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(as revised
October 18, 2023) |
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2023
Prospectus |
iShares
LifePath®
Target Date Series
•iShares
LifePath® Retirement
ETF | IRTR
| NYSE
ARCA
•iShares
LifePath® Target Date
2025 ETF | ITDA
| NYSE
ARCA
•iShares
LifePath® Target Date
2030 ETF | ITDB
| NYSE
ARCA
•iShares
LifePath® Target Date
2035 ETF | ITDC
| NYSE
ARCA
•iShares
LifePath® Target Date
2040 ETF | ITDD
| NYSE
ARCA
•iShares
LifePath® Target Date
2045 ETF | ITDE
| NYSE
ARCA
•iShares
LifePath® Target Date
2050 ETF | ITDF
| NYSE
ARCA
•iShares
LifePath® Target Date
2055 ETF | ITDG
| NYSE
ARCA
•iShares
LifePath® Target Date
2060 ETF | ITDH
| NYSE
ARCA
•iShares
LifePath® Target Date
2065 ETF | ITDI
| NYSE
ARCA
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.
Table
of Contents
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iShares® and
BlackRock® are registered
trademarks of BlackRock Fund Advisors and its affiliates. LifePath®
is a registered service mark of BlackRock Institutional Trust Company,
N.A.
i
iShares
LifePath® Retirement ETF
Ticker:
IRTR Stock
Exchange: NYSE Arca
Investment
Objective
The iShares
LifePath Retirement ETF (the “Retirement
Fund” or the
“Fund”) seeks to provide
exposure to a conservative, broad portfolio of ETFs covering
global asset classes.
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 iShares Trust (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. Acquired Fund Fees and
Expenses are not included in the calculation of the ratio of
expenses to average
net assets shown in the Financial
Highlights section of the Fund’s
prospectus (the “ Prospectus ” ).
You may pay other
fees, such as brokerage commissions and other fees to financial intermediaries,
which are not reflected in the tables and examples
below.
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Management
Fees |
Distribution
and
Service
(12b-1)
Fees |
Other
Expenses2
|
Acquired
Fund Fees
and
Expenses 3
|
Total
Annual
Fund
Operating
Expenses |
|
|
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|
|
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1
2
3
|
|
1
Year |
3
Years |
|
|
|
$ |
$ |
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Principal
Investment Strategies
The Retirement
Fund is actively managed and allocates and reallocates its
assets among a combination of Underlying Funds in proportions based
on its own investment strategy.
The Retirement
Fund is one of a group of funds referred to as the “LifePath
ETFs,” each of which
seeks to provide for retirement outcomes based on
quantitatively measured risk that investors on average may be
willing to accept given a particular time
horizon.
S-1
BFA employs a
multi-dimensional approach to assess risk for the Retirement Fund
and to determine the Retirement Fund’s allocation across
asset classes. As part of this multi-dimensional approach, BFA aims
to quantify risk using proprietary risk measurement tools
that, among other things, analyze historical and
forward-looking securities market data, including risk, asset class
correlations, and expected returns. Under normal circumstances, the
Fund intends to invest primarily in affiliated exchange-traded
funds (“ETFs”).
The Retirement
Fund will invest, under normal circumstances, at least 80% of its
assets in securities or other financial instruments that are
components of or have economic characteristics similar to the securities
included in its custom model benchmark, the Retirement Custom
Benchmark. BFA will not publish the Retirement Custom
Benchmark but will apply a proprietary model to monitor
performance of the Fund. The Retirement Fund is designed for
investors expecting to retire or to begin withdrawing assets in the
future. At inception, BFA expects the Retirement Fund to hold
approximately 40% of its assets in Underlying Funds that seek to track
particular equity indexes, approximately 60% of its assets in
Underlying Funds that seek to track particular fixed-income indexes and the
remainder of its assets in Underlying Funds that invest
primarily in money market
instruments.
At inception, the
Fund invests in the iShares 0-5 Year TIPS Bond ETF, iShares 1-5
Year Investment Grade Corporate Bond ETF, iShares 5-10 Year
Investment Grade Corporate Bond ETF, iShares 10+ Year
Investment Grade Corporate Bond ETF, iShares 10-20 Year Treasury Bond
ETF, iShares Core MSCI Emerging Markets ETF, iShares Core
MSCI International Developed Markets ETF, iShares Core U.S.
REIT ETF, iShares Global Infrastructure ETF, iShares MBS ETF,
iShares Russell 1000 ETF, iShares Russell 2000 ETF, iShares U.S.
Treasury Bond ETF and money market funds advised by BFA or
its affiliates (“BlackRock Cash
Funds”). Factors
such
as fund classifications, historical risk and performance, and the relationship
to other Underlying Funds in the Fund are considered when
selecting Underlying Funds. The specific Underlying Funds
selected for the Fund are determined at BFA’s discretion and may
change as deemed appropriate to allow the Fund to meet its
investment objective. See the “Information About
the
Underlying Funds” section of the
prospectus for a list of the Underlying Funds,
their classification into equity, fixed-income or money market funds
and a brief description of their investment objectives and
primary investment strategies.
Certain Underlying
Funds may invest in real estate investment Trusts
(“REITs”), foreign
securities, emerging market securities, high yield bonds
and derivative securities or instruments, such as options and
futures, the value of which is derived from another security, a
currency or commodity, an interest rate or an index, when seeking to
match the performance of a particular market index. The Fund
and certain Underlying Funds may also lend securities with a
value up to one-third of their respective total assets to
financial institutions that provide cash or securities issued or
guaranteed by the U.S. Government as
collateral.
