BlackRock AAA CLO ETF
2022
PROSPECTUS
BlackRock
AAA CLO ETF | CLOA | NASDAQ
The Securities and Exchange Commission (“SEC”) has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
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Not FDIC Insured • May Lose Value • No Bank
Guarantee |
BlackRock®
is a registered trademark of BlackRock Fund Advisors and its affiliates.
i
BLACKROCK
AAA CLO ETF
Ticker:
CLOA Stock
Exchange: NASDAQ
Investment
Objective
The
BlackRock AAA CLO ETF (the “Fund”) seeks to provide capital preservation and
current income by investing principally in a portfolio composed of U.S.
dollar-denominated AAA‑rated collateralized loan obligations
(“CLOs”).
Fees
and Expenses
The
following table describes the fees and expenses that you will incur if you buy,
hold and sell shares of the Fund. The investment advisory agreement between
BlackRock ETF Trust II (the “Trust”) and BlackRock Fund Advisors (“BFA”) (the
“Investment Advisory Agreement”) provides that BFA will pay all operating
expenses of the Fund, except (i) the management fees, (ii) interest expenses,
(iii) taxes, (iv) expenses incurred with respect to the acquisition and
disposition of portfolio securities and the execution of portfolio transactions,
including brokerage commissions, (v) distribution fees or expenses, and (vi)
litigation expenses and any extraordinary expenses. The Fund may incur “Acquired
Fund Fees and Expenses.” Acquired Fund Fees and Expenses reflect the Fund’s pro
rata share of the fees and expenses incurred indirectly by the Fund as a result
of investing in other investment companies. The impact of Acquired Fund Fees and
Expenses is included in the total returns of the Fund.
You
may also incur usual and customary brokerage commissions and other charges when
buying or selling shares of the Fund, which are not reflected in the Example
that follows:
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Annual Fund Operating Expenses (ongoing
expenses that you pay each year as a percentage of the value of your
investments) |
Management Fees1 |
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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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Fee Waiver1 |
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Total Annual Fund Operating Expenses After Fee Waiver1 |
0.20% |
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None |
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0.00% |
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0.20% |
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— |
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0.20% |
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1 |
As
described in the “Management” section of the Fund’s prospectus beginning
on page 18, BFA has contractually agreed to waive a portion of its
management fees in an amount equal to the aggregate Acquired Fund Fees and
Expenses, if any, attributable to investments by the Fund in other funds
advised by BFA or its affiliates through June 30,
2024. The agreement may be terminated upon 90 days’ notice
by a majority of the non-interested trustees of the Trust or by a vote of
a majority of the outstanding voting securities of the
Fund. |
Example. This Example is
intended to help you compare the cost of owning shares of the Fund with the cost
of investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then sell all of your shares at the end
of those periods. The Example also assumes that your investment has a 5% return
each year and that the Fund’s operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions, your costs
would be:
Portfolio
Turnover. The Fund may pay transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable
account. These costs, which are not reflected in the Annual Fund Operating
Expenses or in the Example, affect the Fund’s performance. There has been no
portfolio turnover because the Fund has not commenced operations as of the date
of this prospectus (the “Prospectus”).
Principal
Investment Strategies
The
Fund seeks to achieve its investment objective by investing, under normal
circumstances, at least 80% of its assets in U.S. dollar-denominated CLOs that
are, at the time of purchase, rated AAA (or equivalent) by at least one of the
major rating agencies or, if unrated, determined by the Fund management team to
be of similar quality. The Fund’s 80% investment policy is non‑fundamental and
may be changed without shareholder approval upon 60 days’ prior written notice
to shareholders. The Fund may invest
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in
CLOs of any maturity. The Fund may purchase CLOs in both the primary market
(i.e., directly from arranging banks) and in the secondary
market.
A
CLO is ordinarily issued by a trust or other special purpose entity (“SPE”) and
is typically collateralized by a pool of loans, which may include, among others,
domestic and non‑U.S. senior secured loans, senior unsecured loans, “covenant
lite” loans (which have few or no financial maintenance covenants) and
subordinate corporate loans, including loans that may be rated below investment
grade or equivalent unrated loans, and to a lesser extent, high yield bonds
rated below investment grade (commonly called “junk bonds”), held by such
issuer. The cash flows from the SPE are split into two or more portions, called
tranches, varying in risk and yield. The riskiest portion of a CLO is the
“equity” tranche, which bears the first loss from defaults from the bonds or
loans in the SPE and serves to protect the other, more senior tranches from
default (though such protection is not complete). Since it is partially
protected from defaults, a “senior” tranche of a CLO typically has higher
ratings and lower yields than its underlying securities, and may be rated
AAA.
The
Fund may invest up to 20% of its assets in U.S. dollar-denominated CLOs that
are, at the time of purchase, rated AA or A (or equivalent) by at least one of
the major rating agencies or, if unrated, determined by the Fund management team
to be of similar quality.
The
Fund will not invest more than 10% of its net assets in any single
CLO.
The
Fund may invest in floating- and fixed-rate CLOs, but will not invest more than
10% of its net assets in fixed-rate
CLOs.
The
Fund may also buy when-issued securities and participate in delayed delivery
transactions.
The
Fund is classified as non‑diversified under the Investment Company Act of 1940,
as amended (the “Investment Company
Act”).
Summary
of Principal Risks
As with any investment, you could lose all or part of
your investment in the Fund, and the Fund’s performance could trail that of
other investments. The Fund is subject to certain risks,
including the principal risks noted below, any of which may adversely affect the
Fund’s net asset value per share (“NAV”), trading price, yield, total return and
ability to meet its
investment
objective. Unlike many exchange-traded funds (“ETFs”), the Fund is not an
index-based ETF. The relative significance of each risk factor below may
change over time and you should review each risk factor
carefully.
Collateralized Loan
Obligations Risk. The risks of investing in CLOs depend largely on
the type of the collateral securities and the tranche of the CLO. In stressed
market conditions, it is possible that even senior CLO debt tranches, such as
those in which the Fund will invest, could experience losses due to actual
defaults, downgrades of the underlying collateral by rating agencies, forced
liquidation of the collateral pool due to a failure of coverage tests, increased
sensitivity to defaults due to collateral default and the disappearance of
protecting tranches, market anticipation of defaults as well as investor
aversion to CLO securities as an asset class. While the Fund invests principally
in CLO tranches that are rated AAA, such ratings do not constitute a guarantee
of credit quality and may be downgraded. To the extent that the Fund invests in
CLO tranches rated below AAA, the risks of investing in CLOs will be greater.
Split rated CLOs, which are CLOs that receive different ratings from two or more
rating agencies, will be considered to have the higher credit rating. To the
extent that the Fund invests in unrated CLO tranches, the Fund’s ability to
achieve its investment objective will be more dependent on Fund management’s
credit analysis than would be the case when the Fund invests in rated CLO
tranches.
Further,
interest on certain tranches of a CLO may be paid in kind or deferred and
capitalized (paid in the form of obligations of the same type rather than cash),
which involves continued exposure to default risk with respect to such payments.
Fund management may not be able to accurately predict how specific CLOs or the
portfolio of underlying loans or bonds for such CLOs will perform based on
financial models or react to changes or stresses in the market, including
changes in interest rates.
CLOs,
and their underlying loan obligations, are typically not registered for sale to
the public and therefore are subject to certain restrictions on transfer and
sale, potentially making them less liquid than other types of securities. Some
unrated CLO securities may not have an active trading market or may be difficult
to value. Additionally, when the Fund purchases a newly issued CLO security in
the primary market (rather than from the secondary market), there often may be a
delayed settlement period. As a result, the proceeds from the sale of CLO
securities may not be readily available to make additional investments or to
meet the Fund’s redemption obligations. During a delayed settlement period, the
liquidity of the CLO may be further reduced. During periods of
limited
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liquidity
and higher price volatility, the Fund’s ability to acquire or dispose of CLO
securities at a price and time the Fund deems advantageous may be impaired. To
the extent the extended settlement process gives rise to short-term liquidity
needs, the Fund may hold additional cash, sell investments or temporarily borrow
from banks and other lenders. CLO securities are generally considered to be
long-term investments and there is no guarantee that an active secondary market
will exist or be maintained for any given CLO
security.
CLO Manager
Risk. The CLOs in which the Fund invests are managed by
investment advisers independent of BFA. CLO managers are responsible for
selecting, managing and replacing the underlying bank loans or bonds within a
CLO. CLO managers may have limited operating histories and may be subject to
conflicts of interests, including managing the assets of other clients or other
investment vehicles, or receiving fees that incentivize maximizing the yield,
and indirectly the risk, of a CLO. Adverse developments with respect to a CLO
manager, such as personnel and resource constraints, regulatory issues or other
developments that may impact the ability and/or performance of the CLO manager,
may adversely impact the performance of the CLO securities in which the Fund
invests.
Interest Rate
Risk. During periods of very low or negative interest rates,
the Fund may be unable to maintain positive returns or pay dividends to Fund
shareholders. Very low or negative interest rates may magnify interest rate
risk. Changing interest rates, including rates that fall below zero, may have
unpredictable effects on markets, result in heightened market volatility and
detract from the Fund’s performance to the extent the Fund is exposed to such
interest rates. Additionally, under certain market conditions in which interest
rates are low and the market prices for portfolio securities have increased, the
Fund may have a very low or even negative yield. A low or negative yield would
cause the Fund to lose money in certain conditions and over certain time
periods. An increase in interest rates will generally cause the value of
securities held by the Fund to decline, may lead to heightened volatility in the
fixed‑income markets and may adversely affect the liquidity of certain
fixed-income investments, including those held by the Fund. Because rates on
certain floating rate debt securities typically reset only periodically, changes
in prevailing interest rates (and particularly sudden and significant changes)
can be expected to cause some fluctuations in the net asset value of the Fund to
the extent that it invests in floating rate debt securities. The historically
low
interest
rate environment in recent years heightens the risks associated with rising
interest rates.
Call
Risk. During periods of falling interest rates, an issuer of
a callable security held by the Fund may “call” or repay the security before its
stated maturity, and the Fund may have to reinvest the proceeds in securities
with lower yields, which would result in a decline in the Fund’s income, or in
securities with greater risks or with other less favorable features. CLOs are
typically structured such that, after a specified period of time, the majority
investor in the equity tranche can call (i.e., redeem) the securities issued by
the CLO in full. The Fund may not be able to accurately predict when or which of
its CLO investments may be called, resulting in the Fund having to reinvest the
proceeds in unfavorable circumstances, which in turn could cause in a decline in
the Fund’s income.
Extension
Risk. During periods of rising interest rates, certain debt
obligations may be paid off substantially more slowly than originally
anticipated and the value of those securities may fall sharply, resulting in a
decline in the Fund’s income and potentially in the value of the Fund’s
investments.
Prepayment
Risk. During periods of
falling interest rates, issuers of certain debt obligations may repay principal
prior to the security’s maturity, which may cause the Fund to have to reinvest
in securities with lower yields or higher risk of default, resulting in a
decline in the Fund’s income or return
potential.
Credit
Risk. Debt issuers and other counterparties may be unable or
unwilling to make timely interest and/or principal payments when due or
otherwise honor their obligations. Changes in an issuer’s credit rating or the
market’s perception of an issuer’s creditworthiness may also adversely affect
the value of the Fund’s investment in that issuer. The degree of credit risk
depends on an issuer’s or counterparty’s financial condition and on the terms of
an obligation. For CLOs, the primary source of credit risk is the ability of the
underlying portfolio of loans or bonds to generate sufficient cash flow to pay
investors on a full and timely basis when principal and/or interest payments are
due. Default in payment on the underlying loans or bonds will result in less
cash flow from the underlying portfolio and, in turn, less funds available to
pay investors in the CLO.
Income
Risk. The Fund’s income may decline if interest rates fall.
This decline in income can occur because the Fund may subsequently invest in
lower‑yielding CLOs as CLOs in its portfolio
mature,
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are
near maturity or are called, or the Fund otherwise needs to purchase additional
CLOs.
LIBOR
Risk. The Fund may be exposed to financial instruments that are
tied to London Interbank Offered Rate (“LIBOR”) to determine payment
obligations, financing terms, hedging strategies or investment value. The Fund’s
investments may pay interest at floating rates based on LIBOR or may be subject
to interest caps or floors based on LIBOR. The Fund may also obtain financing at
floating rates based on LIBOR. Derivative instruments utilized by the Fund may
also reference LIBOR.
