New Political ETF filed: Democracy International Fund

DEMOCRACY INTERNATIONAL FUND

Tracks an index that bases constituent company weightings on the Economist's Democracy Score.

Ticker: DMCY

Exchange: NYSE Arca

Expense ratio: 0.50%

Original filing date: January 14, 2021

Effective date: March 30, 2021

Listing Date: April 1, 2021

CUSIP: 00774Q148

Active: No

Index: Democracy Investments International Index

Investment Objective: The Democracy International Fund seeks to track the total return performance, before fees and expenses, of the Democracy Investments International Index.

Investment Strategy: Based on the Economist's (the international news group) Intelligence Unit's Democracy Index.

• 2,400 companies: Across 52 countries where each country is assigned an Economist Democracy Score, on a scale of 1-10.
• Market cap of each company is multiplied times their country Democracy Score to get a "Democracy market cap".
• "All Democracy market caps" are added together.
• Each company's Democracy market cap is divided by the sum of the Democracy market caps to derive each company's percentage of the total.
• This percentage is their weight in the Democracy International Index.

Constituents: Universe: Solactive GBS Global Markets ex United States Large & Mid Cap USD Index
 
Adviser: Democracy Investment Management, LLC

Sub-Adviser: Vident Investment Advisory, LLC
 
Prospectus is here.
 

Main Portfolio Manager: Christopher Browne

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S000071338

Principal Investment Strategies

 

The Fund uses a “passive management” (or indexing) approach in seeking to achieve its investment objective. The Index construction process begins with the universe of companies that are current members of the Solactive GBS Global Markets ex United States Large & Mid Cap USD Index (market cap weighted, international equities) (the “Solactive Index”). 

The Solactive Index consists of over 2,400 individual companies representing 52 countries. Democracy Investments Index Provider LLC (the “Index Provider”) assigns a “country of risk” to each company in the Solactive Index universe based on the country of risk assigned to each such company by Bloomberg L.P. A company’s country of risk designation is based on a number of criteria, including the country in which the company is domiciled, the primary stock exchange on which the company’s shares trade, the location from which the majority of the company’s revenues are generated, and the company’s reporting currency.

 

The Index Provider then matches each company’s country of risk against that country’s “Democracy Score” assigned by The Economist Intelligence Unit Ltd.’s Democracy Index. A country’s Democracy Score can range from 0-10 and is a composite of sixty indicators, which are grouped into the following five categories:

 

1.

Electoral process and pluralism

2.

Civil liberties

3.

The functioning of government

4.

Political participation

5.

Political culture

 

The Index Provider then multiplies each company’s market capitalization weighting in the Solactive Index by the Democracy Score of its country of risk and normalizes the products to sum to 100%. In other words, the weight of a specific company in the Index is the product of the company’s Democracy Score and its market capitalization weighting in the Solactive Index (the “Market Capitalization Product”) divided by the sum of all the Market Capitalization Products of all companies in the Index. As a result, the Index has greater weightings in companies in countries with higher Democracy Scores and lesser weightings in companies in countries with lower Democracy Scores as compared to the Solactive Index. The Index is rebalanced and reconstituted on a quarterly basis.

 

In constructing the Fund’s portfolio, Democracy Investment Management, LLC (the “Adviser”), the Fund’s investment adviser and an affiliate of the Index Provider, generally will use a representative sampling investment approach designed to achieve the Fund’s investment objective. In doing so, the Fund generally will hold (i) the securities of index constituents, consisting of common stocks and American Depositary Receipts (“ADRs”) of large- and medium-capitalization companies, and (ii) shares of exchange traded funds (“ETFs”), in combination such that the Fund’s returns are expected to correspond generally to the Index’s returns, country and sector weightings, and other characteristics such as market capitalization. The Adviser’s use of ETFs as part of its representative sampling strategy will result in the Fund (i) having exposure to companies that have the same country of risk designation as companies in the Index but that are not themselves Index constituents, and (ii) not owning or otherwise not having exposure to companies that are included in the Index. At times, ETFs may represent a significant portion of the Fund’s portfolio.