The Fund’s
selection of Underlying Funds that track equity indexes may be further
diversified by style (including both value and growth), market
capitalization (including large cap, mid cap, small
cap and emerging
growth), region (including domestic and international
(including emerging markets)) or other factors. The Fund’s selection
of Underlying Funds that track fixed-income indexes may be
further diversified by sector (including government,
corporate, agency, and other sectors), duration (a calculation of the
average life of a bond which measures its price risk), credit
quality (including non-investment grade debt or junk bonds), geographic
location (including U.S. and foreign-issued securities), or
other factors. Though BFA seeks to diversify the Fund, certain
Underlying Funds may concentrate their investments in
specific sectors or geographic regions or countries. The
percentage allocation to the various styles of equity and
fixed-income Underlying Funds is determined at the discretion of the
investment team and can be changed to reflect the current market
environment. Because the Fund is in its most conservative
phase, its allocation generally does not de-risk over time, although its
allocation may change to maintain the Fund’s risk
profile.
Summary
of Principal Risks
Equity
Securities Risk. Equity securities
are subject to changes in value, and
their values may be more volatile than those of other asset classes.
Certain Underlying Funds invest in common stocks, which generally
subject their holders to
more risks than preferred stocks and debt
securities because common stockholders’ claims are subordinated
to those of holders of preferred stocks and debt securities upon
the bankruptcy of the issuer.
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 or an Underlying
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.
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
S-2
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 or an Underlying 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 or an Underlying 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.
U.S.
Treasury Obligations Risk. U.S. Treasury
obligations may differ from other
securities in their interest rates, maturities, times of issuance
and other characteristics and may provide relatively lower
returns than those of other securities. Similar to other issuers,
changes to the financial condition or credit rating of a government may
cause the value of the Fund's or an Underlying Fund's U.S.
Treasury obligations to decline.
Allocation
Risk.
The Fund’s ability to achieve its investment objective depends
upon BFA's ability to develop a model that accurately
assesses the Fund’s asset class allocation and selects an appropriate mix
of Underlying Funds and other ETFs. There is a risk that BFA's
evaluations and assumptions regarding asset classes or
Underlying Funds, which are utilized as inputs in the model, may be
incorrect in view of actual market
conditions.
Investment
in Underlying Funds Risk. The Fund invests
substantially all
of its assets in the Underlying
Funds, so the Fund’s investment
performance is directly related to the performance of the
Underlying Funds. The Fund’s NAV will change with changes in
the value of the Underlying Funds and other securities in
which the Fund invests based on their market valuations. An
investment in the Fund will entail more costs and expenses than a
direct investment in the Underlying
Funds.
As the Underlying
Funds, or the Fund’s allocations among the Underlying Funds,
change from time to time, or to the extent that the total annual
fund operating expenses of any Underlying Fund change, the
weighted average operating expenses borne by the Fund may increase
or decrease.
Affiliated
Fund Risk. In managing the
Fund, BFA has the ability to select Underlying
Funds and substitute Underlying Funds with other ETFs that it
believes will achieve the Fund’s objective. BFA may be subject to
potential conflicts of interest in selecting Underlying Funds
and substituting Underlying Funds with other ETFs because the
fees paid to BFA by some Underlying Funds and other ETFs managed
by BFA may be higher than the fees paid by other Underlying
Funds. If an Underlying Fund or other ETF holds interests in an
affiliated fund in excess of a certain amount, the Fund may be
prohibited from purchasing shares of that Underlying Fund or other
ETF.
Retirement
Income Risk. The Retirement
Fund does not provide a guarantee that
sufficient capital appreciation will be achieved to provide adequate
income at and through retirement. The Retirement Fund
also does not ensure that you will have assets in your account
sufficient to cover your retirement expenses; this will depend on the
amount of money you have invested in the Retirement Fund,
the length of time you have held your investment, the
returns of the markets over time, the amount you spend in
retirement, and your other assets and income
sources.
Selection
Risk.
Selection risk is the risk that the securities selected by the
Retirement Fund management will underperform the markets, the
relevant indices or the securities selected by other funds with
similar investment objectives and investment strategies. This
means you may lose money.
Market
Risk. The
Fund and the Underlying
Funds 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, public
health issues, recessions, the prospect or occurrence of a
sovereign default or other financial crisis, or other events could have
a significant impact on the Fund, the Underlying Funds
and their investments and could result in increased premiums
or discounts to the Fund’s or Underlying
Fund's
NAV.
Asset
Class Risk. Securities and
other assets in the Fund's or an Underlying Fund's
portfolio may underperform in comparison to the general
financial markets, a particular financial market or other asset
classes.
Authorized
Participant Concentration Risk. Only an
Authorized Participant (as
defined in the Creations
and Redemptions section
of
this prospectus (the “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.
Call
Risk.
During periods of
falling interest rates, an issuer of a callable bond held
by the Fund or an Underlying Fund may “call”
or
repay the security before its stated maturity, and the Fund or an Underlying 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.
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 or an Underlying Fund's investments
S-3
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.
Currency
Risk. Because the
Fund's and the Underlying Funds' NAVs are
determined in U.S. dollars, the Fund's NAV could decline if a currency of a
non-U.S. market in which a Fund or an Underlying
Fund invests depreciates against the U.S. dollar or if there are delays
or limits on repatriation of such currency. Currency exchange
rates can be very volatile and can change quickly and
unpredictably. As a result, the Fund's NAV may change quickly and
without warning.
Cybersecurity
Risk. Failures or
breaches of the electronic systems of the
Fund or the Underlying Funds, the Funds' or the Underlying Funds'
adviser, distributor, the benchmark provider 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 benchmark provider
and other service providers, market makers, Authorized
Participants or issuers of securities in which the Fund invests.
Derivatives
Risk. The Fund or
an Underlying Fund may invest in certain types of
derivatives contracts, including futures, options and swaps, which
can be more sensitive to changes in interest rates or to sudden
fluctuations in market prices than conventional securities, which
can result in greater losses to the
Fund.
Energy
Sector Risk. The market value
of securities in the energy sector may decline
for many reasons, including, among others, changes in energy
prices, energy supply and demand, government regulations, costs
related to exploration and production and energy
conservation efforts. Companies in the energy sector may also be
significantly impacted by natural disasters, social and political unrest,
war and environmental damage and may also be at risk for
increased litigation and negative publicity or public perception. The
energy sector may experience significant market volatility
(e.g., as a result of
Russia’s invasion of Ukraine in February 2022 and
the resulting sanctions on Russia and other responses by the
U.S. and other actors).