LIBOR Replacement
Risk. As part of the phase‑out of the use of LIBOR, the rate’s
administrator, ICE Benchmark Administration Limited (“IBA”), discontinued two
USD LIBOR settings immediately after publication on December 31, 2021. The
United Kingdom’s Financial Conduct Authority (“FCA”), which regulates LIBOR, and
IBA previously announced that a majority of USD LIBOR settings will no longer be
published after June 30, 2023. While the FCA is requiring the IBA to
publish certain LIBOR settings, potentially to include USD settings, on a
“synthetic” basis, the “synthetic” methodology is not based on panel bank
contributions and is not intended to be representative of the interest rates in
the underlying market. The Fund may have investments linked to other interbank
offered rates, such as the Euro Overnight Index Average (“EONIA”), which may
also cease to be published. Various financial industry groups continue planning
for the transition away from LIBOR, but there are challenges to converting
certain securities and transactions to a new reference rate, such as the Secured
Overnight Financing Rate (“SOFR”), which is intended to replace USD LIBOR. For
example, at times, SOFR has proven to be more volatile than the 3‑month USD
LIBOR. Working groups and regulators in other countries have suggested other
alternatives for their markets, including the Sterling Overnight Interbank
Average Rate (“SONIA”) in England.
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, and reduce the effectiveness of new hedges placed against,
instruments whose terms currently include LIBOR. 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 NAV.
Asset
Class Risk. Securities and other
assets in the Fund’s portfolio may underperform in comparison to the general
financial markets, a particular financial market or other asset
classes.
Assets Under
Management (AUM) Risk. From time to time, an Authorized
Participant (as defined in the Creations and Redemptions section of this
Prospectus a third-party investor, the Fund’s adviser or an affiliate of the
Fund’s adviser, or a fund may invest in the Fund and hold its investment for a
specific period of time in order to facilitate commencement of the Fund’s
operations or to allow the Fund to achieve size or scale. There can be no
assurance that any such entity would not redeem its investment or that the size
of the Fund would be maintained at such levels, which could negatively impact
the Fund.
Authorized
Participant Concentration Risk. Only an Authorized Participant (as
defined in the Creations and Redemptions section of this Prospectus) may engage
in creation or redemption transactions directly with the Fund, and none of those
Authorized Participants is obligated to engage in creation and/or redemption
transactions. The Fund has a limited number of institutions that may act as
Authorized Participants on an agency basis (i.e., on behalf of other market
participants). To the extent that Authorized Participants exit the business or
are unable to proceed with creation or redemption orders with respect to the
Fund and no other Authorized Participant is able to step forward to create or
redeem, Fund shares may be more likely to trade at a premium or discount to NAV
and possibly face trading halts or
delisting.
Concentration
Risk. The Fund may be susceptible to loss due to adverse
events that affect the Fund’s
S-4
investments
more than the market as a whole, to the extent that the Fund’s investments are
concentrated in the securities and/or other assets of a particular issuer or
issuers, country, group of countries, region, market, industry, group of
industries, sector, market segment or asset
class.
Cybersecurity
Risk. Failures or breaches of the electronic systems of the
Fund, the Fund’s adviser, distributor and other service providers, market
makers, Authorized Participants or the issuers of securities in which the Fund
invests have the ability to cause disruptions, negatively impact the Fund’s
business operations and/or potentially result 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 cybersecurity plans and systems of the Fund’s service
providers, market makers, Authorized Participants or issuers of securities in
which the Fund invests.
Floating Rate
Securities Risk. Securities with floating or variable interest
rates can be less sensitive to interest rate changes than securities with fixed
interest rates, but may decline in value if their coupon rates do not reset as
high, or as quickly, as comparable market interest rates, and generally carry
lower yields than fixed securities of the same maturity. Although floating rate
securities are less sensitive to interest rate risk than fixed-rate securities,
they are subject to credit risk and default risk, which could impair their
value.
High Portfolio
Turnover Risk. High portfolio turnover (considered by the Fund to
mean higher than 100% annually) may result in increased transaction costs to the
Fund, including brokerage commissions, dealer mark‑ups and other transaction
costs on the sale of the securities and on reinvestment in other
securities.
Illiquid Investments
Risk. The Fund may not acquire any illiquid investment if,
immediately after the acquisition, the Fund would have invested more than 15% of
its net assets in illiquid investments. An illiquid investment is any investment
that the Fund reasonably expects cannot be sold or disposed of in current market
conditions in seven calendar days or less without significantly changing the
market value of the investment. To the extent the Fund holds illiquid
investments, the illiquid investments may reduce the returns of the Fund because
the Fund may be unable
to
transact at advantageous times or prices. In addition, if the Fund is limited in
its ability to sell illiquid investments during periods when shareholders are
redeeming their shares, the Fund will need to sell liquid securities to meet
redemption requests and illiquid securities will become a larger portion of the
Fund’s holdings. During periods of market volatility, liquidity in the market
for the Fund’s shares may be impacted by the liquidity in the market for the
underlying securities or instruments held by the Fund, which could lead to the
Fund’s shares trading at a premium or discount to the Fund’s
NAV.
Infectious Illness
Risk. A widespread outbreak of an infectious illness, such as
the COVID-19 pandemic, may result in travel restrictions, disruption of
healthcare services, prolonged quarantines, cancellations, supply chain
disruptions, business closures, lower consumer demand, layoffs, ratings
downgrades, defaults and other significant economic, social and political
impacts. Markets may experience temporary closures, extreme volatility, severe
losses, reduced liquidity and increased trading costs. Such events may adversely
affect the Fund and its investments and may impact the Fund’s ability to
purchase or sell securities or cause increased premiums or discounts to the
Fund’s NAV. Despite the development of vaccines, the duration of the COVID-19
pandemic and its effects cannot be predicted with
certainty.
Issuer
Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The Fund may be
adversely affected if an issuer of underlying securities held by the Fund is
unable or unwilling to repay principal or interest when due. Changes to the
financial condition or credit rating of an issuer of those securities may cause
the value of the securities to
decline.
Large Shareholder and
Large-Scale Redemption Risk. Certain shareholders, including an
Authorized Participant, a third-party investor, the Fund’s adviser or an
affiliate of the Fund’s adviser, a market maker, or another entity, may from
time to time own or manage a substantial amount of Fund shares, or may invest in
the Fund and hold their investment for a limited period of time. There can be no
assurance that any large shareholder or large group of shareholders would not
redeem their investment. Redemptions of a large number of Fund shares may
adversely affect the Fund’s liquidity and net assets. Because the Fund generally
redeems Creation Units solely for cash, these redemptions could require the Fund
to dispose of assets to meet the redemption requests, which
can
S-5
accelerate
the realization of taxable income and/or capital gains and cause the Fund to
make taxable distributions to its shareholders earlier than the Fund otherwise
would have. In addition, under certain circumstances, non‑redeeming shareholders
may be treated as receiving a disproportionately large taxable distribution
during or with respect to such year. In some circumstances, the Fund may hold a
relatively large proportion of its assets in cash in anticipation of large
redemptions, diluting its investment returns. These large redemptions may also
force the Fund to sell portfolio securities when it might not otherwise do so,
which may negatively impact the Fund’s NAV, increase the Fund’s brokerage costs
and/or have a material effect on the market price of the Fund
shares.
Management
Risk. The Fund is subject to management risk, which is the
risk that the investment process, techniques and analyses applied by BFA will
not produce the desired results, and those securities or other financial
instruments selected by BFA may result in returns that are inconsistent with the
Fund’s investment objective. In addition, legislative, regulatory, or tax
developments may affect the investment techniques available to BFA in connection
with managing the Fund and may also adversely affect the ability of the Fund to
achieve its investment objective.
Market
Risk. The Fund could lose money over short periods due to
short-term market movements and over longer periods during more prolonged market
downturns. Local, regional or global events such as war, acts of terrorism, the
spread of infectious illness or other public health issues, recessions, or other
events could have a significant impact on the Fund and its investments and could
result in increased premiums or discounts to the Fund’s
NAV.
Market Trading
Risk. The Fund faces numerous market trading risks, including the
potential lack of an active market for Fund shares, losses from trading in
secondary markets, periods of high volatility and disruptions in the
creation/redemption process. Unlike some ETFs that track specific indexes, the
Fund does not seek to replicate the performance of a specified index.
Index-based ETFs have generally traded at prices that closely correspond to NAV
per share. Given the high level of transparency of the Fund’s holdings, BFA
believes that the trading experience of the Fund should be similar to that of
index-based ETFs. However, ETFs that do not seek to replicate the performance of
a specified index have a limited trading history and, therefore, there can be no
assurance as to whether, and/or the extent to
which,
the
Fund’s shares will trade at a premium or discount to NAV. ANY OF THESE FACTORS,
AMONG OTHERS, MAY LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO
NAV.
Non‑Diversification
Risk. The Fund is classified as “non-diversified.” This means
that, compared with other funds that are classified as "diversified," the Fund
may invest a greater percentage of its assets in securities issued by or
representing a small number of issuers. As a result, the Fund’s performance may
depend on the performance of a small number of
issuers.
Operational
Risk. The Fund is exposed to operational risks arising from a
number of factors, including, but not limited to, human error, processing and
communication errors, errors of the Fund’s service providers, counterparties or
other third parties, failed or inadequate processes and technology or systems
failures. The Fund and BFA seek to reduce these operational risks through
controls and procedures. However, these measures do not address every possible
risk and may be inadequate to address significant operational
risks.
Risk of Investing in
the U.S. Certain changes in the U.S. economy, such as when
the U.S. economy weakens or when its financial markets decline, may have an
adverse effect on the securities to which the Fund has
exposure.
Small Fund
Risk. When the Fund’s size is small, the Fund may experience
low trading volume and wide bid/ask spreads. In addition, the Fund may face the
risk of being delisted if the Fund does not meet certain conditions of the
listing exchange. Any resulting liquidation of the Fund could cause the Fund to
incur elevated transaction costs for the Fund and negative tax consequences for
its shareholders.
Structured Products
Risk. Holders of structured products bear risks of the underlying
investments, index or reference obligation and are subject to counterparty risk.
The Fund may have the right to receive payments only from the structured
product, and generally does not have direct rights against the issuer or the
entity that sold the assets to be securitized. Certain structured products may
be thinly traded or have a limited trading market. In addition to the general
risks associated with debt securities discussed herein, 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
S-6
default;
and the possibility that the structured products are subordinate to other
classes. Structured notes are based upon the movement of one or more factors,
including currency exchange rates, interest rates, reference bonds and stock
indices, and changes in interest rates and impact of these factors may cause
significant price fluctuations. Additionally, changes in the reference
instrument or security may cause the interest rate on the structured note to be
reduced to zero.
When-Issued and
Delayed Delivery Securities and Forward Commitments Risk.
When-issued and delayed delivery securities and forward commitments 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.
Performance
Information
Because the Fund has not commenced operations
as of the date of this Prospectus, it does not have performance information an
investor would find useful in evaluating the risks of investing in the
Fund. The Fund’s benchmark is the JP Morgan CLOIE AAA
Index.
Management
Investment Adviser. BlackRock Fund
Advisors.
Portfolio Managers. Owen Butler, Peter Hirsh
and Nidhi Patel (the “Portfolio Managers”) are jointly and primarily responsible
for the day‑to‑day management of the Fund. Messrs. Butler and Hirsh and
Ms. Patel have been Portfolio Managers of the Fund since 2022.
Purchase
and Sale of Fund Shares
The
Fund is an ETF. Individual shares of the Fund may only be bought and sold in the
secondary market through a broker-dealer. Because ETF shares trade at market
prices rather than at NAV, shares may trade at a price greater than NAV (a
premium) or less than NAV (a discount). An investor may incur costs attributable
to the difference between the highest price a buyer is willing to pay to
purchase shares of the Fund (bid) and the lowest price a seller is willing to
accept for shares of the Fund (ask) when buying or selling shares in the
secondary market (the “bid‑ask spread”).
Tax
Information
The
Fund intends to make distributions that may be taxable to your 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 (“IRA”),
in which case, your distributions generally will be taxable when
withdrawn.