 

In addition to investing in ETFs as discussed above, the Fund also may invest in securities or other investments not included in the Index, but which the Adviser believes will help the Fund to track the Index. For example, the Fund may invest in securities that are not components of the Index so as to reflect various corporate actions and other changes to the Index (such as Index reconstitutions, additions, and deletions).

 

[The Fund may from time to time invest a significant portion of its assets in the securities of companies in one or more countries, geographic regions or economic sectors. As of the date of this Prospectus, the Fund has significant exposure to the [____] sector, as defined by [____].]

New ETF filed: Global X Clean Water ETF

Global X Clean Water ETF

Ticker: TBD
Exchange: TBD
Expense ratio: TBD

Original filing date: January 14, 2021
Effective date: March 30, 2021
Listing Date: TBD
CUSIP: TBD
Active: No
Index: Solactive Global Clean Water Index

Investment Strategy:

Exchange-listed companies expected to benefit from further advances in the provision of clean water, including companies whose principal business (derive at least 50% of their revenues from clean water) is in:

• water treatment
• recycling (including water reclamation)
• purification
• desalination
• storage
• distribution

Constituents: TBD

 
Adviser: Global X Management Company LLC.
Sub-Adviser: N/A
 
Prospectus is here.

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S000071326

PRINCIPAL INVESTMENT STRATEGIES

The Fund invests at least 80% of its total assets, plus borrowings for investments purposes (if any), in the securities of the Underlying Index and in American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs") based on the securities in the Underlying Index. The Fund's 80% investment policy is non-fundamental and requires 60 days prior written notice to shareholders before it can be changed.

The Underlying Index is designed to provide exposure to exchange-listed companies expected to benefit from further advances in the provision of clean water, including, but not limited to, companies whose principal business is in water treatment, recycling (including water reclamation), purification, desalination, storage, distribution, and/or sustainability (collectively, "Clean Water Companies"), as defined by Solactive AG, the provider of the Underlying Index ("Index Provider").

In constructing the Underlying Index, the Index Provider first applies a proprietary natural language processing algorithm to the eligible universe, which seeks to identify and rank companies involved in the provision of clean water based on filings, disclosures and other public information (e.g. regulatory filings, earnings transcripts, etc.). The Index Provider also applies an ESG (environmental, social and governance) screening process to the universe of eligible companies. The highest-ranking companies identified by the natural language processing algorithm, as of the selection date, are further reviewed by the Index Provider to confirm they derive at least 50% of their revenues from the provision of clean water. To be eligible for the Underlying Index, a company is considered by the Index Provider to be a Clean Water Company if the company generates at least 50% of its revenues from developing technologies, services, and/or equipment relating to water treatment, recycling (including water reclamation), purification, desalination, storage, distribution, and/or sustainability, as determined by the Index Provider.

To be a part of the eligible universe of the Underlying Index, certain minimum market capitalization and liquidity criteria, as defined by the Index Provider, must be met. As of [ ], companies must have a minimum market capitalization of $[ ] million and a minimum average daily turnover for the last [ ] months greater than or equal to $[ ] million in order to be eligible for inclusion in the Underlying Index. As of [ ], companies listed in the following countries were eligible for inclusion in the Underlying Index: [ ].

The Underlying Index is weighted according to a modified capitalization weighting methodology and is reconstituted and re-weighted semi-annually. Modified capitalization weighting seeks to weight constituents primarily based on market capitalization, but subject to caps on the weights of the individual securities. During each rebalance, the maximum weight of a company is capped at [ ]%, the aggregate weight of companies with a weight greater than or equal to [ ]% is capped at [ ]%, and all remaining companies are capped at a weight of [ ]%, and all constituents are subject to a minimum weight of [ ]%. Generally speaking, this approach will limit the amount of concentration in the largest market capitalization companies and increase company-level diversification. The Underlying Index may include large-, mid- or small-capitalization companies, and components primarily include [ ] and [ ] companies. As of [ ], 2021, the Underlying Index had [ ] constituents. The Fund's investment objective and Underlying Index may be changed without shareholder approval.