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 or an Underlying Fund's
investments.
Financials
Sector Risk. The performance
of companies in the financials sector
may be adversely impacted by many factors, including, among
others, changes in government regulations, economic
conditions, and interest rates, credit rating
downgrades,
adverse public perception, exposure concentration and decreased
liquidity in credit markets. The impact of changes in regulation of
any individual financial company, or of the financials sector
as a whole, cannot be predicted. Cybersecurity incidents and
technology malfunctions and failures have become increasingly
frequent and have caused significant losses to companies in this
sector, which may negatively impact an Underlying
Fund.
Geographic
Risk. A natural
disaster could occur in a geographic region in which
the Fund or an Underlying Fund invests, which could adversely
affect the economy or the business operations of companies in the
specific geographic region, causing an adverse impact on the
Fund's or an Underlying Fund's investments in, or which are exposed
to, the affected region.
Healthcare
Sector Risk. The profitability
of companies in the healthcare sector
may be affected by government regulations and government
healthcare programs, increases or decreases in the cost of medical
products and services, an increased emphasis on outpatient
services, demand for medical products and services and product
liability claims, among other factors. Many healthcare companies are
heavily dependent on patent protection, and the expiration of a
company’s patent may adversely affect that company’s
profitability. Healthcare companies are subject to competitive forces
that may result in price discounting, and may be thinly
capitalized and susceptible to product
obsolescence.
Income
Risk. The Fund's income
may decline if interest rates fall. This decline in
income can occur because an Underlying Fund may subsequently
invest in lower-yielding securities as securities in an Underlying Fund's
portfolio mature, are near maturity or are called, securities
are substituted, or an Underlying Fund otherwise needs to purchase
additional bonds.
Indexing
Investment Risk. The Underlying
Funds are not actively managed, and BFA
generally does not attempt to take defensive positions in the
Underlying Funds under any market conditions, including
declining markets.
Industrials
Sector Risk. Companies in the
industrials sector may be adversely
affected by changes in the supply of and demand for products and
services, product obsolescence, claims for environmental
damage or product liability and changes in general economic
conditions, among other factors.
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 elevated tracking error and increased premiums or
discounts to the Fund's NAV. Despite the
S-4
development of
vaccines, the duration of the COVID-19 pandemic and its effects
cannot be predicted with certainty.
Information
Technology Sector Risk. Information
technology companies face
intense competition and potentially rapid product obsolescence. They
are also heavily dependent on intellectual property rights
and may be adversely affected by the loss or impairment of
those rights. Companies in the information technology sector
are facing increased government and regulatory
scrutiny and may be subject to adverse government or regulatory action.
Companies in the software industry may be adversely affected
by, among other things, the decline or fluctuation of
subscription renewal rates for their products and services and
actual or perceived vulnerabilities in their products or
services.
Infrastructure
Industry Risk. Companies in the
infrastructure industry may be
subject to a variety of factors that could adversely affect
their business or operations, including high interest costs in
connection with capital construction programs, high degrees of
leverage, costs associated with governmental, environmental and
other regulations, the level of government spending on
infrastructure projects, and other
factors.
Issuer
Risk. The performance
of the Fund depends on the performance of
individual securities to which the Fund or an Underlying Fund
has exposure. Changes in the financial condition or credit rating
of an issuer of those securities may cause the value of the
securities to decline.
Large-Capitalization
Companies Risk.
Large-capitalization companies may be
less able than smaller capitalization companies to adapt
to changing market conditions. Large-capitalization companies may be
more mature and subject to more limited
growth potential compared with smaller capitalization
companies. During different market cycles, the performance of
large-capitalization companies has trailed the overall
performance of the broader securities
markets.
Management
Risk. The Fund and the
Underlying Funds are subject to
management risk, which is the risk that the investment process,
techniques and risk analyses applied by BFA will not produce the
desired results, and that securities selected by BFA may underperform
the market or any relevant benchmark. In addition,
legislative, regulatory, or tax developments may affect the investment
techniques available to BFA in connection with managing the Fund
and the Underlying Funds and may also adversely affect
the ability of the Fund and the Underlying Funds to achieve their
investment objective.
Market
Trading Risk. The Fund and
the Underlying Funds face numerous market
trading risks, including the potential lack of an active market for
their shares, losses from trading in secondary markets, periods
of high volatility and disruptions in the creation/redemption
process. ANY
OF THESE FACTORS, AMONG
OTHERS, MAY LEAD TO THE FUND'S SHARES TRADING
AT A PREMIUM OR DISCOUNT TO NAV.
Mid-Capitalization
Companies Risk. Compared to
large-capitalization companies,
mid-capitalization companies may be less stable and
more susceptible to adverse developments. In addition, the
securities of mid-capitalization companies may be more volatile and
less liquid than those of large-capitalization companies.
National
Closed Market Trading Risk. To the extent
that the underlying
securities or other instruments held by the Fund or the Underlying Funds
trade on foreign exchanges or in foreign markets that may
be closed when the securities exchange on which the Fund’s
or an Underlying Fund's shares trade is open, there are likely
to be deviations between the current price of such an underlying
security and the last quoted price for the underlying security
(i.e., the Fund’s or
an Underlying Fund's quote from the closed foreign
market). The impact of a
closed foreign market on the Fund or an
Underlying Fund is likely to be greater where a large portion of
the Fund’s or an Underlying Fund's underlying securities or
other instruments trade on that closed foreign market or when the
foreign market is closed for unscheduled reasons. These
deviations could result in premiums or discounts to the Fund’s
or an Underlying Fund's NAV that may be greater than those
experienced by other ETFs.
Non-U.S.
Issuers Risk. Securities issued
by non-U.S. issuers carry different
risks from securities issued by U.S. issuers. These risks include
differences in accounting, auditing and financial reporting
standards, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control
regulations, political instability, regulatory and economic differences, and
potential restrictions on the flow of international capital. The Fund
is specifically exposed to Asian Economic
Risk,
European Economic Risk and North
American Economic
Risk.
