fund will notify shareholders of any new
subadvisers engaged or material amendments to subadvisory agreements made
pursuant to the Order. Any new subadvisory agreement or amendment to the Fund’s
management agreement or current subadvisory agreement that directly or
indirectly results in an increase in the aggregate management fee rate payable
by the Fund will be submitted to the Fund’s shareholders for their approval.
PGIM Investments does not currently intend to retain unaffiliated
subadvisers.
A discussion of the basis for the
Board's approvals of the management and subadvisory agreements is available in
the Fund's Annual Report to shareholders dated August 31.
SUBADVISERS
PGIM, Inc.
(“PGIM”) is an
indirect, wholly-owned subsidiary of Prudential Financial, Inc. (“Prudential”)
that was organized in 1984. Its address is 655 Broad Street, Newark, New Jersey
07102. As of September 30, 2022, PGIM managed approximately $1.2 trillion in
assets.
PGIM Fixed
Income is the primary
public fixed income asset management unit of PGIM, with $759.3 billion in assets
under management as of September 30, 2022 and is the unit of PGIM that provides
investment advisory services to the Fund.*
Visit our website
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31
PGIM Fixed Income
is organized into groups specializing in different sectors of the fixed income
market: U.S. and non-U.S. government bonds, mortgage-backed and asset-backed
securities, U.S. and non-U.S. investment grade corporate bonds, high-yield
bonds, emerging markets bonds, municipal bonds, and money market
securities.
*PGIM Fixed
Income’s assets under management includes PGIM Limited’s assets under
management, an operating division of PGIM Fixed Income.
PGIM Limited
is an indirect
wholly-owned subsidiary of PGIM. PGIM Limited is located at Grand Buildings, 1-3
Strand, Trafalgar Square, London WC2N 5HR. PGIM Limited provides investment
advisory services with respect to securities in certain foreign markets. As of
September 30, 2022, PGIM Limited managed approximately $46.5 billion in
assets.
PORTFOLIO
MANAGERS
Robert Tipp,
Michael J. Collins, Richard Piccirillo, Gregory Peters and Lindsay Rosner are
jointly and primarily responsible for the day-to-day management of the
Fund.
Robert
Tipp, CFA, is a Managing
Director, Chief Investment Strategist, and Head of Global Bonds for PGIM Fixed
Income. In addition to co-managing the global multi-sector strategies, Mr. Tipp
is responsible for global rates positioning for Core Plus, Absolute Return, and
other portfolios. Mr. Tipp has worked at the Firm since 1991, where he has held
a variety of senior investment manager and strategist roles. Prior to joining
the Firm, he was a Director in the Portfolio Strategies Group at the First
Boston Corporation, where he developed, marketed, and implemented strategic
portfolio products for money managers. Before that, Mr. Tipp was a Senior Staff
Analyst at the Allstate Research & Planning Center, and managed fixed income
and equity derivative strategies at Wells Fargo Investment Advisors. He received
a BS in Business Administration and an MBA from the University of California,
Berkeley. Mr. Tipp holds the Chartered Financial Analyst (CFA)
designation.
Michael J.
Collins, CFA, is a
Managing Director and Senior Portfolio Manager for Core, Core Plus, Absolute
Return, and other Multi-Sector Fixed Income strategies. Previously, Mr. Collins
was a High Yield Portfolio Manager and Fixed Income Investment Strategist.
Earlier he was a credit research analyst, covering investment grade and high
yield corporate credits. Additionally, he developed proprietary quantitative
international interest rate and currency valuation models for our global bond
unit. Mr. Collins began his career at the Firm in 1986 as a software
applications designer. He received a BS in Mathematics and Computer Science from
Binghamton University and an MBA in Finance from New York University. Mr.
Collins holds the Chartered Financial Analyst (CFA) designation and is a Fellow
of the Life Management Institute (FLMI). He is currently the Chairman of the
Board of CEA, a non-profit that provides education and employment for people
with disabilities. Mr. Collins is the host of PGIM Fixed Income’s “All the Credit” podcast.