The Underlying Index is sponsored by the Index Provider, which is an organization that is independent of the Fund and Global X Management Company LLC, the investment adviser for the Fund ("Adviser"). The Index Provider determines the relative weightings of the securities in the Underlying Index and publishes information regarding the market value of the Underlying Index.

The Adviser uses a "passive" or indexing approach to try to achieve the Fund's investment objective. Unlike many investment companies, the Fund does not try to outperform the Underlying Index and does not seek temporary defensive positions when markets decline or appear overvalued.

The Fund generally will use a replication strategy. A replication strategy is an indexing strategy that involves investing in the securities of the Underlying Index in approximately the same proportions as in the Underlying Index. However, the Fund may utilize a representative sampling strategy with respect to the Underlying Index when a replication strategy might be detrimental or disadvantageous to shareholders, such as when there are practical difficulties or substantial costs involved in compiling a portfolio of equity securities to replicate the Underlying Index, in instances in which a security in the Underlying Index becomes temporarily illiquid, unavailable or less liquid, or as a result of legal restrictions or limitations (such as tax diversification requirements) that apply to the Fund but not the Underlying Index.

The Adviser expects that, over time, the correlation between the Fund's performance and that of the Underlying Index, before fees and expenses, will exceed 95%. A correlation percentage of 100% would indicate perfect correlation. If the Fund uses a replication strategy, it can be expected to have greater correlation to the Underlying Index than if it uses a representative sampling strategy.

The Fund concentrates its investments (i.e., holds 25% or more of its total assets) in a particular industry or group of industries to approximately the same extent that the Underlying Index is concentrated. As of [ ], 2021, the Underlying Index was concentrated in the [ ] industry and had significant exposure to the [ ] sector.

New ARK Actively-Managed ETF Filed: ARK Space Exploration ETF

ARK Space Exploration ETF

Ticker: ARKX
Exchange: TBD
Expense ratio:  TBD
Original filing date: January 13, 2021
Effective date: March 29, 2021
Listing Date:  TBD
CUSIP: 00214Q807
 
Active: Yes   
Index: Not applicable
Investment Objective: The ARK Space Exploration ETF’s investment objective is long-term growth of capital.

Investment Strategy: 

Top-down and bottom-up analysis to identify companies with disruptive innovation in following categories:

• Orbital Aerospace Companies
• Suborbital Aerospace Companies
• Enabling Technologies Companies
• Aerospace Beneficiary Companies

Constituents: 40-55

 
Adviser: ARK Investment Management LLC
Sub-Adviser: Not applicable.
 
Prospectus is here.

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S000071318

Principal Investment Strategies

 

The Fund is an actively-managed exchange-traded fund (“ETF”) that will invest under normal circumstances primarily (at least 80% of its assets) in domestic and foreign equity securities of companies that are engaged in the Fund’s investment theme of Space Exploration and innovation. The Adviser defines “Space Exploration” as leading, enabling, or benefitting from technologically enabled products and/or services that occur beyond the surface of the Earth.

 

In selecting companies that the Adviser believes are engaged in the theme of Space Exploration (“Space Exploration Companies”), the Adviser seeks to identify, using its own internal research and analysis, companies capitalizing on disruptive innovation. The Adviser defines “disruptive innovation” as the introduction of a technologically enabled new product or service that the Adviser expects to change an industry landscape. The Adviser’s internal research and analysis leverages insights from diverse sources, including external research, to develop and refine its investment themes and identify and take advantage of trends that have ramifications for individual companies or entire industries.

 

The Adviser believes that Space Exploration Companies can be grouped into four overarching categories, each of which contains relevant sub-elements. Orbital Aerospace Companies are companies that launch, make, service, or operate platforms in the orbital space, including satellites and launch vehicles. Suborbital Aerospace Companies are companies that launch, make, service, or operate platforms in the suborbital space, including drones, air taxis and electric aviation vehicles. Enabling Technologies Companies are companies that create the technologies required for successful value-add aerospace operations, including artificial intelligence, robotics, 3D printing, materials and energy storage. Aerospace Beneficiary Companies are companies that stand to benefit from aerospace activities, including agriculture, internet access, global positioning system (GPS), construction and imaging. Space exploration is possible due to the convergence of a number of themes, and a Space Exploration Company may not currently derive any revenue, and there is no assurance that such company will derive any revenue from innovative technologies in the future.