Non-U.S.
Securities Risk. Investments in
the securities of non-U.S. issuers are
subject to the risks associated with investing in those non-U.S.
markets, such as heightened risks of inflation or nationalization.
The Fund or an Underlying
Fund may
lose money due to political, economic and geographic events affecting issuers
of non-U.S. securities or non-U.S.
markets. In addition, non-U.S.
securities markets may trade a small number of securities and may
be unable to respond effectively to changes in trading volume,
potentially making prompt liquidation of holdings difficult or
impossible at times. The Fund is specifically exposed to Asian Economic
Risk, European Economic Risk and North
American
Economic Risk.
Operational
Risk. The
Fund and the Underlying
Funds are 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, the Underlying Funds
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.
S-5
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.
Real
Estate Investment Risk. Companies that
invest in real estate (“Real Estate
Companies”), such as REITs,
real estate holding and
operating companies and real estate management or development
companies, expose investors in the Fund to the risks of owning real
estate directly, as well as to risks that relate specifically to
the way in which Real Estate Companies are organized and
operated. Real estate is highly sensitive to general and local economic
conditions and developments, and characterized by
intense competition and periodic overbuilding. If the Fund's
investments in Real Estate Companies are concentrated in
one geographic region, industry or property type, the Fund will be
particularly subject to the risks associated with that region,
industry or property type. Many Real Estate Companies,
including REITs, utilize leverage
(and some may be highly leveraged),
which increases investment risk and the risk normally
associated with debt financing, and could potentially magnify the Fund’s
losses. Rising interest rates could result in higher costs of
capital for Real Estate Companies, which could negatively affect
a Real Estate Company's ability to meet its payment
obligations or its financing activity and could decrease the market prices
for REITs and for properties held by such
REITs.
Reinvestment
Risk. The Fund or
an Underlying Fund may invest a portion of its
assets in short-term fixed-income instruments and, as a result,
may be adversely affected if interest rates fall because they may
have to invest in lower-yielding bonds as bonds
mature.
Risk
of Investing in China.
Investments in
Chinese securities, including certain
Hong Kong-listed and U.S.-listed securities, subject the Fund
or the Underlying Funds to risks specific to China. China may
be subject to considerable degrees of economic,
political and social instability. China is an emerging market and
demonstrates significantly higher volatility from time to time in
comparison to developed markets. Over the last few decades, the
Chinese government has undertaken reform of economic and
market practices and has expanded the sphere of private ownership
of property in China. However, Chinese markets generally continue
to experience inefficiency, volatility and pricing anomalies
resulting from governmental influence, a lack of publicly available
information and/or political and social instability.
Chinese companies
are also subject to the risk that Chinese authorities can
intervene in their operations and structure. Internal social
unrest or confrontations with neighboring countries,
including military conflicts in response to such events, may also disrupt
economic development in China and result in a greater risk of
currency fluctuations, currency non-convertibility, interest rate
fluctuations and higher rates of
inflation.
China has
experienced security concerns, such as terrorism and strained
international relations. Additionally, China is alleged to have participated
in state-sponsored cyberattacks against foreign
companies and
foreign governments. Actual and threatened responses to such
activity and strained international relations, including
purchasing restrictions, sanctions, tariffs or cyberattacks on
the Chinese government or Chinese companies, may impact China’s
economy and Chinese issuers of securities in which the Fund
invests. Incidents involving China's or the region's security may cause
uncertainty in Chinese markets and may adversely affect
the Chinese economy and the Fund's investments.
Export growth continues to be a major driver of China's rapid
economic growth. Reduction in spending on Chinese products and
services, institution of additional tariffs or other trade
barriers (including as a result of heightened trade tensions or a trade war
between China and the U.S. or in response to actual or alleged
Chinese cyber activity) or a downturn in any of the economies of
China's key trading partners may have an adverse impact on
the Chinese economy.
Chinese companies,
including Chinese companies that are listed on U.S. exchanges,
are not subject to the same degree of regulatory
requirements, accounting standards or auditor oversight as
companies in more developed countries. As a result, information about
the Chinese securities in which the Fund invests may be
less reliable or complete. Chinese companies with securities listed
on U.S. exchanges may be delisted if they do not meet U.S.
accounting standards and auditor oversight requirements,
which would significantly decrease the liquidity and value of the
securities. There may be significant obstacles to obtaining
information necessary for investigations into or litigation against
Chinese companies, and shareholders may have limited legal
remedies. The Fund is not actively managed and does not select
investments based on investor protection considerations.
Risk
of Investing in Developed Countries.
The
Fund’s and the Underlying Fund's
investment in developed country issuers may subject the Fund
to legal, regulatory, political, currency, security, economic and
other risks associated with developed countries. Developed
countries tend to represent a significant portion of the global economy and
have generally experienced slower economic growth than some
less developed countries. Certain developed countries have
experienced security concerns, such as war, terrorism and
strained international relations. Incidents involving a country’s or
region’s security may cause uncertainty in its markets and may
adversely affect its economy and the Fund’s or an Underlying
Fund's investments. In addition, developed countries may be
adversely impacted by changes to the economic conditions of
certain key trading partners, regulatory burdens, debt burdens and
the price or availability of certain
commodities.
Risk
of Investing in India. Investments in
Indian issuers involve risks that are
specific to India, including legal, regulatory, political, currency and
economic risks. Political and legal uncertainty, greater government
control over the economy, currency fluctuations or
blockage, and the risk of nationalization or expropriation of
assets may result in higher potential for losses. The securities
markets in India are relatively underdeveloped and may subject the
Fund or an Underlying Fund to higher transaction costs or greater
uncertainty than investments in more developed securities
markets.