Richard
Piccirillo is a
Managing Director and Senior Portfolio Manager for PGIM Fixed Income’s Core,
Long Government/Credit, Core Plus, Absolute Return, and other multi-sector Fixed
Income strategies. Mr. Piccirillo had specialized in mortgage-and asset-backed
securities since joining the Firm in 1993. Before joining the Firm, Mr.
Piccirillo was a fixed income analyst with Fischer Francis Trees & Watts.
Mr. Piccirillo started his career as a financial analyst at Smith Barney. He
received a BBA in Finance from George Washington University and an MBA in
Finance and International Business from New York University.
Gregory
Peters is a Managing
Director and Co-Chief Investment Officer of PGIM Fixed Income. Mr. Peters is
also a senior portfolio manager for Core, Long Government/Credit, Core Plus,
Absolute Return, and other multi-sector Fixed Income strategies. Prior to
joining the Firm in 2014, Mr. Peters was Morgan Stanley's Global Director of
Fixed Income & Economic Research and Chief Global Cross Asset Strategist,
responsible for the Firm's macro research and asset allocation
strategy. Earlier, he worked at Salomon Smith Barney and the Department of U.S.
Treasury. He received a BA in Finance from The College of New Jersey and an MBA
from Fordham University. Mr. Peters is a member of the Fixed Income Analyst
Society and the Bond Market Association.
Lindsay
Rosner, CFA, is Principal on
the Multi-Sector Portfolio Management Team for PGIM Fixed Income. Her primary
responsibilities are supporting PGIM Fixed Income’s efforts in managing
multi-sector portfolios across several mandates, including Core, Core Plus, and
Core Conservative, both intermediate and long duration. Prior to joining the
32
PGIM Total Return
Bond ETF
firm in 2012, Ms.
Rosner worked for Barclays Capital (and prior to that, Lehman Brothers) in New
York City where she was a convertible bond trader, working with both hedge fund
and traditional money management clients. Ms. Rosner is a graduate of Princeton
University. She holds a BA from the Woodrow Wilson School of Public and
International Affairs. Ms. Rosner holds the Chartered Financial Analyst (CFA)
designation.
Additional
information about portfolio manager compensation, other accounts managed, and
portfolio manager ownership of Fund securities may be found in the
SAI.
DISTRIBUTOR
The Fund's
Distributor is Prudential Investment Management Services LLC (“PIMS” or the
“Distributor”). The Distributor is a broker-dealer registered with the SEC. The
Distributor distributes Creation Units (as defined below in the section “How to
Buy and Sell Shares”) for the Fund and does not maintain a secondary market in
shares of the Fund.
Distribution
and Service Plan
The Fund has
adopted a Distribution and Service Plan (the “12b-1 Plan”) pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended (the “1940 Act”). The
12b-1 Plan permits compensation in connection with the distribution and
marketing of Fund shares and/or the provision of certain shareholder services.
The 12b-1 Plan permits the Fund to pay compensation at an annual rate of up to
0.25% of the Fund's average daily net assets. However, the Board has determined
not to authorize payment of a 12b-1 Plan fee at this time.
The 12b-1 fee may
only be imposed or increased when the Board determines that it is in the best
interests of shareholders to do so. Because these fees, when and if authorized,
will be paid out of the Fund's assets on an ongoing basis, over time they will
increase the cost of an investment in the Fund.
PGIM or its
affiliates make payments to broker-dealers, registered investment advisers,
banks or other intermediaries (together, “intermediaries”) related to marketing
activities and presentations, educational training programs, conferences, the
development of technology platforms and reporting systems, or their making Fund
shares available to their customers generally and in certain investment
programs. Such payments, which may be significant to the intermediary, are not
made by the Fund. Rather, such payments are made by PGIM or its affiliates from
their own resources, which come directly or indirectly in part from fees paid by
the Fund. A financial intermediary may make decisions about which investment
options it recommends or makes available, or the level of services provided, to
its customers based on the payments it is eligible to receive. Therefore, such
payments to an intermediary create conflicts of interest between the
intermediary and its customers and may cause the intermediary to recommend the
funds over another investment. More information regarding these payments is
contained in the Fund’s SAI.