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), BFA 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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More
Information About the Fund
This
Prospectus contains important information about investing in the Fund. Please
read this Prospectus carefully before you make any investment decisions.
Additional information regarding the Fund is available at www.blackrock.com.
The
Fund is an actively managed ETF and, thus, does not seek to replicate the
performance of a specified index. Accordingly, the management team has
discretion on a daily basis to manage the Fund’s portfolio in accordance with
the Fund’s investment objective.
ETFs
are funds that trade like other publicly-traded securities. Similar to shares of
a mutual fund, each share of the Fund represents an ownership interest in an
underlying portfolio of securities and other instruments. Unlike shares of a
mutual fund, which can be bought and redeemed from the issuing fund by all
shareholders at a price based on NAV, shares of the Fund may be purchased or
redeemed directly from the Fund at NAV solely by Authorized Participants and
only in aggregations of a specified number of shares (“Creation Units”). Also
unlike shares of a mutual fund, shares of the Fund are listed on a national
securities exchange and trade in the secondary market at market prices that
change throughout the day.
The
Fund’s investment objective is a non‑fundamental policy and may be changed
without shareholder approval.
Additional Information on Principal Investment
Strategies. The Fund seeks to achieve its investment objective by
investing, under normal circumstances, at least 80% of its assets in U.S.
dollar-denominated collateralized loan obligations (“CLOs”) that are, at the
time of purchase, rated AAA (or equivalent) by at least one of the major rating
agencies or, if unrated, determined by the Fund management team to be of similar
quality. Split rated CLOs will be considered to have the higher credit rating.
Split rated CLOs are CLOs that receive different ratings from two or more rating
agencies. The Fund’s 80% investment policy is non‑fundamental and may be changed
without shareholder approval upon 60 days’ prior written notice to shareholders.
The Fund may invest in CLOs of any maturity. The Fund may purchase CLOs in both
the primary market (i.e., directly from arranging banks) and in the secondary
market.
A
CLO is ordinarily issued by a trust or other special purpose entity (“SPE”) and
is typically collateralized by a pool of loans, which may include, among others,
domestic and non‑U.S. senior secured loans, senior unsecured loans, “covenant
lite” loans (which have few or no financial maintenance covenants) and
subordinate corporate loans, including loans that may be rated below investment
grade or equivalent unrated loans, and to a lesser extent, high yield bonds
rated below investment grade (commonly called “junk bonds”), held by such
issuer. The underlying loans and bonds are selected by the CLO’s manager. The
cash flows from the SPE are split into two or more portions, called tranches,
varying in risk and yield. The riskiest portion of a CLO is the “equity”
tranche, which bears the first loss from defaults from the bonds or loans in the
SPE and serves to protect the other, more senior tranches from default (though
such protection is not complete). Since it is partially protected from defaults,
a “senior” tranche of a CLO typically has higher ratings and lower yields than
its underlying securities, and may be rated AAA.
The
Fund may invest up to 20% of its assets in U.S. dollar-denominated CLOs that
are, at the time of purchase, rated AA or A (or equivalent) by at least one of
the major rating agencies or, if unrated, determined by the Fund management team
to be of similar quality.
The
Fund will not invest more than 10% of its net assets in any single CLO.
The
Fund may invest in floating- and fixed-rate CLOs, but will not invest more than
10% of its net assets in fixed-rate CLOs.
The
Fund may also buy when-issued securities and participate in delayed delivery
transactions.
The
Fund is classified as non‑diversified under the Investment Company Act.
Investment Process. BFA’s analysis of a CLO
will include:
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assessment
of the CLO’s underlying collateral; |
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assessment
of the CLO’s ability to meet principal and interest payments to its
various tranches; |
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assessment
of the manager of the CLO; |
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analysis
of the CLO’s documentation, cash flow waterfall and structural
terms; |
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performance
of the CLO’s underlying collateral and the CLO’s tranches under stressed
market conditions; and |
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general
industry trends and any changing financial market
conditions. |
BFA’s
analysis continues on an ongoing basis for the CLOs and any other securities in
which the Fund has invested. Although BFA uses due care in making such analysis,
there can be no assurance that such analysis will disclose factors that may
impair the value of a CLO investment.
Because
the Fund is actively managed, the Fund will not hold all of the constituents in
the Fund’s benchmark, the JP Morgan CLOIE AAA Index (the “Benchmark”), or
any other index or hold such securities in the same proportion as the Benchmark.
The Fund may also hold securities that are not underlying constituents of the
Benchmark.
The
Fund may engage in active and frequent trading of portfolio securities to
achieve its principal investment strategies. See “A Further Discussion of
Princinpal Risks—High Portfolio Turnover Risk” in this Prospectus for additional
information on the effect of high portfolio turnover.
Other Strategies. In addition to the principal
strategies discussed above, the Fund may also invest or engage in the following
investments/strategies:
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Borrowing — The Fund may borrow up to
the limits set forth under the Investment Company Act, the rules and
regulations thereunder and any applicable exemptive
relief. |
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Investment
Companies — The Fund has the ability to invest in other
investment companies, such as ETFs, unit investment trusts, and open‑end
and closed‑end funds. The Fund may invest in affiliated investment
companies, including affiliated money market funds and affiliated
ETFs. |
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Repurchase
Agreements — The Fund may seek to obtain market
exposure to the securities in which it primarily invests by entering into
a series of purchase and sale contracts or by using other investment
techniques such as repurchase agreements. Under a repurchase agreement,
the Fund buys a security at one price and simultaneously agrees to sell
that same security back to the seller at a higher
price. |
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Securities
Lending — The Fund may lend
securities with a value up to 331⁄3% of its total assets to financial
institutions that provide cash or securities issued or guaranteed by the
U.S. Government as collateral. |
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Short
Sales — The Fund may engage in short sales of
securities, either as a hedge against potential declines in value of a
portfolio security or to realize appreciation when a security that the
Fund does not own declines in value. The Fund will not make a short sale
if, after giving effect to such sale, the market value of all securities
sold short exceeds 10% of the value of its total assets. However, the Fund
may make short sales “against the box” without regard to this restriction.
In this type of short sale, at the time of the sale, the Fund owns or has
the immediate and unconditional right to acquire the identical security at
no additional cost. |
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Temporary
Defensive Strategies — For temporary defensive
purposes, the Fund may depart from its principal investment strategies and
may restrict the markets in which it invests and may invest without
limitation in cash, cash equivalents, money market securities, such as
U.S. Treasury and agency obligations, other U.S. Government securities,
short-term debt obligations of corporate issuers, certificates of deposit,
bankers acceptances, commercial paper (short-term, unsecured, negotiable
promissory notes of a domestic or foreign issuer) or other high quality
fixed income securities. Temporary defensive positions may affect the
Fund’s ability to achieve its investment
objective. |
A
Further Discussion of Principal Risks
The
Fund is subject to various risks, including the principal risks noted below, any
of which may adversely affect the Fund’s NAV, trading price, yield, total return
and ability to meet its investment objective. You could lose all or part of your
investment in the Fund, and the Fund could underperform other investments. The
order of the below risk factors does not indicate the significance of any
particular risk factor. The Fund discloses its portfolio holdings daily at
www.BlackRock.com.
Collateralized Loan Obligations Risk. The risks
of investing in CLOs depend largely on the type of the collateral securities and
the tranche of the CLO. In stressed market conditions, it is possible that even
senior CLO debt tranches, such as those in which the Fund will invest, could
experience losses due to actual defaults, downgrades of
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the
underlying collateral by rating agencies, forced liquidation of the collateral
pool due to a failure of coverage tests, increased sensitivity to defaults due
to collateral default and the disappearance of protecting tranches, market
anticipation of defaults as well as investor aversion to CLO securities as an
asset class. While the Fund invests principally in CLO tranches that are rated
AAA, such ratings do not constitute a guarantee of credit quality and may be
downgraded. To the extent that the Fund invests in CLO tranches rated below AAA,
the risks of investing in CLOs will be greater. Split rated CLOs, which are CLOs
that receive different ratings from two or more rating agencies, will be
considered to have the higher credit rating. To the extent that the Fund invests
in unrated CLO tranches, the Fund’s ability to achieve its investment objective
will be more dependent on Fund management’s credit analysis than would be the
case when the Fund invests in rated CLO tranches.
Further,
interest on certain tranches of a CLO may be paid in kind or deferred and
capitalized (paid in the form of obligations of the same type rather than cash),
which involves continued exposure to default risk with respect to such payments.
Fund management may not be able to accurately predict how specific CLOs or the
portfolio of underlying loans or bonds for such CLOs will perform based on
financial models or react to changes or stresses in the market, including
changes in interest rates.
CLOs,
and their underlying loan obligations, are typically not registered for sale to
the public and therefore are subject to certain restrictions on transfer and
sale, potentially making them less liquid than other types of securities. Some
unrated CLO securities may not have an active trading market or may be difficult
to value. Additionally, when the Fund purchases a newly issued CLO security in
the primary market (rather than from the secondary market), there often may be a
delayed settlement period. As a result, the proceeds from the sale of CLO
securities may not be readily available to make additional investments or to
meet the Fund’s redemption obligations. During a delayed settlement period, the
liquidity of the CLO may be further reduced. During periods of limited liquidity
and higher price volatility, the Fund’s ability to acquire or dispose of CLO
securities at a price and time the Fund deems advantageous may be impaired. To
the extent the extended settlement process gives rise to short-term liquidity
needs, the Fund may hold additional cash, sell investments or temporarily borrow
from banks and other lenders. CLO securities are generally considered to be
long-term investments and there is no guarantee that an active secondary market
will exist or be maintained for any given CLO security.
CLO Manager Risk. The CLOs in which the Fund
invests are managed by investment advisers independent of BFA. CLO managers are
responsible for selecting, managing and replacing the underlying bank loans or
bonds within a CLO. CLO managers may have limited operating histories and may be
subject to conflicts of interests, including managing the assets of other
clients or other investment vehicles, or receiving fees that incentivize
maximizing the yield, and indirectly the risk, of a CLO. Adverse developments
with respect to a CLO manager, such as personnel and resource constraints,
regulatory issues or other developments that may impact the ability and/or
performance of the CLO manager, may adversely impact the performance of the CLO
securities in which the Fund invests.
Interest Rate Risk. If interest rates rise, the
value of fixed-income securities or other instruments held by the Fund or would
likely decrease. A measure investors commonly use to determine this price
sensitivity is called duration. Fixed‑income securities with longer durations
tend to be more sensitive to interest rate changes, usually making their prices
more volatile than those of securities with shorter durations. For example, if a
bond has a duration of five years and interest rates rise, the price of the bond
will likely decline by a greater percentage than if the bond had a one year
duration. To the extent the Fund invests a substantial portion of its assets in
fixed-income securities with longer duration, rising interest rates may cause
the value of the Fund’s investments to decline significantly, which may
adversely affect the value of the Fund. An increase in interest rates may lead
to heightened volatility in the fixed‑income markets and adversely affect
certain fixed-income investments, including those held by the Fund. Because
rates on certain floating rate debt securities typically reset only
periodically, changes in prevailing interest rates (and particularly sudden and
significant changes) can be expected to cause some fluctuations in the net asset
value of the Fund to the extent that it invests in floating rate debt
securities. In addition, decreases in fixed income dealer market-making capacity
may lead to lower trading volume, heightened volatility, wider bid‑ask spreads
and less transparent pricing in certain fixed-income markets.
The
historically low interest rate environment in recent years was created in part
by the world’s major central banks keeping their overnight policy interest rates
at, near or below zero percent and implementing monetary policy facilities, such
as asset purchase programs, to anchor longer-term interest rates below
historical levels. During periods of very low or negative interest rates, the
Fund may be unable to maintain positive returns or pay dividends to Fund
shareholders. Certain countries have recently experienced negative interest
rates on certain fixed-income instruments. Very low or negative interest rates
may magnify interest rate risk. Changing interest rates, including rates
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that
fall below zero, may have unpredictable effects on markets, result in heightened
market volatility and detract from the Fund’s performance to the extent the Fund
is exposed to such interest rates. Additionally, under certain market conditions
in which interest rates are set at low levels and the market prices of portfolio
securities have increased, the Fund may have a very low or even negative yield.
A low or negative yield would cause the Fund to lose money in certain conditions
and over certain time periods.