S-6
Risk
of Investing in Japan. The Japanese
economy may be subject to
considerable degrees of economic, political and social instability, which
could have a negative impact on Japanese securities. Since
2000, Japan’s economic growth rate has generally remained
low relative to other advanced economies, and it may remain low
in the future. In addition, Japan is subject to the risk of natural
disasters, such as earthquakes, volcanic eruptions, typhoons and
tsunamis, which could negatively affect the Fund or an Underlying
Fund. Japan’s relations with its neighbors have at times been
strained, and strained relations may cause uncertainty in the Japanese
markets and adversely affect the overall Japanese economy.
Risk
of Investing in Russia. Investing in
Russian securities involves
significant risks, including legal, regulatory, currency and economic risks
that are specific to Russia. In addition, investing in Russian securities
involves risks associated with the settlement of portfolio
transactions and loss of the Fund’s or an Underlying
Fund's ownership
rights in its portfolio securities as a result of the system of share
registration and custody in Russia. Governments in the U.S. and
many other countries have imposed economic sanctions on
certain Russian individuals and Russian corporate and banking
entities. A number of jurisdictions may also institute broader sanctions
on Russia. Russia has issued a number of countersanctions,
some of which restrict the distribution of profits by limited
liability companies (e.g., dividends), and
prohibit Russian persons
from entering into transactions with designated persons from
“unfriendly
states” as well as the
export of raw materials or other
products from Russia to certain sanctioned persons. Russia
launched a large-scale invasion of Ukraine on February 24, 2022.
The extent and duration of the military action, resulting
sanctions and resulting future market disruptions, including declines
in its stock markets and the value of the ruble against the U.S.
dollar, are impossible to predict, but could be significant.
Disruptions caused by Russian military action or other actions (including
cyberattacks and espionage) or resulting actual and threatened
responses to such activity, including purchasing and financing
restrictions, boycotts or changes in consumer or purchaser
preferences, sanctions, import and export restrictions, tariffs or
cyberattacks on the Russian government, Russian companies, or
Russian individuals, including politicians, may impact Russia’s
economy and Russian companies in which the Fund or an Underlying
Fund invests. Actual and threatened responses to
Russian military action may also impact the markets for certain
Russian commodities, such as oil and natural gas, as well as other
sectors of the Russian economy, and are likely to have collateral
impacts on such sectors globally. Russian companies may be
unable to pay dividends and, if they pay dividends, the
Fund or an Underlying
Fund may be unable to receive them. As a
result of sanctions, the Fund is currently restricted from
trading in Russian securities, including those in its portfolio, while
the Underlying Indexes of the Underlying Funds have removed
Russian securities. It is unknown when, or if, sanctions may be
lifted or the Fund’s ability to trade in Russian securities will
resume.
Risk
of Investing in Saudi Arabia. The ability of
foreign investors (such as the
Fund or an Underlying
Fund) to invest in the securities of
Saudi Arabian issuers is relatively new. Such ability could be
restricted by the Saudi Arabian government at any time,
and unforeseen
risks could materialize with respect to foreign ownership in such
securities. The economy of Saudi Arabia is dominated by
petroleum exports. A sustained decrease in petroleum prices
could have a negative impact on all aspects of the economy.
Investments in the securities of Saudi Arabian issuers involve
risks not typically associated with investments in securities of
issuers in more developed countries that may negatively affect
the value of the Fund’s or Underlying
Fund's investments. Such
heightened risks may include, among others, expropriation
and/or nationalization of assets, restrictions on and government
intervention in international trade, confiscatory taxation,
political instability, including authoritarian and/or military
involvement in governmental decision making, armed conflict, crime
and instability as a result of religious, ethnic and/or
socioeconomic unrest. There remains the possibility that instability in the
larger Middle East region could adversely impact the economy of
Saudi Arabia, and there is no assurance of political
stability in Saudi Arabia.
Saudi
Arabia Broker Risk. There are a
number of different ways of conducting
transactions in equity securities in the Saudi Arabian
market. The Fund (or an Underlying Fund) generally expects to conduct
its transactions in a manner in which the Fund would not be
limited by Saudi Arabian regulations to a single broker. However,
there may be a limited number of brokers who can provide
services to the Fund (or an Underlying Fund), which may have an
adverse impact on the prices, quantity or timing of Fund (or an
Underlying Fund) transactions.
Risk
of Investing in Taiwan. Investments in
Taiwanese issuers involve risks that
are specific to Taiwan, including legal, regulatory,
political, currency and economic risks. Political and economic
developments of Taiwan’s neighbors may have an adverse effect on
Taiwan’s economy. Specifically, Taiwan’s geographic
proximity and history of political contention with China have
resulted in ongoing tensions, which may materially affect the
Taiwanese economy and its securities
market.
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 or the Underlying Funds has exposure.
Securities
Lending Risk. The Fund or
an Underlying Fund may engage in
securities lending. Securities lending involves the risk that the Fund or
the Underlying Funds may lose money because the borrower of
the loaned securities fails to return the securities in a timely manner
or at all. The Fund or the Underlying Funds 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 or an Underlying
Fund.
Small-Capitalization
Companies Risk. Compared to mid-
and large-capitalization
companies, small-capitalization companies may be less stable
and more susceptible to adverse developments. In
addition, the securities of small-capitalization
S-7
companies may be
more volatile and less liquid than those of mid- and
large-capitalization companies.
Tax
Risk. Because the Fund
is expected to invest in the Underlying Funds,
the Fund’s realized losses on sales of shares of an Underlying Fund
may be indefinitely or permanently deferred as “wash
sales.” Distributions of
short-term capital gains by an Underlying Fund
will be recognized as ordinary income by the Fund and would not
be offset by the Fund’s capital loss carryforwards, if
any. Capital loss carryforwards of an Underlying Fund, if any,
would not offset net capital gains of the
Fund.
Technology
Sector Risk. Technology
companies, including information
technology companies, may have limited
product lines, markets,
financial resources or personnel. Technology companies
typically face intense competition and potentially rapid product
obsolescence. They are also heavily dependent on intellectual
property rights and may be adversely affected by the loss or impairment
of those rights. Companies in the technology sector may face
increased government and regulatory scrutiny and may be subject
to adverse government or regulatory
action.