Please contact your
salesperson or other investment professional for more information regarding any
such payments his or her firm may receive from PGIM or its
affiliates.
DISCLOSURE
OF PORTFOLIO HOLDINGS
Fund policies and
procedures with respect to the disclosure of the Fund's portfolio securities are
described in the Fund's SAI. On each business day, before commencement of
trading on the Exchange, the Fund will disclose on pgim.com/investments the Fund's
portfolio holdings that will form the basis for the Fund's calculation of NAV at
the end of the business day.
Visit our website
at www.pgim.com/investments
33
FUND
DISTRIBUTIONS AND TAX ISSUES
DISTRIBUTIONS
The Fund
distributes dividends out of any net investment income to shareholders. For
example, if the Fund owns an ACME Corp. bond and the bond pays interest, the
Fund will pay out a portion of this interest as a dividend to its shareholders,
assuming the Fund’s income is more than its costs and expenses.
The Fund also
distributes any realized net capital gains to shareholders. Capital gains are
generated when the Fund sells its assets for a profit. For example, if the Fund
bought 100 bonds of ACME Corp. for a total of $1,000 and more than one year
later sold the bonds for a total of $1,500, the Fund has net long-term capital
gains of $500, which it will pass on to shareholders (assuming the Fund’s
remaining total gains are greater than any losses it may have).
Dividends and other
distributions on shares of the Fund are distributed on a pro rata basis to
beneficial owners of such shares.
Dividend payments
are made through DTC participants and indirect participants to beneficial owners
then of record with proceeds received from the Fund.
Dividend
Reinvestment Service. No dividend
reinvestment service is provided by the Fund. Broker-dealers may make available
the DTC book-entry Dividend Reinvestment Service for use by beneficial owners of
the Fund for reinvestment of their dividend distributions. Beneficial owners
should contact their broker to determine the availability and costs of the
service and the details of participation therein. Brokers may require beneficial
owners to adhere to specific procedures and timetables. If this service is
available and used, dividend distributions of both income and realized gains
will be automatically reinvested in additional whole shares of the Fund
purchased in the secondary market. Dividend distributions of both income and
realized gains will be subject to taxation whether or not they are reinvested in
the Fund.
The chart below
sets forth the expected frequency of dividend and capital gains distributions to
shareholders. Various factors may impact the frequency of dividend distributions
to shareholders, including but not limited to adverse market conditions or
portfolio holding-specific events.
|
Expected
Distribution Schedule* |
|
|
Net
Investment Income |
Monthly |
|
Short-Term
Capital Gains |
Annually |
|
Long-Term
Capital Gains |
Annually |
*Under certain
circumstances, the Fund may make more than one distribution of short-term and/or
long-term capital gains during a fiscal year.
TAX
ISSUES
Investors who buy
shares of the Fund should be aware of some important tax issues. For example,
the Fund distributes dividends of net investment income and realized net capital
gains, if any, to shareholders. These distributions are subject to federal
income taxes, unless you hold your shares in a 401(k) plan, an Individual
Retirement Account (“IRA”) or some other qualified or tax-deferred plan or
account. Dividends and distributions from the Fund also may be subject to state
and local income tax in the state where you live. Also, if you sell shares of
the Fund for a profit, you may have to pay capital gains taxes on the amount of
your profit, unless you hold your shares in a qualified or tax-deferred plan or
account.
The following
briefly discusses some of the important income tax issues you should be aware
of, but is not meant to be tax advice. For tax advice, please speak with your
tax adviser.