Central
banks, including the Federal Reserve, have recently begun increasing their
short-term policy rates and phasing out, or “tapering,” accommodative monetary
policy facilities as part of their efforts to address rising inflation. The
timing, coordination, magnitude and effect of such policy changes on various
markets are uncertain, and such changes in monetary policy may adversely affect
the value of the Fund’s investments. There is a risk that interest rates will
continue to rise, which will likely drive down the prices of bonds and other
fixed-income securities. A general rise in interest rates has the potential to
cause investors to move out of fixed-income securities on a large scale, which
could cause the Fund to sell assets at inopportune times or at a loss or
depressed value and could hurt the Fund’s performance.
Call Risk. During periods of falling interest
rates, an issuer of a callable security held by the Fund may “call” or repay the
security before its stated maturity, and the Fund may have to reinvest the
proceeds in securities with lower yields, which would result in a decline in the
Fund’s income, or in securities with greater risks or with other less favorable
features. CLOs are typically structured such that, after a specified period of
time, the majority investor in the equity tranche can call (i.e., redeem) the
securities issued by the CLO in full. The Fund may not be able to accurately
predict when or which of its CLO investments may be called, resulting in the
Fund having to reinvest the proceeds in unfavorable circumstances, which in turn
could cause in a decline in the Fund’s income.
Extension Risk. During periods of rising interest rates,
certain debt obligations may be paid off substantially more slowly than
originally anticipated and the value of those securities may fall sharply,
resulting in a decline in the Fund’s income and potentially in the value of the
Fund’s investments.
Prepayment Risk. During periods of falling
interest rates, issuers of certain debt obligations may repay principal prior to
the security’s maturity, which may cause the Fund to have to reinvest in
securities with lower yields or higher risk of default, resulting in a decline
in the Fund’s income or return potential. Also, if a security subject to
prepayment had been purchased at a premium, the value of the premium would be
lost in the event of prepayment.
Credit Risk. Credit risk is the risk that the
issuer or guarantor of a debt instrument or the counterparty to a derivatives
contract, repurchase agreement or loan of portfolio securities will be unable or
unwilling to make its timely interest and/or principal payments when due or
otherwise honor its obligations. There are varying degrees of credit risk,
depending on an issuer’s or counterparty’s financial condition and on the terms
of an obligation, which may be reflected in the issuer’s or counterparty’s
credit rating. There is the chance that the Fund’s portfolio holdings will have
their credit ratings downgraded or will default (i.e., fail to make scheduled
interest or principal payments), or that the market’s perception of an issuer’s
creditworthiness may worsen, potentially reducing the Fund’s income level or
share price. For CLOs, the primary source of credit risk is the ability of the
underlying portfolio of loans or bonds to generate sufficient cash flow to pay
investors on a full and timely basis when principal and/or interest payments are
due. Default in payment on the underlying loans or bonds will result in less
cash flow from the underlying portfolio and, in turn, less funds available to
pay investors in the CLO.
Income Risk. The Fund’s income may decline
due to a decline in inflation or deflation. If there is deflation, the principal
value of an inflation-linked security will be adjusted downward, and
consequently the interest payments (calculated with respect to a smaller
principal amount) will be reduced. If inflation is lower than expected during
the period the Fund holds an inflation-linked security, the Fund may earn less
on the security than on a conventional bond.
LIBOR Risk. The Fund may be exposed to
financial instruments that are tied to LIBOR to determine payment obligations,
financing terms, hedging strategies or investment value. The Fund’s investments
may pay interest at floating rates based on LIBOR or may be subject to interest
caps or floors based on LIBOR. The Fund may also obtain financing at floating
rates based on LIBOR. Derivative instruments utilized by the Fund may also
reference LIBOR.
LIBOR Replacement Risk. As part of the
phase‑out of the use of LIBOR, the rate’s administrator, IBA, discontinued two
USD LIBOR settings immediately after publication on December 31, 2021. The
FCA, which regulates LIBOR, and
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IBA
previously announced that a majority of USD LIBOR settings will no longer be
published after June 30, 2023. While the FCA is requiring the IBA to
publish certain LIBOR settings, potentially to include USD settings, on a
“synthetic” basis, the “synthetic” methodology is not based on panel bank
contributions and is not intended to be representative of the interest rates in
the underlying market. The Fund may have investments linked to other interbank
offered rates, such as the EONIA, which may also cease to be published. Various
financial industry groups continue planning for the transition away from LIBOR,
but there are challenges to converting certain securities and transactions to a
new reference rate, such as the SOFR, which is intended to replace USD LIBOR.
For example, at times, SOFR has proven to be more volatile than the 3‑month USD
LIBOR. Working groups and regulators in other countries have suggested other
alternatives for their markets, including the SONIA in England.
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, and reduce the effectiveness of new hedges placed against,
instruments whose terms currently include LIBOR. 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 NAV.
Asset Class Risk. The securities and other
assets in the Fund’s portfolio may underperform in comparison to other
securities or indexes that track other countries, groups of countries, regions,
industries, groups of industries, markets, market segments, asset classes or
sectors. Various types of securities, currencies and indexes may experience
cycles of outperformance and underperformance in comparison to the general
financial markets depending upon a number of factors including, among other
things, inflation, interest rates, productivity, global demand for local
products or resources, and regulation and governmental controls. This may cause
the Fund to underperform other investment vehicles that invest in different
asset classes.
Assets Under Management (AUM) Risk. From time
to time, an Authorized Participant, a third-party investor, the Fund’s adviser
or an affiliate of the Fund’s adviser, or the Fund may invest in the Fund and
hold its investment for a specific period of time in order to facilitate
commencement of the Fund’s operations or to allow the Fund to achieve size or
scale. There can be no assurance that any such entity would not redeem its
investment or that the size of the Fund would be maintained at such levels,
which could negatively impact the Fund.
Authorized Participant Concentration Risk. Only
an Authorized Participant may engage in creation or redemption transactions
directly with the Fund, and none of those Authorized Participants is obligated
to engage in creation and/or redemption transactions. The Fund has a limited
number of institutions that may act as Authorized Participants on an agency
basis (i.e., on behalf of other market participants). To the extent that
Authorized Participants exit the business or are unable to proceed with creation
or redemption orders with respect to the Fund and no other Authorized
Participant is able to step forward to create or redeem Creation Units, Fund
shares may be more likely to trade at a premium or discount to NAV and possibly
face trading halts or delisting. Authorized Participant concentration risk may
be heightened because ETFs, such as the Fund, that invest in securities issued
by non‑U.S. issuers or other securities or instruments that are less widely
traded often involve greater settlement and operational issues and capital costs
for Authorized Participants, which may limit the availability of Authorized
Participants.
Concentration Risk. The Fund may be
susceptible to an increased risk of loss, including losses due to adverse events
that affect the Fund’s investments more than the market as a whole, to the
extent that the Fund’s investments are concentrated in the securities and/or
other assets of a particular issuer or issuers, country, group of countries,
region, market, industry, group of industries, sector, market segment or asset class. The Fund may be more adversely
affected by the underperformance of those securities and/or other assets, may
experience increased price volatility and may be more susceptible to adverse
economic, market, political or regulatory occurrences affecting those securities
and/or other assets than a fund that does not concentrate its investments.
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Cybersecurity Risk. The Fund, Authorized Participants,
service providers and the relevant listing exchange are susceptible to
operational, information security and related “cyber” risks both directly and
through their service providers. Similar types of cybersecurity risks are also
present for issuers of securities in which the Fund invests, which could result
in material adverse consequences for such issuers and may cause the Fund’s
investment in such issuers to lose value. In general, cyber incidents can result
from deliberate attacks or unintentional events. Cyber incidents include, but
are not limited to, gaining unauthorized access to digital systems (e.g., through “hacking” or malicious software
coding) for purposes of misappropriating assets or sensitive information,
corrupting data, or causing operational disruption. Cyberattacks may also be
carried out in a manner that does not require gaining unauthorized access, such
as causing denial‑of‑service attacks on websites (i.e., efforts to make network services
unavailable to intended users). Recently, geopolitical tensions may have
increased the scale and sophistication of deliberate attacks, particularly those
from nation-states or from entities with nation-state backing.
Cybersecurity
failures by, or breaches of, the systems of the Fund’s adviser, distributor and
other service providers (including, but not limited to, index and benchmark
providers, fund accountants, custodians, transfer agents and administrators),
market makers, Authorized Participants or the issuers of securities in which the
Fund invests have the ability to cause disruptions and impact business
operations, potentially resulting in: financial losses, interference with the
Fund’s ability to calculate its NAV, disclosure of confidential trading
information, impediments to trading, submission of erroneous trades or erroneous
creation or redemption orders, the inability of the Fund or its service
providers to transact business, violations of applicable privacy and other laws,
regulatory fines, penalties, reputational damage, reimbursement or other
compensation costs, or additional compliance costs. In addition, cyberattacks
may render records of Fund assets and transactions, shareholder ownership of
Fund shares, and other data integral to the functioning of the Fund
inaccessible, inaccurate or incomplete. Substantial costs may be incurred by the
Fund in order to resolve or prevent cyber incidents in the future. While the
Fund has established business continuity plans in the event of, and risk
management systems to prevent, such cyber incidents, there are inherent
limitations in such plans and systems, including the possibility that certain
risks have not been identified, that prevention and remediation efforts will not
be successful or that cyberattacks will go undetected. Furthermore, the Fund
cannot control the cybersecurity plans and systems put in place by service
providers to the Fund, issuers in which the Fund invests, market makers or
Authorized Participants. The Fund and its shareholders could be negatively
impacted as a result.
Floating Rate Securities Risk.
Securities with floating or variable interest rates can be less sensitive to
interest rate changes than securities with fixed interest rates, but may decline
in value if their interest rates do not rise as much, or as quickly, as interest
rates in general. Conversely, floating rate securities will not generally
increase in value if interest rates decline. A decline in interest rates may
result in a reduction in income received from floating rate securities held by
the Fund and may adversely affect the value of the Fund’s shares. Generally,
floating rate securities carry lower yields than fixed securities of the same
maturity. The interest rate for a floating rate security resets or adjusts
periodically by reference to a benchmark interest rate. The impact of interest
rate changes on floating rate investments is typically mitigated by the periodic
interest rate reset of the investments. Securities with longer durations tend to
be more sensitive to interest rate changes, usually making them more volatile
than securities with shorter durations. Floating rate securities generally are
subject to legal or contractual restrictions on resale, may trade infrequently,
and their value may be impaired when the Fund needs to liquidate such loans.
Benchmark interest rates, such as LIBOR, may not accurately track market
interest rates.
Although
floating rate notes are less sensitive to interest rate risk than fixed rate
securities, they are subject to credit risk and default risk, which could impair
their value.
High Portfolio Turnover Risk. The Fund may engage in active and
frequent trading of its portfolio securities or other assets. High portfolio
turnover (considered by the Fund to mean higher than 100% annually) may
result in increased transaction costs to the Fund, including brokerage
commissions, dealer mark‑ups and other transaction costs on the sale of the
securities and on reinvestment in other securities. Given the frequency of
sales, in any given year, all or a substantial portion of such gain or loss may
be short-term capital gain or loss and, in the event of either net short-term or
long-term realized gain, would increase an investor’s tax liability unless
shares are held through a tax‑deferred or exempt vehicle. These effects of
higher than normal portfolio turnover may adversely affect
Fund performance.
Illiquid Investments Risk. The Fund may not
acquire any illiquid investment if, immediately after the acquisition, the Fund
would have invested more than 15% of its net assets in illiquid investments. An
illiquid investment is any investment that the Fund reasonably expects cannot be
sold or disposed of in current market conditions in seven calendar days or less
without significantly changing the market value of the investment. Liquid
investments may become illiquid after purchase by the Fund, particularly during
periods of market turmoil. There can be no assurance
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that
a security or instrument that is deemed to be liquid when purchased will
continue to be liquid for as long as it is held by the Fund, and any security or
instrument held by the Fund may be deemed an illiquid investment pursuant to the
Fund’s liquidity risk management program. To the extent the Fund holds illiquid
investments, the illiquid investments may reduce the returns of the Fund because
the Fund may be unable to transact at advantageous times or prices. An
investment may be illiquid due to, among other things, the reduced number and
capacity of traditional market participants to make a market in securities or
instruments or the lack of an active market for such securities or instruments.