Utilities
Sector Risk. The utilities
sector is subject to significant government
regulation and oversight. Deregulation, however, may subject utility
companies to greater competition and may reduce their
profitability. Companies in the utilities sector may be adversely affected
due to increases in fuel and operating costs, rising costs of
financing capital construction and the cost of complying with
U.S. federal and state regulations, among other factors.
Valuation
Risk. The price the
Fund or an Underlying Fund could receive upon the
sale of a security or other asset may differ from the
Fund's or the Underlying
Fund's valuation of the security or other asset,
particularly for securities or other assets that trade in low volume or
volatile markets, or assets that are impacted by market disruption
events or that are valued using a fair value methodology as a
result of trade suspensions or for other reasons. In
addition, the value of the securities or other assets in the Fund's or an
Underlying Fund's portfolio may change on days or during time
periods when shareholders will not be able to purchase or sell
the Fund's or an Underlying Fund's shares. Authorized
Participants who purchase or redeem shares of the Fund or an
Underlying Fund on days when the Fund or an Underlying
Fund is holding fair-valued securities or other instruments may
receive fewer or more shares, or lower or higher redemption
proceeds, than they would have received had the securities or
other instruments not been fair valued or been valued using a
different methodology. The ability to value investments may be
impacted by technological issues or errors by pricing services
or other third-party service
providers.
Performance
Information
As of the date of
the Prospectus, the Fund has not commenced operations and
therefore has no performance information to report.
S-8
Management
Investment
Adviser. BlackRock Fund
Advisors.
Portfolio
Managers. Christopher Chung
and Suzanne Ly (the “Portfolio
Managers”) are primarily
responsible for the day-to-day management of the
Fund. Each Portfolio Manager supervises a portfolio
management team. Mr. Chung and Ms. Ly have been Portfolio Managers
of the Fund since inception (2023).
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 you 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 taxed 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.
S-9
iShares
LifePath® Target Date 2025
ETF
Ticker:
ITDA Stock
Exchange: NYSE Arca
Investment
Objective
The iShares
LifePath Target Date 2025 ETF (the “2025
Fund” or the
“Fund”) seeks to provide
retirement outcomes through exposure to a broad portfolio of
ETFs which adjusts its allocation as it approaches its target
date.
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 iShares Trust (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. Acquired Fund Fees and
Expenses are not included in the calculation of the ratio of
expenses to average
net assets shown in the Financial
Highlights section of the Fund’s
prospectus (the “ Prospectus ” ).
You may pay other
fees, such as brokerage commissions and other fees to financial intermediaries,
which are not reflected in the tables and examples
below.
|
| ||||
|
Management
Fees |
Distribution
and
Service
(12b-1)
Fees |
Other
Expenses2
|
Acquired
Fund Fees
and
Expenses 3
|
Total
Annual
Fund
Operating
Expenses |
|
|
|
|
|
|
1
2
3
|
|
1
Year |
3
Years |
|
|
|
$ |
$ |
|
Principal
Investment Strategies
The 2025 Fund is
actively managed and allocates and reallocates its assets among a
combination of Underlying Funds in proportions based
on its own investment strategy.
The 2025 Fund is
one of a group of funds referred to as the “LifePath
ETFs,” each of which
seeks to provide for retirement outcomes based on
quantitatively measured risk that investors on average may be
willing to accept given a particular time
horizon.
S-10
BFA employs a
multi-dimensional approach to assess risk for the 2025 Fund and to
determine its allocation across asset classes. As part of this
multi-dimensional approach, BFA aims to quantify risk using
proprietary risk measurement tools that, among other things, analyze
historical and forward-looking securities market data, including
risk, asset class correlations, and expected returns. Under
normal circumstances, the 2025 Fund intends to invest primarily
in affiliated exchange-traded funds (“ETFs”).
The 2025 Fund will
invest, under normal circumstances, at least 80% of its assets
in securities or other financial instruments that are components of
or have economic characteristics similar to the securities
included in its custom model benchmark, the 2025 Target Date Custom
Benchmark. BFA will not publish its custom benchmark but will
apply a proprietary model to monitor performance of the
2025 Fund. The 2025 Fund is designed for investors
expecting to retire or to begin withdrawing assets around the year
2025. At inception, BFA expects the 2025 Fund to hold
approximately 43.50% of its assets in Underlying Funds that seek to track
particular underlying indexes of equity securities,
approximately 56.50% of its assets in Underlying Funds that seek to track
particular fixed-income indexes and the remainder of its
assets in Underlying Funds that invest primarily in money market
instruments.
At inception, the
Fund invests in the iShares 0-5 Year TIPS Bond ETF, iShares 1-5
Year Investment Grade Corporate Bond ETF, iShares 5-10 Year
Investment Grade Corporate Bond ETF, iShares 10+ Year
Investment Grade Corporate Bond ETF, iShares 10-20 Year Treasury Bond
ETF, iShares Core MSCI Emerging Markets ETF, iShares Core
MSCI International Developed Markets ETF, iShares Core U.S.
REIT ETF, iShares Global Infrastructure ETF, iShares MBS ETF,
iShares Russell 1000 ETF, iShares Russell 2000 ETF, iShares U.S.
Treasury Bond ETF and money market funds advised by BFA or
its affiliates (“BlackRock Cash
Funds”). Factors
such
as fund classifications, historical risk and performance, and the relationship
to other Underlying Funds in the Fund are considered when
selecting Underlying Funds. The specific Underlying Funds
selected for the Fund are determined at BFA’s discretion and may
change as deemed appropriate to allow the Fund to meet its
investment objective. See the “Information About
the
Underlying Funds” section of the
prospectus for a list of the Underlying Funds,
their classification into equity, fixed-income or money market funds
and a brief description of their investment objectives and
primary investment strategies.