Fund
Distributions
34
PGIM Total Return
Bond ETF
Dividends of net
investment income will generally be taxable to shareholders at ordinary income
rates. Dividends from net investment income paid to a non-corporate U.S.
shareholder that are reported as qualified dividend income will generally be
taxable to such shareholder at the long-term capital gain tax rate. Also, a
portion of the dividends paid to corporate shareholders of the Fund will be
eligible for the dividends received deduction to the extent the Fund’s income is
derived from certain dividends received from U.S. corporations. Because of the
nature of the Fund’s investments, the Fund does not expect to pay dividends that
for noncorporate shareholders are treated as qualified dividend income or that
for corporate shareholders are eligible for the dividends received
deduction.
Fund distributions
of net capital gains are taxed differently depending on how long the Fund holds
the security. If the Fund holds a security for more than one year before selling
it, any gain is treated as long-term capital gain which is generally taxed at
rates of up to 15% or 20% for noncorporate U.S. shareholders, depending on
whether their income exceeds certain threshold amounts which are adjusted
annually for inflation. If the Fund holds the security for one year or less, any
gain is treated as short-term capital gain, which is taxed at rates applicable
to ordinary income. Different rates apply to corporate
shareholders.
A U.S. shareholder
that is an individual, estate, or certain type of trust is subject to a 3.8%
Medicare contribution tax on the lesser of (1) the U.S. shareholder’s “net
investment income,” including Fund distributions and net gains from the
disposition of Fund shares, and (2) the excess of the U.S. shareholder’s
modified adjusted gross income for the taxable year over $200,000 (or $250,000
for married couples filing jointly). For this purpose, net investment income
includes interest, dividends, annuities, royalties, capital gain and income from
a passive activity business or a business of trading in financial instruments or
commodities.
Form
1099
For every year the
Fund declares a dividend, you will receive a Form 1099, which reports the amount
of ordinary income distributions and long-term capital gains we distributed to
you during the prior year unless you own shares of the Fund as part of a
qualified or tax-deferred plan or account. If you do own shares of the Fund as
part of a qualified or tax-deferred plan or account, your taxes are deferred, so
you will not receive a Form 1099 annually, but instead you will receive a Form
1099 when you take any distribution from your qualified or tax-deferred plan or
account.
Fund distributions
are generally taxable to you in the calendar year in which they are received,
except when we declare certain dividends and distributions in the fourth
quarter, with a record date in such quarter, and actually pay them in January of
the following year. In such cases, the dividends and distributions are treated
as if they were paid on December 31st of the prior year.
Withholding
Taxes
If federal tax law
requires you to provide the Fund with your taxpayer identification number and
certifications as to your tax status and you fail to do this, or if you are
otherwise subject to backup withholding, we will withhold and pay to the U.S.
Treasury a portion of your distributions and sale proceeds based on the
applicable backup withholding rate.
Taxation
of Non-U.S. Shareholders
For a discussion
regarding the taxation of non-U.S. shareholders, please see the SAI and contact
your tax adviser.
If
You Purchase on or Before a Record Date
If you buy shares
of the Fund on or before the record date for a distribution (the date that
determines who receives the distribution), we will pay that distribution to you.
As explained above, the distribution may be subject to taxes. You may think
you’ve done well since you bought shares one day and soon thereafter received a
distribution. That is not so, because when dividends are paid out, the value of
each share of the Fund decreases by the amount of the dividend to
Visit our website
at www.pgim.com/investments
35
reflect the payout,
although this may not be apparent because the value of each share of the Fund
also will be affected by market changes, if any. However, the timing of your
purchase does mean that part of your investment may have come back to you as
taxable income.
TAXES
WHEN SHARES ARE SOLD
Any capital gain or
loss realized upon a sale of shares is generally treated as long-term capital
gain or loss if the shares have been held for more than one year and as
short-term capital gain or loss if the shares have been held for one year or
less. Capital loss realized on the sale or exchange of shares held for six
months or less will be treated as long-term capital loss to the extent of any
capital gain dividends received by the shareholder. The ability to deduct
capital losses may be limited. Net gains from the sale of shares are included in
“net investment income” for purposes of the 3.8% Medicare contribution tax
mentioned above.