 

The Adviser will select investments for the Fund that represent the Adviser’s highest-conviction investment ideas within the theme of Space Exploration, i.e., investment decisions regarded with confidence, in constructing the Fund’s portfolio. The Adviser will analyze potential investments by using both “top down” information (e.g., economy-wide analysis of facts such as rate of growth, cost declines, unit economics, sizing of markets, and price levels as well as business and technology cycle trends) and “bottom up” criteria (e.g., fundamental and quantitative metrics for individual companies such as their revenue growth, profitability and return on invested capital). Based upon its research and analysis, the Adviser will select a portfolio company that it believes presents the best risk-reward opportunities. [In both the Adviser’s “top down” and “bottom up” approaches, the Adviser evaluates environmental, social, and governance (“ESG”) considerations. In its “top down” approach, the Adviser uses the framework of the United Nations Sustainable Development Goals to integrate ESG considerations into its research and investment process. The Adviser, however, does not use ESG considerations to limit, restrict or otherwise exclude companies or sectors from the Fund’s investment universe. In its “bottom up” approach, the Adviser makes its investment decisions primarily based on its analysis of the potential of individual companies, while integrating ESG considerations into that process. The Adviser’s highest-conviction investment ideas are those that it believes present the best risk-reward opportunities.]

 

Under normal circumstances, substantially all of the Fund’s assets will be invested in equity securities, including common stocks, partnership interests, business trust shares and other equity investments or ownership interests in business enterprises. The Fund’s investments will include micro-, small-, medium- and large-capitalization companies. The Fund’s investments in foreign equity securities will be in both developed and emerging markets. The Fund may invest in foreign securities (including investments in American Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”)) and securities listed on local foreign exchanges.

 

The Fund is classified as a “non-diversified” investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), which means that it may invest a high percentage of its assets in a limited number of issuers. The Fund’s portfolio is expected to contain 40 to 55 common stocks (domestic and ADRs) that are conviction weighted. The Fund will concentrate (i.e., invest more than 25% of the value of the Fund’s assets) in securities of issuers having their principal business activities in groups of industries in the information technology and industrials sectors, This concentration limit does not apply to securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities.

 

TrueShares to list ETF next Wednesday

TrueShares Low Volatility Equity Income ETF

Ticker: DIVZ
Exchange: NYSE Arca
Expense ratio: 0.65%
Original filing date: November 12, 2020
Effective date: January 26, 2021
Listing Date: February 3, 2021
CUSIP: 53656F474
Active: Yes
Index: Not applicable

Investment Objective: DIVZ seeks to provide capital appreciation with lower volatility and a higher dividend yield compared to the S&P 500 Index.

Investment Strategy: US listed value companies selected from bottom up analysis and assessment of their their ability to sustain and grow their dividends, which in turn leads to more stability and lower volatility.

Constituents: 25-35
 
Adviser: TrueMark Investments,LLC
Sub-Adviser: Titleist Asset Management, Ltd.
 
Prospectus is here.

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S000070814

Principal Investment Strategy

The Fund is an actively-managed exchange-traded fund (“ETF”) that seeks to achieve its investment objective by purchasing 25-35 stocks of companies that pay dividends and expect to grow the dividends over time and are trading at attractive valuations at the time of the investment. The Fund’s investment adviser, TrueMark Investments, LLC (the “Adviser”), and sub-adviser, Titleist Asset Management, Ltd. (the “Sub-Adviser”), will seek to invest in such companies that are established businesses with high cash flow, stable revenue streams, and more disciplined capital reinvestment programs which may, in turn, experience lower volatility relative to the overall equity market.