Under normal
circumstances, the Fund’s asset allocation will change over time
according to a predetermined “glide
path” as the Fund
approaches its target date. The glide path below represents the
shifting of asset classes over time. As the glide path shows, as
time elapses prior to retirement, the Fund’s asset allocations become
more conservative. This reflects the need for reduced investment
risk as retirement approaches and the need for lower
volatility of the Fund, which for certain investors may be a primary source
of income after retirement. During the year prior to the Fund’s
maturity date, its allocation of assets is expected to be similar to that
of the Retirement Fund. Further, as retirement approaches, such
Fund and the Retirement Fund is expected to, subject to
approval by the Trust’s Board of Trustees (the “Board”), merge into a
single fund.
The following
chart illustrates the glide path — the target allocation among
asset classes as the LifePath ETFs approach their target
dates:
The following
table lists the target allocation by years until retirement:
|
Years
to
Retirement |
Equity
Allocation
(including
REITs) |
Fixed-Income
Allocation |
|
45 |
99% |
1% |
|
40 |
99% |
1% |
|
35 |
99% |
1% |
|
30 |
98% |
2% |
|
25 |
95% |
5% |
|
20 |
87% |
13% |
|
15 |
77% |
23% |
|
10 |
65% |
35% |
|
5 |
53% |
47% |
|
0 |
40% |
60% |
The asset
allocation targets are established by the Fund’s portfolio
managers. The investment team, including the portfolio managers, meets
regularly to assess market conditions, review the asset
allocation targets of the Fund, and determine whether any changes are
required to enable the Fund to achieve its investment
objective.
Although the asset
allocation targets listed for the glide path are general, long-term
targets, BFA may periodically adjust the proportion of
equity and fixed-income Underlying Funds in the Fund, based on an
assessment of the current market conditions, the potential
contribution of each asset class to the expected risk and return
characteristics of the Fund, reallocations of the Fund’s composition to
reflect intra-year movement along the glide path and other factors.
In general, such adjustments will be limited; however, BFA may
determine that a greater degree of variation is warranted to
protect the Fund or achieve its investment
objective.
BFA’s second step
in the structuring of the Fund is the selection of the Underlying
Funds. Factors such as fund classifications, historical risk
and performance, and the relationship to other Underlying Funds
in the Fund are considered when selecting Underlying Funds.
The specific Underlying Funds selected for the Fund are
determined at BFA’s discretion and may change as
S-11
deemed appropriate
to allow the Fund to meet its investment objective. See the
“Information About
the Underlying Funds”
section of the
prospectus for a list of the Underlying Funds, their classification
into equity, fixed-income or money market funds and a brief
description of their investment objectives and primary investment
strategies.
Within the
prescribed percentage allocations to equity and fixed-income index funds, BFA
seeks to diversify the Fund. The allocation to
Underlying Funds that track equity indexes may be further
diversified by style (including both value and growth), market
capitalization (including emerging growth, large-, mid-, and small-capitalization),
region (i.e., U.S, and
international, including emerging markets)
or other attributes. The allocation to Underlying Funds
that track fixed-income indexes may be further diversified by
sector (including government, corporate, U.S. agency MBS or
debentures, CMBS, and other sectors), duration (a of measurement of
interest rate risk), credit quality (including investment grade
bonds and high yield bonds), geographic location
(including U.S. and non-U.S. securities, including bonds of emerging market
issuers), currency (U.S. dollar-denominated or local currency
bonds) or other attributes. Though BFA seeks to diversify the
Fund, certain Underlying Funds may concentrate their investments
in specific sectors or geographic regions or countries. The
percentage allocation to the various styles of equity and
fixed-income Underlying Funds is determined at the discretion of the
investment team and can be changed to reflect the current market
environment.
Certain Underlying
Funds may invest in real estate investment trusts
(“REITs”), foreign
securities, emerging market securities, high yield bonds
and derivative securities or instruments, such as options and
futures, the value of which is derived from another security, a
currency or commodity, an interest rate or an index, when seeking to
match the performance of a particular market index. The Fund
and certain Underlying Funds may also lend securities with a
value up to one-third of their respective total assets to
financial institutions that provide cash or securities issued or
guaranteed by the U.S. Government as
collateral.
Summary
of Principal Risks
Equity
Securities Risk. Equity securities
are subject to changes in value, and
their values may be more volatile than those of other asset classes.
Certain Underlying Funds invest in common stocks, which generally
subject their holders to
more risks than preferred stocks and debt
securities because common stockholders’ claims
are subordinated
to those of holders of preferred stocks and debt securities upon
the bankruptcy of the issuer.
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 or an Underlying
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.
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 or an Underlying 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 or an Underlying 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.
U.S.
Treasury Obligations Risk. U.S. Treasury
obligations may differ from other
securities in their interest rates, maturities, times of issuance
and other characteristics and may provide relatively lower
returns than those of other securities. Similar to other issuers,
changes to the financial condition or credit rating of a government may
cause the value of the Fund's or an Underlying Fund's U.S.
Treasury obligations to decline.
Allocation
Risk.
The Fund’s ability to achieve its investment objective depends
upon BFA's ability to develop a model that accurately
assesses the Fund’s asset class allocation and selects an appropriate mix
of Underlying Funds and other ETFs. There is a risk that BFA's
evaluations and assumptions regarding asset classes or
Underlying Funds, which are utilized as inputs in the model, may be
incorrect in view of actual market
conditions.
Investment
in Underlying Funds Risk. The Fund invests
substantially all
of its assets in the Underlying
Funds, so the Fund’s investment
performance is directly related to the performance of the
Underlying Funds. The Fund’s NAV will change with changes in
the value of the Underlying Funds and other securities in
which the Fund invests based on their market
S-12
valuations. An
investment in the Fund will entail more costs and expenses than a
direct investment in the Underlying
Funds.
As the Underlying
Funds, or the Fund’s allocations among the Underlying Funds,
change from time to time, or to the extent that the total annual
fund operating expenses of any Underlying Fund change, the
weighted average operating expenses borne by the Fund may increase
or decrease.