For shares
purchased and sold from a taxable account, your intermediary will report cost
basis information to you and to the IRS. Your intermediary will permit
shareholders to elect their preferred cost basis method. In the absence of an
election, your cost basis method will be your intermediary’s default method,
which is often the average cost method. Please consult your tax adviser to
determine the appropriate cost basis method for your particular tax situation
and to learn more about how the cost basis reporting laws apply to you and your
investments.
The above is a
general summary of tax implications of investing in the Fund. Because each
investor’s tax consequences are unique, please consult your tax advisor to see
how investing in the Fund and, for individuals and S corporations, selection of
a particular cost method of accounting will affect your own tax
situation.
36
PGIM Total Return
Bond ETF
HOW TO BUY AND
SELL SHARES
Secondary
Market
Most investors will
buy and sell Fund shares in secondary market transactions through brokers.
Shares of the Fund are listed and traded on the secondary market on the
Exchange. Shares can be bought and sold throughout the trading day like other
publicly traded securities. There is no minimum investment. When buying or
selling shares through a broker, you will incur customary brokerage commissions
and charges, and you may pay some or all of the spread between the bid and the
offered price in the secondary market on each leg of a round trip (purchase and
sale) transaction. The spread varies over time for Fund shares based on the
Fund’s trading volume and market liquidity, and is generally lower if the Fund
has a lot of trading volume and market liquidity.
Shares of the Fund
trade on the Exchange at prices that may differ to varying degrees from the
daily NAV of the shares.
Directly
with the Fund
Fund shares are
issued or redeemed by the Fund at NAV per share only in aggregations of a
specified number of shares (“Creation Units”). An Authorized Participant is a
member or participant of a clearing agency registered with the SEC, which has a
written agreement with the Fund or one of its service providers that allows the
Authorized Participant to place orders for the purchase and redemption of
Creation Units.
A creation
transaction, which is subject to acceptance by the Distributor and the Fund,
generally takes place when an Authorized Participant deposits into the Fund a
designated portfolio of securities, assets or other positions (a “creation
basket”, and an amount of cash (including any cash representing the value of
substituted securities, assets or other positions), if any, which together
approximate the holdings of the Fund in exchange for a specified number of
Creation Units. Similarly, shares can be redeemed only in Creation Units,
generally for a designated portfolio of securities, assets or other propositions
(the “redemption basket”) held by the Fund and an amount of cash (including any
portion of such securities for which cash may be substituted). The Fund may, in
certain circumstances, offer Creation Units partially or solely for cash. Except
when aggregated in Creation Units, shares are not redeemable by the Fund.
Creation and redemption baskets may differ and the Fund may accept “custom
baskets.”
For more detailed
information, see “Creations and Redemptions of Fund Shares” in the Fund’s
SAI.
Beneficial
Ownership
The Depository
Trust Company (“DTC”) serves as securities depository for Fund shares. Shares of
the Fund may be held only in book-entry form; stock certificates will not be
issued. DTC, or its nominee, is the record or registered owner of all
outstanding shares of the Fund. Beneficial ownership of shares will be shown on
the records of DTC or its participants. Beneficial owners of shares are not
entitled to have shares registered in their names, will not receive or be
entitled to receive physical delivery of certificates in definitive form and are
not considered the registered holder thereof. Accordingly, to exercise any
rights of a holder of shares of the Fund, each beneficial owner must rely on the
procedures of: (i) DTC; (ii) “DTC Participants,” i.e., securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations, some of whom (and/or their representatives) own DTC; and
(iii) “Indirect Participants,” i.e., brokers, dealers, banks and trust
companies that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly, through which such beneficial owner
holds its interests.