To the extent that the Fund invests in securities or instruments with
substantial market and/or credit risk, the Fund will tend to have increased
exposure to the risks associated with illiquid investments. Illiquid investments
may be harder to value, especially in changing markets. If the Fund is forced to
sell underlying investments at reduced prices or under unfavorable conditions to
meet redemption requests or for other cash needs, the Fund may suffer a loss.
This may be magnified in a rising interest rate environment or other
circumstances where redemptions from the Fund may be greater than normal. Other
market participants may be attempting to liquidate holdings at the same time as
the Fund, causing increased supply of the Fund’s underlying investments in the
market and contributing to illiquid investments risk and downward pricing
pressure. In addition, if the Fund is limited in its ability to sell illiquid
investments during periods when shareholders are redeeming their shares, the
Fund will need to sell liquid securities to meet redemption requests and
illiquid securities will become a larger portion of the Fund’s holdings. During
periods of market volatility, liquidity in the market for the Fund’s shares may
be impacted by the liquidity in the market for the underlying securities or
instruments held by the Fund, which could lead to the Fund’s shares trading at a
premium or discount to the Fund’s NAV.
Infectious Illness Risk. A widespread outbreak
of an infectious illness, such as the COVID-19 pandemic, may adversely affect
the economies of many nations and the global economy and may impact individual
issuers and capital markets in ways that cannot be foreseen. An infectious
illness outbreak may result in travel restrictions, closed international
borders, disruption of healthcare services, prolonged quarantines,
cancellations, supply chain disruptions, lower consumer demand, temporary and
permanent closures of businesses, layoffs, defaults and other significant
economic, social and political impacts, as well as general concern and
uncertainty.
An
infectious illness outbreak may result in extreme volatility, severe losses,
credit deterioration of issuers, and disruptions in markets, which could
adversely impact the Fund and its investments, including impairing any hedging
activity. Certain local markets may be subject to closures. Any suspension of
trading in markets in which the Fund invests will have an impact on the Fund and
its investments and will impact the Fund’s ability to purchase or sell
securities in such markets. Market or economic disruptions could result in
increased premiums or discounts to the Fund’s NAV. Additionally, an outbreak
could impair the operations of the Fund’s service providers, including BFA,
which could adversely impact the Fund.
Governmental
and quasi-governmental authorities and regulators throughout the world may
respond to an outbreak and any resulting economic disruptions with a variety of
fiscal and monetary policy changes, including direct capital infusions into
companies and other issuers, new monetary policy tools, and changes in interest
rates. A reversal of these policies, or the ineffectiveness of such policies, is
likely to increase market volatility, which could adversely affect the Fund’s
investments. An outbreak may exacerbate other pre-existing political, social and
economic risks in certain countries or globally, which could adversely affect
the Fund and its investments and could result in increased premiums or discounts
to the Fund’s NAV.
Despite
the development of vaccines, the duration of the COVID-19 pandemic and its
effects cannot be predicted with certainty.
Issuer Risk. The performance of the Fund depends on
the performance of individual securities to which the Fund has exposure. The
Fund may be adversely affected if an issuer of underlying securities held by the
Fund is unable or unwilling to repay principal or interest when due. Any issuer
of these securities may perform poorly, causing the value of its securities to
decline. Poor performance may be caused by poor management decisions,
competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings,
fraudulent disclosures, credit deterioration of the issuer or other factors.
Changes to the financial condition or credit rating of an issuer of those
securities may cause the value of the securities to decline. An issuer may also
be subject to risks associated with the countries, states and regions in which
the issuer resides, invests, sells products, or otherwise conducts
operations.
Large Shareholder and Large-Scale Redemption
Risk. Certain shareholders,
including an Authorized Participant, a third-party investor, the Fund’s adviser
or an affiliate of the Fund’s adviser, a market maker, or another entity,
may
14
from
time to time own or manage a substantial amount of Fund shares or may invest in
the Fund and hold their investment for a limited period of time. 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 can be no assurance that any large shareholder or large group of
shareholders would not redeem their investment or that the size of the Fund
would be maintained. Redemptions of a large number of Fund shares by these
shareholders may adversely affect the Fund’s liquidity and net assets. Because
the Fund generally redeems Creation Units solely for cash, these redemptions may
force the Fund to sell portfolio securities when it might not otherwise do so,
which may negatively impact the Fund’s NAV, have a material effect on the market
price of the shares and increase the Fund’s brokerage costs and/or accelerate
the realization of taxable income and/or gains and cause the Fund to make
taxable distributions to its shareholders earlier than the Fund otherwise would
have. In addition, under certain circumstances, non‑redeeming shareholders may
be treated as receiving a disproportionately large taxable distribution during
or with respect to such tax year. The Fund also may be required to sell its more
liquid Fund investments to meet a large redemption, in which case the Fund’s
remaining assets may be less liquid, more volatile, and more difficult to price.
To the extent these large shareholders transact in shares on the secondary
market, such transactions may account for a large percentage of the trading
volume for the shares of the Fund and may, therefore, have a material upward or
downward effect on the market price of the Fund shares. In addition, large
purchases of Fund shares may adversely affect the Fund’s performance to the
extent that the Fund is delayed in investing new cash and is required to
maintain a larger cash position than it ordinarily would, diluting its
investment returns.
Management Risk. The Fund is subject to management risk,
which is the risk that the investment process, techniques and analyses applied
by BFA will not produce the desired results, and that securities or other
financial instruments selected by BFA may result in returns that are
inconsistent with the Fund’s investment objective. In addition, legislative,
regulatory, or tax developments may affect the investment techniques available
to BFA in connection with managing the Fund and may also adversely affect the
ability of the Fund to achieve its investment objective.
Market Risk. The Fund could lose money over
short periods due to short-term market movements and over longer periods during
more prolonged market downturns. Market risk arises mainly from uncertainty
about future values of financial instruments and volatility in spot prices and
may be influenced by price, currency and interest rate movements. It represents
the potential loss the Fund may suffer through holding financial instruments in
the face of market movements or uncertainty. The value of a security or other
asset may decline due to changes in general market conditions, economic trends
or events that are not specifically related to the issuer of the security or
other asset, or factors that affect a particular issuer or issuers, country,
group of countries, region, market, industry, group of industries, sector or
asset class. Local, regional or global events such as war, acts of terrorism,
the spread of infectious illness or other public health issues, recessions, or
other events could have a significant impact on the Fund and its investments and
could result in increased premiums or discounts to the Fund’s NAV. During a
general market downturn, multiple asset classes may be negatively affected.
Fixed-income securities with short-term maturities are generally less sensitive
to such changes than are fixed-income securities with longer-term
maturities.
Market
Trading Risk
Absence of Active Market. Although shares of
the Fund are listed for trading on one or more stock exchanges, there can be no
assurance that an active trading market for such shares will develop or be
maintained by market makers or Authorized Participants.
Risk of Secondary Listings. The Fund’s shares
may be listed or traded on U.S. and non‑U.S. stock exchanges other than the U.S.
stock exchange where the Fund’s primary listing is maintained, and may otherwise
be made available to non‑U.S. investors through funds or structured investment
vehicles similar to depositary receipts. There can be no assurance that the
Fund’s shares will continue to trade on any such stock exchange or in any market
or that the Fund’s shares will continue to meet the requirements for listing or
trading on any exchange or in any market. The Fund’s shares may be less actively
traded in certain markets than in others, and investors are subject to the
execution and settlement risks and market standards of the market where they or
their broker direct their trades for execution. Certain information available to
investors who trade Fund shares on a U.S. stock exchange during regular U.S.
market hours may not be available to investors who trade in other markets, which
may result in secondary market prices in such markets being less
efficient.
Secondary Market Trading Risk. Shares of the
Fund may trade in the secondary market at times when the Fund does not accept
orders to purchase or redeem shares. At such times, shares may trade in the
secondary market with more
15
significant
premiums or discounts than might be experienced at times when the Fund accepts
purchase and redemption orders. Secondary market trading in Fund shares may be
halted by a stock exchange because of market conditions or for other reasons. In
addition, trading in Fund shares on a stock exchange or in any market may be
subject to trading halts caused by extraordinary market volatility pursuant to
“circuit breaker” rules on the stock exchange or market.
Shares
of the Fund, similar to shares of other issuers listed on a stock exchange, may
be sold short and are therefore subject to the risk of increased volatility and
price decreases associated with being sold short. In addition, trading activity
in derivative products based on the Fund may lead to increased trading volume
and volatility in the secondary market for shares of the Fund.
Shares of the Fund May Trade at Prices Other Than
NAV. Shares of the Fund trade on stock exchanges at prices at, above or
below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end
of each business day and fluctuates with changes in the market value of the
Fund’s holdings. The trading price of the Fund’s shares fluctuates continuously
throughout trading hours based on both market supply of and demand for Fund
shares and the underlying value of the Fund’s portfolio holdings or NAV. As a
result, the trading prices of the Fund’s shares may deviate significantly from
NAV during periods of market volatility, including during periods of significant
redemption requests or other unusual market conditions. Unlike conventional
ETFs, the Fund is not an index fund and does not seek to replicate the
performance of a specified index. Index-based ETFs have generally traded at
prices which closely correspond to NAV. Given the high level of transparency of
the Fund’s holdings, BFA believes that the trading experience of the Fund should
be similar to that of index-based ETFs. However, ETFs that do not seek to
replicate the performance of a specified index have a limited trading history
and, therefore, there can be no assurance as to whether, and/or the extent to
which, the Fund’s shares will trade at premiums or discounts to NAV. ANY OF THESE FACTORS, AMONG OTHERS, MAY LEAD TO THE FUND’S SHARES
TRADING AT A PREMIUM OR DISCOUNT TO NAV. However, because shares can be created
and redeemed in Creation Units at NAV, BFA believes that large discounts or
premiums to the NAV of the Fund are not likely to be sustained over the long
term (unlike shares of many closed‑end funds, which frequently trade at
appreciable discounts from, and sometimes at premiums to, their NAVs). While the
creation/redemption feature is designed to make it more likely that the Fund’s
shares normally will trade on stock exchanges at prices close to the Fund’s next
calculated NAV, exchange prices are not expected to correlate exactly with the
Fund’s NAV due to timing reasons, supply and demand imbalances and other
factors. In addition, disruptions to creations and redemptions, including
disruptions at market makers, Authorized Participants, or other market
participants, and during periods of significant market volatility, may result in
trading prices for shares of the Fund that differ significantly from its NAV.
Authorized Participants may be less willing to create or redeem Fund shares if
there is a lack of an active market for such shares or its underlying
investments, which may contribute to the Fund’s shares trading at a premium or
discount to NAV.
Costs of Buying or Selling Fund Shares. Buying
or selling Fund shares on an exchange involves two types of costs that apply to
all securities transactions. When buying or selling shares of the Fund through a
broker, you will likely incur a brokerage commission and other charges. In
addition, you may incur the cost of the “spread”; that is, the difference
between what investors are willing to pay for Fund shares (the “bid” price) and
the price at which they are willing to sell Fund shares (the “ask” price). The
spread, which varies over time for shares of the Fund based on trading volume
and market liquidity, is generally narrower if the Fund has more trading volume
and market liquidity and wider if the Fund has less trading volume and market
liquidity. In addition, increased market volatility may cause wider spreads.
There may also be regulatory and other changes that are incurred as a result of
trading activity. Because of the costs inherent in buying or selling Fund
shares, frequent trading may detract significantly from investment results and
an investment in Fund shares may not be advisable for investors who anticipate
regularly making small investments through a brokerage account.
Non‑Diversification Risk. The Fund is
classified as “non‑diversified.” This means that, compared with other funds that
are classified as “diversified,” the Fund may invest a greater percentage of its
assets in securities issued by or representing a small number of issuers. As a
result, the Fund may be more susceptible to the risks associated with these
particular issuers or to a single economic, political or regulatory occurrence
affecting these issuers.
Operational Risk. The Fund is exposed to operational risks
arising from a number of factors, including, but not limited to, human error,
processing and communication errors, errors of the Fund’s service providers,
counterparties or other third parties, failed or inadequate processes and
technology or systems failures. The Fund and BFA seek to reduce these
operational risks through controls and procedures. However, these measures do
not address every possible risk and may be inadequate to address significant
operational risks.