The Adviser and Sub-Adviser will focus on companies whose stock is listed on a U.S. exchange with market capitalizations greater than $8 billion, but may include companies with market capitalizations of less than $8 billion if their dividend yields are above the market average. The Adviser and Sub-Adviser will select companies for the Fund that, in the Sub-Adviser’s determination, provide the best combination of dividend yield with potential for dividend growth and are currently under-valued in the market. Under normal circumstances, at least 80% of the Fund’s net assets, plus borrowings for investment purposes, will be invested in equity securities, including common stocks and American Depositary Receipts (“ADRs”).

The Sub-Adviser makes its initial identification of potential portfolio securities based on its assessment of a company’s ability and commitment to sustain and grow its dividends. The Sub-Adviser seeks to identify such companies by utilizing a combination of quantitative and qualitative indicators of the company’s financial position, growth opportunities, historical payouts, and management commentary, as well as the competitive landscape.

The Sub-Adviser will then review the current market valuation of these companies which the Sub-Adviser believes are under-valued. The Sub-Adviser first identifies “high quality companies,” which are generally defined as companies with a sustainable competitive advantage, offering stable and growing free cash flows, and quality management teams that have the capital discipline to distribute dividends to shareholders. The Sub-Adviser then selects companies whose stock is trading at a valuation that it believes offers an opportunity to generate above average returns over time. The Sub-Adviser utilizes a variety of metrics (e.g., price compared to earnings ratio, market capitalization compared to book value, free cash flow yield, etc.) in the valuation process and seeks to identify companies that are attractively priced both in absolute terms and relative to their peers with a preference of companies with higher free cash flow.

WisdomTree to list new Thematic ETF on Friday, Jan. 29, 2021: WCBR

UPDATE: LISTED ON THURSDAY, JANUARY 28, 2021

WisdomTree Cybersecurity Fund

Ticker: WCBR
Exchange: NASDAQ Stock Market LLC
Expense ratio: 0.45%
Original filing date: October 14, 2020
Effective date: January 15, 2021
Listing Date: January 29, 2021
CUSIP:
 
Active: No
Index: WisdomTree Team8 Cybersecurity Index
Investment Objective: WCBR seeks to track the price and yield performance, before fees and expenses, of the WisdomTree Team8 Cybersecurity Index.

Investment Strategy: 

The WisdomTree Team8 Cybersecurity Index is designed to track the performance of companies primarily involved in providing cyber security-oriented products that meet Index eligibility requirements. The Index was established on October 30, 2020.

Constituents: 25
 
Adviser: WisdomTree Asset Management, Inc.
Sub-Adviser: Mellon Investments Corporation
 
Prospectus is here.

Index Methodology:

https://www.wisdomtree.com/-/media/us-media-files/documents/resource-library/pdf/research/methodologies/core-equity-index-methodology.pdf

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S000070495

Principal Investment Strategies of the Fund

The Index is designed to provide exposure to equity securities of exchange-listed companies globally, which are primarily involved in cybersecurity and security-oriented technology that generate a meaningful part of their revenue from security protocols that prevent intrusion and attacks to systems, networks, applications, computers, and mobile devices (collectively, “cybersecurity activities”) and are experiencing revenue growth. The cybersecurity themes used as guidelines to determine if a company is primarily involved in cybersecurity activities are described in detail in the “Additional Information About the Fund’s Investment Strategies” section of the Prospectus.

To be eligible for inclusion in the Index, a company must meet the following criteria as of the Index screening date: 

(i) derive at least 50% of their revenue from cybersecurity activities; 

(ii) revenue growth greater than or equal to 7% over the trailing three years for new constituents and revenue growth greater than or equal to 5% over the trailing three years for existing Index constituents; 

(iii) market capitalization of at least $300 million; and 

(iv) have an average daily dollar trading volume of at least $1 million for each of the preceding three months.

The Index is reconstituted and rebalanced semi-annually. As of December 31, 2020, companies in the information technology sector comprised a significant portion of the Index.