The Fund
understands that under existing industry practice, in the event the Fund
requests any action of holders of shares, or a beneficial owner desires to take
any action that DTC, as the record owner of all outstanding shares, is entitled
to take, DTC would authorize the DTC Participants to take such action and that
the DTC Participants would authorize the Indirect Participants and beneficial
owners acting through such DTC Participants to take such action and would
otherwise act upon the instructions of beneficial owners owning through them. As
described above, the Fund recognizes DTC or its nominee as the owner of all
shares of the Fund for all purposes. For more detailed information, see “Book
Entry Only System” in the Fund’s SAI.
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at www.pgim.com/investments
37
Shares of the Fund
have not been registered for sale outside of the United States.
Understanding
the Price You'll Pay for the Shares
Market
Trading Price. The trading price
of the Fund’s shares on the Exchange may differ from the Fund’s daily NAV and
can be affected by market forces of supply and demand, economic conditions and
other factors.
Premiums
and Discounts. Information
regarding how often the shares of the Fund traded on the Exchange at a price
above (i.e., at a premium) or below (i.e., at a discount) the NAV since the
inception of the Fund, as applicable, can be found at pgim.com/investments.
Net
Asset Value. The share value of
a fund—known as the net
asset value or NAV—is determined by a
simple calculation: it's the total value of the Fund (assets minus liabilities)
divided by the total number of shares outstanding. For example, if the value of
the investments held by Fund XYZ (minus its liabilities) is $1,000 and there are
100 shares of Fund XYZ owned by shareholders, the value of one share of Fund
XYZ—or the NAV—is $10 ($1,000 divided by 100).
The Fund's NAV will
be determined every day on which the Fund is open as of the close of regular
trading on the New York Stock Exchange (“NYSE”) (generally, 4:00 p.m. Eastern
Time). The price at which a purchase of a Creation Unit is effected is based on
the next calculation of NAV after the order is received in proper form in
accordance with this prospectus and the requirements of the Authorized
Participant agreement.
The Fund's
portfolio securities are valued based upon market quotations or, if market
quotations are not readily available, at fair value as determined in good faith
under procedures established by the Board. These procedures include pricing
methodologies for determining the fair value of certain types of securities and
other assets held by the Fund that do not have quoted market prices, and
authorize the use of other pricing sources, such as bid prices supplied by a
principal market maker and evaluated prices supplied by pricing vendors that
employ analytic methodologies that take into account the prices of similar
securities and other market factors.
If the Fund
determines that a market quotation for a security is not reliable based on,
among other things, events or market conditions that occur with respect to one
or more securities held by the Fund or the market as a whole, after the
quotation is derived or after the closing of the primary market on which the
security is traded, but before the time that the Fund's NAV is determined, the
Fund may use “fair value pricing,” which is implemented by a valuation committee
(“Valuation Committee”) consisting of representatives of the Manager or by the
Board. The subadviser often provides relevant information for the Valuation
Committee meeting. In addition, the Fund may use fair value pricing determined
by the Valuation Committee or Board if the pricing source does not provide an
evaluated price for a security or provides an evaluated price that, in the
judgment of the Manager (which may be based upon a recommendation from the
subadviser), does not represent fair value. Equity securities that are traded on
foreign exchanges are valued using pricing vendor services that provide fair
value model prices. The models generate an evaluated adjustment factor for each
security, which is applied to the local closing price to adjust it for
post-closing market movements. Utilizing that evaluated adjustment factor, the
vendor provides an evaluated price for each security. Non-U.S. securities
markets are open for trading on weekends and other days when the Fund does not
price shares. Therefore, the value of the Fund’s shares may change on days when
you will not be able to purchase or redeem the Fund’s shares.
Investments in
open-end non-exchange-traded mutual funds will be valued at their NAV as
determined as of the close of the NYSE on the date of valuation, which will
reflect the mutual fund’s fair valuation procedures.
Different valuation
methods may result in differing values for the same security. The fair value of
a portfolio security that the Fund uses to determine its NAV may differ from the
security's quoted or published price. If the Fund needs to implement fair value
pricing after the NAV publishing deadline but before shares of the Fund are
processed, the NAV you receive or pay may differ from the published NAV price.