16
Risk of Investing in the U.S. A decrease
in imports or exports, changes in trade regulations, inflation and/or an
economic recession in the U.S. may have a material adverse effect on the U.S.
economy and the securities listed on U.S. exchanges. Proposed and adopted policy
and legislative changes in the U.S. are changing many aspects of financial,
commercial, public health, environmental, and other regulation and may have a
significant effect on U.S. markets generally, as well as on the value of certain
securities. Governmental agencies project that the U.S. will continue to
maintain elevated public debt levels for the foreseeable future. Although
elevated debt levels do not necessarily indicate or cause economic problems,
elevated public debt service costs may constrain future economic growth.
The
U.S. has developed increasingly strained relations with a number of foreign
countries. If relations with certain countries deteriorate, it could adversely
affect U.S. issuers as well as non‑U.S. issuers that rely on the U.S. for trade.
The U.S. has also experienced increased internal unrest and discord, as well as
significant challenges in managing and containing the outbreak of COVID‑19. If
these trends were to continue, it may have an adverse impact on the U.S. economy
and the issuers in which the Fund invests.
Small Fund Risk. When the Fund’s size is small,
the Fund may experience low trading volume and wide bid/ask spreads. In
addition, the Fund may face the risk of being delisted if the Fund does not meet
certain conditions of the listing exchange. If the Fund were to be required to
delist from the listing exchange, the value of the Fund may rapidly decline and
performance may be negatively impacted. Any resulting liquidation of the Fund
could cause the Fund to incur elevated transaction costs for the Fund and
negative tax consequences for its shareholders.
Structured Products Risk. Holders of structured
products bear risks of the underlying investments, index or reference obligation
and are subject to counterparty risk. The Fund may have the right to receive
payments only from the structured product, and generally does not have direct
rights against the issuer or the entity that sold the assets to be securitized.
Certain structured products may be thinly traded or have a limited trading
market. In addition to the general risks associated with debt securities
discussed herein, 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 notes are based
upon the movement of one or more factors, including currency exchange rates,
interest rates, reference bonds and stock indices, and changes in interest rates
and impact of these factors may cause significant price fluctuations.
Additionally, changes in the reference instrument or security may cause the
interest rate on the structured note to be reduced to zero.
When-Issued and Delayed Delivery Securities and
Forward Commitments Risk. When-issued and delayed delivery securities and
forward commitments 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.
A
Further Discussion of Other Risks
The
Fund may also be subject to certain other risks associated with its investments
and investment strategies.
Borrowing Risk. Borrowing may exaggerate
changes in the NAV of Fund shares and in the return on the Fund’s portfolio.
Borrowing will cost the Fund interest expense and other fees. The costs of
borrowing may reduce the Fund’s return. Borrowing may also cause the Fund to
liquidate positions when it may not be advantageous to do so to satisfy its
obligations.
Expense Risk. Fund expenses are subject to a
variety of factors, including fluctuations in the Fund’s net assets.
Accordingly, actual expenses may be greater or less than those indicated. For
example, to the extent that the Fund’s net assets decrease due to market
declines or redemptions, the Fund’s expenses will increase as a percentage of
Fund net assets. During periods of high market volatility, these increases in
the Fund’s expense ratio could be significant.
Investment in Other Investment Companies Risk.
As with other investments, investments in other investment companies, including
ETFs, are subject to market and selection risk. In addition, if the Fund
acquires shares of investment companies, including ones affiliated with the
Fund, shareholders bear both their proportionate share of
17
expenses
in the Fund (including management and advisory fees) and, indirectly, the
expenses of the investment companies (to the extent not offset by BFA through
waivers). To the extent the Fund is held by an affiliated fund, the ability of
the Fund itself to hold other investment companies may be limited.
Repurchase Agreement Risk. A repurchase
agreement is an instrument under which the purchaser (i.e., the Fund) acquires a
security and the seller agrees, at the time of the sale, to repurchase the
security at a mutually agreed upon time and price. Repurchase agreements may be
construed to be collateralized loans by the purchaser to the seller secured by
the securities transferred to the purchaser. If a repurchase agreement is
construed to be a collateralized loan, the underlying securities will not be
considered to be owned by the Fund but only to constitute collateral for the
seller’s obligation to pay the repurchase price. If the seller defaults on its
obligation under the agreement, the Fund may suffer delays and incur costs or
lose money in exercising its rights under the agreement. If the seller fails to
repurchase the security and the market value of the security declines, the Fund
may lose money.
Securities Lending Risk. The Fund may
engage in securities lending. Securities lending involves the risk that the Fund
may lose money because the borrower of the loaned securities fails to return the
securities in a timely manner or at all. The Fund could also lose money in the
event of a decline in the value of collateral provided for loaned securities or
a decline in the value of any investments made with cash collateral. These
events could also trigger adverse tax consequences for the Fund.
Short Sales Risk.
Because making short sales in securities that it does not own exposes the Fund
to the risks associated with those securities, such short sales involve
speculative exposure risk. The Fund will incur a loss as a result of a short
sale if the price of the security increases between the date of the short sale
and the date on which the Fund replaces the security sold short. The Fund will
realize a gain if the security declines in price between those dates. As a
result, if the Fund makes short sales in securities that increase in value, it
will likely underperform similar funds that do not make short sales in
securities they do not own. There can be no assurance that the Fund will be able
to close out a short sale position at any particular time or at an acceptable
price. Although the Fund’s gain is limited to the amount at which it sold a
security short, its potential loss is limited only by the maximum attainable
price of the security, less the price at which the security was sold. The Fund
may also pay transaction costs and borrowing fees in connection with short
sales.
Valuation Risk. The price the Fund could
receive upon the sale of a security or other asset may differ from the Fund’s
valuation of the security or other asset, particularly for securities or other
assets that trade in low volume or volatile markets or that are valued using a
fair value methodology as a result of trade suspensions or for other reasons.
Because non‑U.S. exchanges may be open on days when the Fund does not price its
shares, the value of the securities or other assets in the Fund’s portfolio may
change on days or during time periods when shareholders will not be able to
purchase or sell the Fund’s shares. Authorized Participants who purchase or
redeem Fund shares on days when the Fund is holding fair-valued securities may
receive fewer or more shares, or lower or higher redemption proceeds, than they
would have received had the Fund not fair-valued securities or used a different
valuation methodology. The Fund’s ability to value investments may be impacted
by technological issues or errors by pricing services or other third-party
service providers.
Portfolio
Holdings Information
A
description of the Trust’s policies and procedures with respect to the di
sclosure of the Fund’s portfolio securities is available in the Fund’s Statement
of Additional Information (“SAI”). The Fund discloses its portfolio holdings
daily at www.blackrock.com. Fund fact sheets provide information regarding the
Fund’s top holdings and may be requested by calling 1‑800‑474‑2737.
Management
Investment Adviser. As investment adviser, BFA
has overall responsibility for the general management and administration of the
Fund. BFA provides an investment program for the Fund and manages the investment
of the Fund’s assets. In managing the Fund, BFA may draw upon the trading,
research and expertise of its asset management affiliates for portfolio
decisions and management with respect to portfolio securities. In seeking to
achieve the Fund’s investment objective, BFA uses a team of portfolio managers,
investment strategists and other investment specialists. This team approach
brings together many disciplines and leverages BFA’s extensive resources.
18
Pursuant
to the Investment Advisory Agreement between BFA and the Trust (entered into on
behalf of the Fund), BFA is responsible for substantially all expenses of the
Fund, except the management fees, interest expenses, taxes, expenses incurred
with respect to the acquisition and disposition of portfolio securities and the
execution of portfolio transactions, including brokerage commissions,
distribution fees or expenses, litigation expenses and any extraordinary
expenses (as determined by a majority of the Trustees who are not “interested
persons” of the Trust).
For
its investment advisory services to the Fund, BFA will be paid a management fee
from the Fund, based on a percentage of the Fund’s average daily net assets, at
an annual rate of 0.20%.
BFA
has contractually agreed to waive a portion of its management fees in an amount
equal to the aggregate Acquired Fund Fees and Expenses, if any, attributable to
investments by the Fund in other equity and fixed-income mutual funds and ETFs
advised by BFA or its affiliates through June 30, 2024. BFA has also
contractually agreed to waive a portion of its management fees by an amount
equal to the aggregate Acquired Fund Fees and Expenses, if any, attributable to
investments by the Fund in money market funds advised by BFA or its affiliates
through June 30, 2024. The agreement (with respect to either waiver) may be
terminated upon 90 days’ notice by a majority of the non-interested trustees of
the Trust or by a vote of a majority of the outstanding voting securities of the
Fund.
BFA
may from time to time voluntarily waive and/or reimburse fees or expenses in
order to limit total annual fund operating expenses (excluding Acquired Fund
Fees and Expenses, if any). Any such voluntary waiver or reimbursement may be
eliminated by BFA at any time.
BFA
is located at 400 Howard Street, San Francisco, CA 94105. It is an indirect
wholly-owned subsidiary of BlackRock, Inc. (“BlackRock”). As of
September 30, 2022, BFA and its affiliates provided investment advisory
services for assets in excess of $7.961 trillion. BFA and its affiliates trade
and invest for their own accounts in the actual securities and types of
securities in which the Fund may also invest, which may affect the price of such
securities.
A
discussion regarding the basis for the approval by the Board of the Investment
Advisory Agreement with BFA will be available in the Fund’s semi-annual report
for the period ending January 31, 2023.
From
time to time, a manager, analyst, or other employee of BlackRock or its
affiliates may express views regarding a particular asset class, company,
security, industry, or market sector. The views expressed by any such person are
the views of only that individual as of the time expressed and do not
necessarily represent the views of BlackRock or any other person within the
BlackRock organization. Any such views are subject to change at any time based
upon market or other conditions and BlackRock disclaims any responsibility to
update such views. These views may not be relied on as investment advice and,
because investment decisions for the Fund are based on numerous factors, may not
be relied on as an indication of trading intent on behalf of the Fund.
Portfolio Managers. Owen Butler, Peter Hirsh
and Nidhi Patel (the “Portfolio Managers”) are jointly and primarily responsible
for the day‑to‑day management of the Fund. Mr. Butler has been employed by BFA
or its affiliates as a portfolio manager since 2012. Mr. Hirsh has been employed
by BFA or its affiliates as a portfolio manager since 2015. Ms. Patel has been
employed by BFA or its affiliates as a portfolio manager since 2016. Messrs.
Butler and Hirsh and Ms. Patel have been Portfolio Managers of the Fund
since 2022.
The
Fund’s SAI provides additional information about the Portfolio Managers’
compensation, other accounts managed by the Portfolio Managers and the Portfolio
Managers’ ownership (if any) of shares in the Fund.
Administrator, Custodian and Transfer Agent.
State Street Bank and Trust Company (“State Street”) is the administrator,
custodian and transfer agent for the Fund.
Conflicts of Interest. The investment
activities of BFA and its affiliates (including BlackRock and its subsidiaries
(collectively, the “Affiliates”)), and their respective directors, officers or
employees, in the management of, or their interest in, their own accounts and
other accounts they manage, may present conflicts of interest that could
disadvantage the Fund and its shareholders. BFA and its Affiliates provide
investment management services to other funds and discretionary managed accounts
that may follow investment programs similar to that of the Fund. BFA and its
Affiliates are involved worldwide with a broad spectrum of financial services
and asset management activities and may engage in the ordinary course of
business in activities in which their interests or the interests of their
clients may conflict with those of the Fund. BFA or one or more Affiliates
act, or may act, as an investor, research provider,
19
investment
manager, commodity pool operator, commodity trading advisor, financier,
underwriter, adviser, trader, lender, index provider, agent and/or principal,
and have other direct and indirect interests in securities, currencies,
commodities, derivatives and other instruments in which the Fund may directly or
indirectly invest. The Fund may invest in securities of, or engage in other
transactions with, companies with which an Affiliate has significant debt or
equity investments or other interests. The Fund may also invest in issuances
(such as structured notes) by entities for which an Affiliate provides and is
compensated for cash management services relating to the proceeds from the sale
of such issuances. The Fund also may invest in securities of, or engage in other
transactions with, companies for which an Affiliate provides or may in the
future provide research coverage. An Affiliate may have business relationships
with, and purchase or distribute or sell services or products from or to,
distributors, consultants or others who recommend the Fund or who engage in
transactions with or for the Fund, and may receive compensation for such
services. BFA or one or more Affiliates may engage in proprietary trading and
advise accounts and funds that have investment objectives similar to those of
the Fund and/or that engage in and compete for transactions in the same types of
securities, currencies and other instruments as the Fund. This may include
transactions in securities issued by other open‑end and closed‑end investment
companies (which may include investment companies that are affiliated with the
Fund and BFA, to the extent permitted under the 1940 Act. The trading activities
of BFA and these Affiliates are carried out without reference to positions held
directly or indirectly by the Fund and may result in BFA or an Affiliate having
positions in certain securities that are senior or junior to, or have interests
different from or adverse to, the securities that are owned by the Fund.