PGIM files for new actively-managed Bond ETF

PGIM Active Aggregate Bond ETF

Ticker: PAB
Exchange: NYSE Arca
Expense ratio: 0.19%
Original filing date: January 26, 2021
Effective date: April 12, 2021
Listing Date: TBD
CUSIP: 69344A701
 
Active: Yes
Index: Not applicable

Investment Objective: Total return, through a combination of current income and capital appreciation.

Investment Strategy: 

Top-down economic analysis and bottom-up research in conjunction with proprietary quantitative models and risk management systems.

Constituents: Universe: Investment grade US dollar bonds, mostly but not limited to  those in the Bloomberg Barclays US Aggregate Bond Index.

 
Adviser: PGIM Investments LLC
Sub-Adviser: PGIM Fixed Income
 
 
Prospectus is here.

Final prospectus dated April 12, 2021 is here.
 

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S000071448

INVESTMENT STRATEGIES AND INVESTMENTS

The investment objective of the Fund is to seek total return, through a combination of current income and capital appreciation. The Fund seeks to achieve its objective by investing, under normal circumstances, at least 80% of the Fund's investable assets in bonds. For purposes of this policy, bonds include all fixed income securities, including but not limited to debt obligations issued by the US government and its agencies, corporate debt securities, mortgage-related securities and asset-backed securities (including collateralized debt obligations and collateralized loan obligations). In pursuit of this policy, the Fund may invest a large percentage of its investable assets in securities included in the Bloomberg Barclays US Aggregate Bond Index (the Index). 

The Index invests in a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States – including government, corporate, and international US dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than 1 year. The Fund is not sponsored by or affiliated with Bloomberg. 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 invests only in securities that are denominated in US dollars. The Fund may invest up to 25% of its investable assets in US dollar-denominated fixed income securities issued by foreign issuers, including emerging markets. Foreign government fixed income securities include securities issued by quasi-governmental entities, governmental agencies and instrumentalities, supranational entities and other governmental entities.

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. In its bottom-up research, the subadviser develops an internal rating and outlook on issuers. The rating and outlook are determined based on a thorough review of the financial health and trends of the issuer. The subadviser may also consider investment factors such as expected total return, yield, spread and potential for price appreciation as well as credit quality, maturity and risk. The Fund may invest in a security based upon the expected total return rather than the yield of such security.

The Fund invests in securities that are rated investment grade at the time of purchase.  Investment grade securities are considered to be those instruments that are rated BBB- or higher by S&P Global Ratings (S&P), or Baa3 or higher by Moody’s Investors Service, Inc. (Moody’s), or the equivalent by another nationally recognized statistical rating organization (NRSRO), or if unrated, are considered by the Fund’s subadviser to be of comparable quality.  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. The opinions of the rating agencies do not reflect market risk and they may, at times, lag behind the current financial condition of a company. 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 an NRSRO.

If the rating of a debt security is downgraded after the Fund purchases it (or if the debt security is no longer rated), the Fund will not have to sell the security, but the subadviser will take this into consideration in deciding whether the Fund should continue to hold the security.

The Fund may invest in debt obligations issued or guaranteed by the US Government and US Government-related entities. Some (but not all) of these debt securities such as US Treasury securities are backed by the full faith and credit of the US Government, which means that payment of interest and principal is guaranteed, but yield and market value are not. These also include obligations of the GNMA. Debt securities issued by other government entities, like obligations of the FNMA and the SLMA, are not backed by the full faith and credit of the US Government. However, these issuers have the right to borrow from the US Treasury to meet their obligations. In contrast, the debt securities of other issuers, like the Farm Credit System, depend entirely upon their own resources to repay their debt obligations.

The Fund invests in mortgage-related securities issued or guaranteed by US 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 US Government include GNMAs and mortgage-related securities issued by agencies of the US Government as well as FNMAs and debt securities issued by FHLMC. Privately issued mortgage-related securities that are not guaranteed by US 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 US 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 US 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 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 or yield differentials. The Fund expects to be more heavily involved in active trading during periods of market volatility seeking to preserve gains or limit losses.