The prospectuses of any other mutual funds or ETFs in which the Fund invests
will explain each fund’s procedures and policies with respect to the use of fair
value pricing.
38
PGIM Total Return
Bond ETF
Fair value pricing
procedures are designed to result in prices for the Fund's securities and its
NAV that are reasonable in light of the circumstances which make or have made
market quotations unavailable or unreliable, and may have the effect of reducing
arbitrage opportunities available to short-term traders. There is no assurance,
however, that fair value pricing will more accurately reflect the market value
of a security than the market price of such security on that day or that it will
prevent dilution of the Fund's NAV by short-term traders.
Frequent
Purchases and Redemptions
The Fund does not
impose restrictions on the frequency of purchases and redemptions. The Board
evaluated the risks of market timing activities by Fund shareholders when they
considered whether a restriction or policy was necessary. The Board considered
that, unlike mutual funds, the Fund issues and redeems its shares at NAV only in
Creation Units, and the Fund’s shares may be purchased and sold on the Exchange
at prevailing market prices.
“Revenue
Sharing” Payments
The Manager or certain of its
affiliates (but not the Distributor) may make payments (which are often referred
to as “revenue sharing” payments) to financial intermediaries from the Manager's
or certain affiliates' own resources, including from the profits derived from
management fees or other fees received from the Fund, without additional direct
or indirect cost to the Fund or its shareholders. Revenue sharing payments are
usually calculated based on Fund assets attributable to a particular financial
services firm, and the amount of the payments varies among financial
intermediaries. The Manager or certain of its affiliates may revise the terms of
any existing revenue sharing arrangement, and may enter into additional revenue
sharing arrangements with other financial intermediaries in the future. Revenue
sharing arrangements are intended to foster the sale of Fund shares and/or to
compensate financial intermediaries for assisting in marketing or promotional
activities in connection with the sale of Fund shares. In exchange for revenue
sharing payments, it is expected that the Fund will receive the opportunity to
be sold through the financial intermediaries' sales force or gain access to
third-party platforms or other marketing programs, including but not limited to
“supermarket” platforms or other sales programs. Both the Manager and Fund
shareholders may receive services from the financial intermediary in exchange
for the revenue sharing payments. Because the Manager's management fee is based
on Fund assets, to the extent that financial intermediaries receiving revenue
sharing payments results in an increase in the sale of Fund shares, the Manager
and/or its affiliates will benefit from the increase in Fund assets. From time
to time the Manager and/or an affiliate of the Fund (and not the Fund itself)
may pay certain administrative fees in order to make the Fund available to
shareholders. Such fees are not included in, and are paid separate and apart
from, any revenue sharing payments. Revenue sharing payments, or other similar
payments, may provide an incentive for financial intermediaries and their
registered representatives to recommend or sell shares of the Fund to you and in
doing so may create conflicts of interest between such intermediaries' financial
interests and their duties to customers. Please contact the registered
representative (or the financial intermediary) who sold shares of the Fund to
you for details about any payments the financial intermediary may receive from
the Manager and/or certain of its affiliates.
Visit our website
at www.pgim.com/investments
39
FINANCIAL
HIGHLIGHTS
Introduction
The financial highlights will help
you evaluate the Fund's financial performance for the fiscal years or periods
indicated below. Certain information reflects financial results for a single
fund share. The total return represents the rate that a shareholder would have
earned (or lost) on an investment in the Fund, assuming investment at the start
of the period and reinvestment of all dividends and other distributions. The
information is for the periods indicated.
These financial highlights for the
fiscal years ended August 31, 2022 were derived from the financial statements
audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, whose report on those financial statements was
unqualified.