Neither
BlackRock nor any Affiliate is under any obligation to share any investment
opportunity, idea or strategy with the Fund. As a result, an Affiliate may
compete with the Fund for appropriate investment opportunities. The results of
the Fund’s investment activities, therefore, may differ from those of an
Affiliate and of other accounts managed by BlackRock or an Affiliate, and it is
possible that the Fund could sustain losses during periods in which one or more
Affiliates and other accounts achieve profits on their trading for proprietary
or other accounts. The opposite result is also possible.
In
addition, the Fund may, from time to time, enter into transactions in which BFA
or an Affiliate or its or their
directors, officers or employees or other clients have an adverse interest.
Furthermore, transactions undertaken by clients advised or managed by BFA or its
Affiliates may adversely impact the Fund. Transactions by one or more clients or
by BFA or its Affiliates or their directors, officers or employees, may have the
effect of diluting or otherwise disadvantaging the values, prices or investment
strategies of the Fund.
The
Fund’s activities may be limited because of regulatory restrictions applicable
to BFA or one or more Affiliates and/or their internal policies designed to
comply with such restrictions.
Under
a securities lending program approved by the Board, the Fund has retained
BlackRock Institutional Trust Company, N.A., an Affiliate of BFA, to serve as
the securities lending agent for the Fund to the extent that the Fund
participates in the securities lending program. For these services, the
securities lending agent will receive a fee from the Fund, including a fee based
on the returns earned on the Fund’s investment of the cash received as
collateral for the loaned securities. In addition, one or more Affiliates may be
among the entities to which the Fund may lend its portfolio securities under the
securities lending program.
It
is also possible that, from time to time, BFA and/or its advisory clients
(including other funds and separately managed accounts) may, subject to
compliance with applicable law, purchase and hold shares of the Fund. The price,
availability, liquidity, and (in some cases) expense ratio of the Fund may be
impacted by purchases and sales of the Fund by BFA and/or its advisory
clients.
The
activities of BFA and its Affiliates and their respective directors, officers or
employees, may give rise to other conflicts of interest that could disadvantage
the Fund and its shareholders. BFA has adopted policies and procedures designed
to address these potential conflicts of interest. See the SAI for further
information.
Shareholder
Information
Additional shareholder information, including how to
buy and sell shares of the Fund, is available free of charge by calling
toll-free: 1‑800‑474‑2737 or visiting our website at www.blackrock.com.
Buying and Selling Shares. Shares of the Fund
may be acquired or redeemed directly from the Fund only in Creation Units or
multiples thereof, as discussed in the Creations and Redemptions section of this
Prospectus. Only
20
an
Authorized Participant may engage in creation or redemption transactions
directly with the Fund. Once created, shares of the Fund generally trade in the
secondary market in amounts less than a Creation Unit.
Shares
of the Fund are listed on a national securities exchange for trading during the
trading day. Shares can be bought and sold throughout the trading day like
shares of other publicly-traded companies. The Trust does not impose any minimum
investment for shares of the Fund purchased on an exchange or otherwise in the
secondary market. The Fund’s shares trade under the ticker symbol “CLOA.”
Buying
or selling Fund shares on an exchange or other secondary market involves two
types of costs that may apply to all securities transactions. When buying or
selling shares of the Fund through a broker, you may incur a brokerage
commission and other charges. The commission is frequently a fixed amount and
may be a significant proportional cost for investors seeking to buy or sell
small amounts of shares. In addition, you may incur the cost of the “spread,”
that is, any difference between the bid price and the ask price. The spread
varies over time for shares of the Fund based on the Fund’s trading volume and
market liquidity, and is generally lower if the Fund has high trading volume and
market liquidity, and higher if the Fund has little trading volume and market
liquidity (which is often the case for funds that are newly launched or small in
size). The Fund’s spread may also be impacted by the liquidity or illiquidity of
the underlying securities held by the Fund, particularly for newly launched or
smaller funds or in instances of significant volatility of the underlying
securities.
The
Board has adopted a policy of not monitoring for frequent purchases and
redemptions of Fund shares (“frequent trading”) that appear to attempt to take
advantage of a potential arbitrage opportunity presented by a lag between a
change in the value of the Fund’s portfolio securities after the close of the
primary markets for the Fund’s portfolio securities and the reflection of that
change in the Fund’s NAV (“market timing”), because the Fund sells and redeems
its shares directly through transactions that are in‑kind and/or for cash,
subject to the conditions described below under Creations and Redemptions. The Board has not
adopted a policy of monitoring for other frequent trading activity because
shares of the Fund are listed for trading on a national securities
exchange.
The
national securities exchange on which the Fund’s shares are listed is open for
trading Monday through Friday and is closed on weekends and the following
holidays (or the days on which they are observed): New Year’s Day, Martin Luther
King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Juneteenth,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The Fund’s
listing exchange is the NASDAQ Stock Market (the “NASDAQ”).
Section
12(d)(1) of the 1940 Act generally restricts investments by investment
companies, including foreign and unregistered investment companies, in the
securities of other investment companies. For example, a registered investment
company (the “Acquired Fund”), such as the Fund, may not knowingly sell or
otherwise dispose of any security issued by the Acquired Fund to any investment
company (the “Acquiring Fund”) or any company or companies controlled by the
Acquiring Fund if, immediately after such sale or disposition: (i) more than 3%
of the total outstanding voting stock of the Acquired Fund is owned by the
Acquiring Fund and any company or companies controlled by the Acquiring Fund, or
(ii) more than 10% of the total outstanding voting stock of the Acquired Fund is
owned by the Acquiring Fund and other investment companies and companies
controlled by them. However, registered investment companies are permitted to
invest in the Fund beyond the limits set forth in Section 12(d)(1), subject to
certain terms and conditions set forth in SEC rules. In order for a registered
investment company to invest in shares of the Fund beyond the limitations of
Section 12(d)(1) in reliance on Rule 12d1-4 under the 1940 Act, the registered
investment company must, among other things, enter into an agreement with the
Trust. Foreign investment companies are permitted to invest in the Fund only up
to the limits set forth in Section 12(d)(1), subject to any applicable SEC
no-action relief.
Book Entry. Shares of the Fund are held in
book-entry form, which means that no stock certificates are issued. The
Depository Trust Company (“DTC”) or its nominee is the record owner of, and
holds legal title to, all outstanding shares of the Fund.
Investors
owning shares of the Fund are beneficial owners as shown on the records of DTC
or its participants. DTC serves as the securities depository for shares of the
Fund. DTC participants include securities brokers and dealers, banks, trust
companies, clearing corporations and other institutions that directly or
indirectly maintain a custodial relationship with DTC. As a beneficial owner of
shares, you are not entitled to receive physical delivery of stock certificates
or to have shares registered in your name, and you are not considered a
registered owner of shares. Therefore, to exercise any right as an owner of
shares, you must rely upon the procedures of DTC and its participants. These
procedures are the same as those that apply to any other securities that you
hold in book-entry or “street name” form.
21
Share Prices. The trading prices of the Fund’s
shares in the secondary market generally differ from the Fund’s daily NAV and
are affected by market forces such as the supply of and demand for ETF shares
and underlying securities held by the Fund, economic conditions and other
factors.
Determination of Net Asset Value. The NAV of
the Fund normally is determined once daily Monday through Friday, generally as
of the close of regular trading hours of the New York Stock Exchange (“NYSE”)
(normally 4:00 p.m., Eastern time) on each day that the NYSE is open for
trading, based on prices at the time of closing, provided that (i) any Fund
assets or liabilities denominated in currencies other than the U.S. dollar are
translated into U.S. dollars at the prevailing market rates on the date of
valuation as quoted by one or more data service providers and (ii) U.S.
fixed-income assets may be valued as of the announced closing time for trading
in fixed-income instruments in a particular market or exchange. The NAV of the
Fund is calculated by dividing the value of the net assets of the Fund (i.e.,
the value of its total assets less total liabilities) by the total number of
outstanding shares of the Fund, generally rounded to the nearest cent.
The
value of the securities and other assets and liabilities held by the Fund are
determined pursuant to BFA’s valuation policies and procedures. BFA has been
designated by the Board as the valuation designee for the Fund pursuant to Rule
2a‑5 under the Investment Company Act.
The
Fund values fixed-income portfolio securities using last available bid prices or
current market quotations provided by dealers or prices (including evaluated
prices) supplied by the Fund’s approved independent third-party pricing
services, each in accordance with BFA’s valuation policies and procedures.
Pricing services may use matrix pricing or valuation models that utilize certain
inputs and assumptions to derive values. Pricing services generally value
fixed-income securities assuming orderly transactions of an institutional round
lot size, but the Fund may hold or transact in such securities in smaller odd
lot sizes. Odd lots often trade at lower prices than institutional round lots.
An amortized cost method of valuation may be used with respect to debt
obligations with sixty days or less remaining to maturity unless BFA determines
in good faith that such method does not represent fair value.
Generally,
trading in non‑U.S. securities, U.S. government securities, money market
instruments and certain fixed-income securities is substantially completed each
day at various times prior to the close of regular trading hours on the NYSE.
The values of such securities used in computing the NAV of the Fund are
determined as of such times.
When
market quotations are not readily available or are believed by BFA to be
unreliable, BFA will fair value the Fund’s investments in accordance with its
policies and procedures. BFA may conclude that a market quotation is not readily
available or is unreliable if a security or other asset or liability does not
have a price source due to its lack of trading or other reasons, if a market
quotation differs significantly from recent price quotations or otherwise no
longer appears to reflect fair value, where the security or other asset or
liability is thinly traded, when there is a significant event subsequent to the
most recent market quotation, or if the trading market on which a security is
listed is suspended or closed and no appropriate alternative trading market is
available. A “significant event” is deemed to occur if BFA determines, in its
reasonable business judgment prior to or at the time of pricing the Fund’s
assets or liabilities, that the event is likely to cause a material change to
the last exchange closing price or closing market price of one or more assets
held by, or liabilities of, the Fund.
Fair
value represents a good faith approximation of the value of an asset or
liability. The fair value of an asset or liability held by the Fund is the
amount the Fund might reasonably expect to receive from the current sale of that
asset or the cost to extinguish that liability in an arm’s‑length transaction.
Valuing the Fund’s investments using fair value pricing will result in prices
that may differ from current market valuations and that may not be the prices at
which those investments could have been sold during the period in which the
particular fair values were used.
Dividends
and Distributions
General Policies. Dividends from net
investment income, if any, generally are declared and paid monthly by the Fund.
Distributions of net realized securities gains, if any, generally are declared
and paid once a year, but the Trust may make distributions on a more frequent
basis for the Fund. The Trust reserves the right to declare special
distributions if, in its reasonable discretion, such action is necessary or
advisable to preserve its status as a regulated investment company or to avoid
imposition of income or excise taxes on undistributed income or realized
gains.
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.
22
Dividend Reinvestment Service. No dividend
reinvestment service is provided by the Trust. 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.
Taxes. As with any investment, you should
consider how your investment in shares of the Fund will be taxed. The tax
information in this Prospectus is provided as general information, based on
current law. There is no guarantee that shares of the Fund will receive certain
regulatory or accounting treatment. You should consult your own tax professional
about the tax consequences of an investment in shares of the Fund.
Unless
your investment in Fund shares is made through a tax‑exempt entity or
tax‑deferred retirement account, such as an IRA, in which case your
distributions generally will be taxable when withdrawn, you need to be aware of
the possible tax consequences when the Fund makes distributions or you sell Fund
shares.