A copy of the Fund's annual report,
including the Fund's audited financial statements and report of independent
registered public accounting firm, is available upon request, at no charge, as described on the back cover of
this Prospectus.
|
| |
|
|
December
02, 2021(a)
through
August 31, 2022 |
|
| |
|
Per
Share Operating Performance(b): | |
|
Net
Asset Value, beginning of period |
$50.00 |
|
Income
(loss) from investment operations: | |
|
Net
investment income (loss) |
0.86 |
|
Net
realized and unrealized gain (loss) on investment and foreign currency
transactions |
(7.23) |
|
Total from
investment operations |
(6.37) |
|
Less
Dividends and Distributions: | |
|
Dividends
from net investment income |
(0.69) |
|
Net asset
value, end of period |
$42.94 |
|
Total
Return(c): |
(12.81)% |
|
| |
|
Ratios/Supplemental
Data: | |
|
Net
assets, end of period (000) |
$95,539 |
|
Average
net assets (000) |
$67,327 |
|
Ratios to
average net assets(d): |
|
|
Expenses
after waivers and/or expense reimbursement |
0.49%(e) |
|
Expenses
before waivers and/or expense reimbursement |
0.49%(e) |
|
Net
investment income (loss) |
2.54%(e) |
|
Portfolio
turnover rate(f) |
150% |
|
(a) |
Commencement
of operations. |
|
(b) |
Calculated
based on average shares outstanding during the
period. |
|
(c) |
Total
return is calculated assuming a purchase of a share on the first day and a
sale on the last day of each period reported and includes reinvestment of
dividends and
distributions,
if any. Total returns may reflect adjustments to conform to GAAP. Total
returns for periods less than one full year are not
annualized. |
|
(d) |
Does not
include expenses of the underlying funds in which the Fund
invests. |
|
(e) |
Annualized. |
|
(f) |
The Fund's
portfolio turnover rate is calculated in accordance with regulatory
requirements, without regard to transactions involving short-term
investments, certain derivatives
and
in-kind transactions (if any). If such transactions were included, the
Fund's portfolio turnover rate may be
higher. |
40
PGIM Total Return
Bond ETF
|
FOR
MORE INFORMATION
Please
read this Prospectus before you invest in the Fund and keep it for future
reference. Information on the Fund's
net
asset value, market price, premiums and discounts, and bid-ask spreads can
be found at pgim.com/investments.
For
information or shareholder questions contact: | |
|
◾MAIL
PGIM
Investments LLC
655
Broad Street, 17th Floor
Newark
NJ 07102 ◾WEBSITE
pgim.com/investments |
◾TELEPHONE
(888)
247-8090
(973)
802-2093
(from
outside the U.S.) |
|
◾E-DELIVERY
You
may request e-delivery of Fund documents by contacting your financial
intermediary directly or by going to
www.icsdelivery.com.
Instead of receiving printed documents by mail, you will receive
notification via email when
new
materials are available. You can cancel your enrollment or change your
email address at any time by visiting
the
website address above. |
|
The
Annual and Semi-Annual Reports and the SAI contain additional information
about the Fund. Shareholders may
obtain
free copies of the SAI, Annual Report and Semi-Annual Report as well as
other information about the Fund
and
may make other shareholder inquiries through the telephone number, address
and website listed above. | |
|
◾STATEMENT
OF ADDITIONAL INFORMATION (SAI)
(incorporated
by reference into this Prospectus) ◾SEMI-ANNUAL
REPORT |
◾ANNUAL
REPORT
(contains
a discussion of the market conditions and
investment
strategies that significantly affected the
Fund's
performance during the last fiscal
year) |
|
You
can also obtain copies of Fund documents, including the SAI, from the
Securities and Exchange Commission as
follows
(the SEC charges a fee to copy documents): | |
|
◾ELECTRONIC
REQUEST
|
◾VIA
THE INTERNET
on
the EDGAR Database at
www.sec.gov |
|
PGIM
Total Return Bond ETF | |
|
Ticker
Symbol |
PTRB |
|
Listing
Exchange |
NYSE
Arca, Inc. |
ETF1007STAT
The
Fund's Investment Company Act File No. 811-23324