Taxes on Distributions. Distributions from the
Fund’s net investment income, including distributions of income from securities
lending and distributions out of the Fund’s net short-term capital gains, if
any, are taxable to you as ordinary income. The Fund’s distributions of net
long-term capital gains, if any, in excess of net short-term capital losses are
taxable as long-term capital gains, regardless of how long you have held the
shares. Long-term capital gains are eligible for taxation at a maximum rate of
15% or 20% for non‑corporate shareholders, depending on whether their income
exceeds certain threshold amounts. Distributions from the Fund are subject to a
3.8% U.S. federal Medicare contribution tax on “net investment income,” for
individuals with incomes exceeding $200,000 ($250,000 if married and filing
jointly) and of estates and trusts. In general, your distributions are subject
to U.S. federal income tax for the year when they are paid. Certain
distributions paid in January, however, may be treated as paid on
December 31 of the prior year.
You
may lose the ability to use foreign tax credits passed through by the Fund if
your Fund shares are loaned out pursuant to a securities lending
agreement.
If
the Fund’s distributions exceed current and accumulated earnings and profits,
all or a portion of the distributions made in the taxable year may be
recharacterized as a return of capital to shareholders. Distributions in excess
of the Fund’s minimum distribution requirements, but not in excess of the Fund’s
earnings and profits, will be taxable to shareholders and will not constitute
nontaxable returns of capital. A return of capital distribution generally will
not be taxable but will reduce the shareholder’s cost basis and will result in a
higher capital gain or lower capital loss when those shares on which the
distribution was received are sold. Once a shareholder’s cost basis is reduced
to zero, further distributions will be treated as capital gain, if the
shareholder holds shares of the Fund as capital assets.
Dividends,
interest and capital gains earned by the Fund with respect to securities issued
by non‑U.S. issuers may give rise to withholding, capital gains and other taxes
imposed by non‑U.S. countries. Tax conventions between certain countries and the
U.S. may reduce or eliminate such taxes. If more than 50% of the total assets of
the Fund at the close of a year consists of non‑U.S. stocks or securities
(generally, for this purpose, depositary receipts, no matter where traded, of
non‑U.S. companies are treated as “non‑U.S.”), generally the Fund may “pass
through” to you certain non‑U.S. income taxes (including withholding taxes) paid
by the Fund. This means that you would be considered to have received as an
additional dividend your share of such non‑U.S. taxes, but you may be entitled
to either a corresponding tax deduction in calculating your taxable income, or,
subject to certain limitations, a credit in calculating your U.S. federal income
tax.
For
purposes of foreign tax credits for U.S. shareholders of the Fund, foreign
capital gains taxes may not produce associated foreign source income, limiting
the availability of such credits for U.S. persons.
If
you are neither a resident nor a citizen of the U.S. or if you are a non‑U.S.
entity (other than a pass-through entity to the extent owned by U.S. persons),
the Fund’s ordinary income dividends (which include distributions of net
short-term capital gains) will generally be subject to a 30% U.S. withholding
tax, unless a lower treaty rate applies, provided that withholding tax will
generally not apply to any gain or income realized by a non‑U.S. shareholder in
respect of any distributions of net tax‑exempt income or long-term capital gains
or upon the sale or other disposition of shares of the Fund.
23
Separately,
a 30% withholding tax is currently imposed on U.S.-source dividends, interest
and other income items paid to (i) foreign financial institutions,
including non‑U.S. investment funds, unless they agree to collect and disclose
to the IRS information regarding their direct and indirect U.S. account holders
and (ii) certain other foreign entities, unless they certify certain
information regarding their direct and indirect U.S. owners. To avoid
withholding, foreign financial institutions will need to (i) enter into
agreements with the IRS that state that they will provide the IRS information,
including the names, addresses and taxpayer identification numbers of direct and
indirect U.S. account holders, comply with due diligence procedures with respect
to the identification of U.S. accounts, report to the IRS certain information
with respect to U.S. accounts maintained, agree to withhold tax on certain
payments made to non‑compliant foreign financial institutions or to account
holders who fail to provide the required information, and determine certain
other information concerning their account holders, or (ii) in the event
that an applicable intergovernmental agreement and implementing legislation are
adopted, provide local revenue authorities with similar account holder
information. Other foreign entities may need to report the name, address, and
taxpayer identification number of each substantial U.S. owner or provide
certifications of no substantial U.S. ownership unless certain exceptions
apply.
If
you are a resident or a citizen of the U.S., by law, backup withholding at a 24%
rate will apply to your distributions and proceeds if you have not provided a
taxpayer identification number or social security number and made other required
certifications.
Taxes When Shares are Sold. Currently, any
capital gain or loss realized upon a sale of Fund shares is generally treated as
a long-term gain or loss if the shares have been held for more than one year.
Any capital gain or loss realized upon a sale of Fund shares held for one year
or less is generally treated as short-term gain or loss, except that any capital
loss on the sale of shares held for six months or less is treated as long-term
capital loss to the extent that capital gain dividends were paid with respect to
such shares. Any such capital gains, including from sales of Fund shares or from
capital gain dividends, are included in “net investment income” for purposes of
the 3.8% U.S. federal Medicare contribution tax mentioned above.
The foregoing discussion summarizes some of the
consequences under current U.S. federal tax law of an investment in the Fund. It
is not a substitute for personal tax advice. You may also be subject to state
and local taxation on Fund distributions and sales of shares. Consult your
personal tax advisor about the potential tax consequences of an investment in
shares of the Fund under all applicable tax laws.
Creations and Redemptions. Prior to trading in
the secondary market, shares of the Fund are “created” at NAV by market makers,
large investors and institutions only in block‑size Creation Units or multiples
thereof. Each “creator” or authorized participant (an “Authorized Participant”)
has entered into an agreement with the Fund’s distributor, BlackRock
Investments, LLC (the “Distributor”). 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 such member
or participant to place orders for the purchase and redemption of Creation
Units.
These
transactions are usually in exchange for cash.
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 specified amount of cash and/or a designated portfolio of securities
(including any portion of such securities for which cash may be substituted) in
exchange for a specified number of Creation Units. Similarly, shares can be
redeemed only in Creation Units, generally for a specified amount of cash and/or
a designated portfolio of securities (including any portion of such securities
for which cash may be substituted). Except when aggregated in Creation Units,
shares are not redeemable by the Fund. Creation and redemption baskets may
differ and the Fund will accept “custom baskets.” More information regarding
custom baskets is contained in the Fund’s SAI.
The
prices at which creations and redemptions occur are based on the next
calculation of NAV after a creation or redemption order is received in an
acceptable form under the authorized participant agreement.
Only
an Authorized Participant may create or redeem Creation Units with the Fund.
Authorized Participants may create or redeem Creation Units for their own
accounts or for customers, including, without limitation, affiliates of the
Fund.
24
In
the event of a system failure or other interruption, including disruptions at
market makers or Authorized Participants, orders to purchase or redeem Creation
Units either may not be executed according to the Fund’s instructions or may not
be executed at all, or the Fund may not be able to place or change orders.
To
the extent the Fund engages in in‑kind transactions, the Fund intends to comply
with the U.S. federal securities laws in accepting securities for deposit and
satisfying redemptions with redemption securities by, among other means,
assuring that any securities accepted for deposit and any securities used to
satisfy redemption requests will be sold in transactions that would be exempt
from registration under the 1933 Act. Further, an Authorized Participant that is
not a “qualified institutional buyer,” as such term is defined in Rule 144A
under the 1933 Act, will not be able to receive restricted securities eligible
for resale under Rule 144A.
Creations
and redemptions must be made through a firm that is either a member of the
Continuous Net Settlement System of the National Securities Clearing Corporation
or a DTC participant that has executed an agreement with the Distributor with
respect to creations and redemptions of Creation Unit aggregations. Information
about the procedures regarding creation and redemption of Creation Units
(including the cut‑off times for receipt of creation and redemption orders) is
included in the Fund’s SAI.
Because
new shares may be created and issued on an ongoing basis, at any point during
the life of the Fund a “distribution,” as such term is used in the 1933 Act, may
be occurring. Broker-dealers and other persons are cautioned that some
activities on their part may, depending on the circumstances, result in their
being deemed participants in a distribution in a manner that could render them
statutory underwriters subject to the prospectus delivery and liability
provisions of the 1933 Act. Any determination of whether one is an underwriter
must take into account all the relevant facts and circumstances of each
particular case.
Broker-dealers
should also note that dealers who are not “underwriters” but are participating
in a distribution (as contrasted to ordinary secondary transactions), and thus
dealing with shares that are part of an “unsold allotment” within the meaning of
Section 4(a)(3)(C) of the 1933 Act, would be unable to take advantage of
the prospectus delivery exemption provided by Section 4(a)(3) of the 1933
Act. For delivery of prospectuses to exchange members, the prospectus delivery
mechanism of Rule 153 under the 1933 Act is available only with respect to
transactions on a national securities exchange.
Householding. Householding is an option
available to certain Fund investors. Householding is a method of delivery, based
on the preference of the individual investor, in which a single copy of certain
shareholder documents can be delivered to investors who share the same address,
even if their accounts are registered under different names. Please contact your
broker-dealer if you are interested in enrolling in householding and receiving a
single copy of prospectuses and other shareholder documents, or if you are
currently enrolled in householding and wish to change your householding
status.
Distribution
The
Distributor or its agent distributes Creation Units for the Fund on an agency
basis. The Distributor does not maintain a secondary market in shares of the
Fund. The Distributor has no role in determining the policies of the Fund or the
securities that are purchased or sold by the Fund. The Distributor’s principal
address is 1 University Square Drive, Princeton, NJ 08540.
BFA
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, data
provision services, or their making shares of the Fund and certain other
BFA‑advised ETFs 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 BFA or
its affiliates from their own resources, which come directly or indirectly in
part from fees paid by the BFA‑advised ETFs. Payments of this type are sometimes
referred to as revenue-sharing payments. A financial intermediary may make
decisions about which investment options it recommends or makes available, or
the level of services provided, to its customers based on the payments or other
financial incentives it is eligible to receive. Therefore, such payments or
other financial incentives offered or made to an intermediary create conflicts
of interest between the intermediary and its customers and may cause the
intermediary to recommend the Fund or other BFA‑advised ETFs 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 BFA or its affiliates.
25
Financial
Highlights
Financial
highlights for the Fund are not available because, as of the effective date of
this Prospectus, the Fund has not commenced operations and therefore has no
financial highlights to report.
26
Disclaimers
Shares
of the Fund are not sponsored, endorsed or promoted by the NASDAQ. The NASDAQ
makes no representation or warranty, express or implied, to the owners of shares
of the Fund or any member of the public regarding the ability of the Fund to
achieve its investment objective. The NASDAQ is not responsible for, nor has it
participated in, the determination of the Fund’s investments, nor in the
determination of the timing of, prices of, or quantities of shares of the Fund
to be issued, nor in the determination or calculation of the equation by which
shares are redeemable. The NASDAQ has no obligation or liability to owners of
the shares of the Fund in connection with the administration, marketing or
trading of shares of the Fund.
Without
limiting any of the foregoing, in no event shall the NASDAQ have any liability
for any direct, indirect, special, punitive, consequential or any other damages
(including lost profits) even if notified of the possibility of such
damages.
27
Want
to know more?
www.blackrock.com | 1‑800‑474‑2737
Copies
of the Prospectus, SAI and other information can be found on our website at
www.blackrock.com. For more information about the Fund, you may request a copy
of the SAI. The SAI provides detailed information about the Fund and is
incorporated by reference into this Prospectus. This means that the SAI, for
legal purposes, is a part of this Prospectus.
If
you have any questions about the Trust or shares of the Fund or you wish to
obtain the SAI free of charge, please:
|
|
|
Call: |
|
1‑800‑474‑2737 (toll free) |
Write: |
|
c/o BlackRock Investments, LLC |
|
|
1 University Square Drive, Princeton, NJ
08540 |
Reports
and other information about the Fund are available on the EDGAR database on the
SEC’s website at www.sec.gov, and copies of this information may be obtained,
after paying a duplicating fee, by electronic request at the following e‑mail
address:
[email protected].
No person is authorized to give any information or to
make any representations about the Fund and its shares not contained in this
Prospectus and you should not rely on any other information. Read and keep this
Prospectus for future reference.
Investment
Company Act File No.: 811‑23511
PRO-AAA-1222