Affiliated
Fund Risk. In managing the
Fund, BFA has the ability to select Underlying
Funds and substitute Underlying Funds with other ETFs that it
believes will achieve the Fund’s objective. BFA may be subject to
potential conflicts of interest in selecting Underlying Funds
and substituting Underlying Funds with other ETFs because the
fees paid to BFA by some Underlying Funds and other ETFs managed
by BFA may be higher than the fees paid by other Underlying
Funds. If an Underlying Fund or other ETF holds interests in an
affiliated fund in excess of a certain amount, the Fund may be
prohibited from purchasing shares of that Underlying Fund or other
ETF.
Retirement
Income Risk. The 2025 Fund does
not provide a guarantee that
sufficient capital appreciation will be achieved to provide adequate
income at and through retirement. The 2025 Fund also does not
ensure that you will have assets in your account sufficient
to cover your retirement expenses; this will depend on the
amount of money you have invested in the 2025 Fund, the length
of time you have held your investment, the returns of the
markets over time, the amount you spend in retirement, and
your other assets and income sources.
Selection
Risk.
Selection risk is the risk that the securities selected by 2025
Fund management will underperform the markets, the
relevant indices or the securities selected by other funds with similar
investment objectives and investment strategies. This
means you may lose money.
Market
Risk. The
Fund and the Underlying
Funds 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, public
health issues, recessions, the prospect or occurrence of a
sovereign default or other financial crisis, or other events could have
a significant impact on the Fund, the Underlying Funds
and their investments and could result in increased premiums
or discounts to the Fund’s or Underlying
Fund's
NAV.
Asset
Class Risk. Securities and
other assets in the Fund's or an Underlying Fund's
portfolio may underperform in comparison to the general
financial markets, a particular financial market or other asset
classes.
Authorized
Participant Concentration Risk. Only an
Authorized Participant (as
defined in the Creations
and Redemptions section
of
this prospectus (the “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.
Call
Risk.
During periods of
falling interest rates, an issuer of a callable bond held
by the Fund or an Underlying Fund may “call”
or
repay the security before its stated maturity, and the Fund or an Underlying 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.
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 or an Underlying 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.
Currency
Risk. Because the
Fund's and the Underlying Funds' NAVs are
determined in U.S. dollars, the Fund's NAV could decline if a currency of a
non-U.S. market in which a Fund or an Underlying
Fund invests depreciates against the U.S. dollar or if there are delays
or limits on repatriation of such currency. Currency exchange
rates can be very volatile and can change quickly and
unpredictably. As a result, the Fund's NAV may change quickly and
without warning.
Cybersecurity
Risk. Failures or
breaches of the electronic systems of the
Fund or the Underlying Funds, the Funds' or the Underlying Funds'
adviser, distributor, the benchmark provider 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 benchmark provider
and other service providers, market makers, Authorized
Participants or issuers of securities in which the Fund invests.
Derivatives
Risk. The Fund or
an Underlying Fund may invest in certain types of
derivatives contracts, including futures, options and swaps, which
can be more sensitive to changes in interest rates or to sudden
fluctuations in market prices than conventional securities, which
can result in greater losses to the
Fund.
Energy
Sector Risk. The market value
of securities in the energy sector may decline
for many reasons, including, among others,
S-13
changes in energy
prices, energy supply and demand, government regulations, costs
related to exploration and production and energy
conservation efforts. Companies in the energy sector may also be
significantly impacted by natural disasters, social and political unrest,
war and environmental damage and may also be at risk for
increased litigation and negative publicity or public perception. The
energy sector may experience significant market volatility
(e.g., as a result of
Russia’s invasion of Ukraine in February 2022 and
the resulting sanctions on Russia and other responses by the
U.S. and other actors).
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 or an Underlying Fund's
investments.
Financials
Sector Risk. The performance
of companies in the financials sector
may be adversely impacted by many factors, including, among
others, changes in government regulations, economic
conditions, and interest rates, credit rating downgrades,
adverse public perception, exposure concentration and decreased
liquidity in credit markets. The impact of changes in regulation of
any individual financial company, or of the financials sector
as a whole, cannot be predicted. Cybersecurity incidents and
technology malfunctions and failures have become increasingly
frequent and have caused significant losses to companies in this
sector, which may negatively impact an Underlying
Fund.
Geographic
Risk. A natural
disaster could occur in a geographic region in which
the Fund or an Underlying Fund invests, which could adversely
affect the economy or the business operations of companies in the
specific geographic region, causing an adverse impact on the
Fund's or an Underlying Fund's investments in, or which are exposed
to, the affected region.
Healthcare
Sector Risk. The profitability
of companies in the healthcare sector
may be affected by government regulations and government
healthcare programs, increases or decreases in the cost of medical
products and services, an increased emphasis on outpatient
services, demand for medical products and services and product
liability claims, among other factors. Many healthcare companies are
heavily dependent on patent protection, and the expiration of a
company’s patent may adversely affect that company’s
profitability. Healthcare companies are subject to competitive forces
that may result in price discounting, and may be thinly
capitalized and susceptible to product
obsolescence.
Income
Risk. The Fund's income
may decline if interest rates fall. This decline in
income can occur because an Underlying Fund may subsequently
invest in lower-yielding securities as securities in an Underlying Fund's
portfolio mature, are near maturity or are called, securities
are substituted, or an Underlying Fund otherwise needs to purchase
additional bonds.
Indexing
Investment Risk. The Underlying
Funds are not actively managed, and BFA
generally does not attempt to take defensive
positions in the
Underlying Funds under any market conditions, including
declining markets.
Industrials
Sector Risk. Companies in the
industrials sector may be adversely
affected by changes in the supply of and demand for products and
services, product obsolescence, claims for environmental
damage or product liability and changes in general economic
conditions, among other factors.
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 elevated tracking error and 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.
Information
Technology Sector Risk. Information
technology companies face
intense competition and potentially rapid product obsolescence. They
are also heavily dependent on intellectual property rights
and may be adversely affected by the loss or impairment of
those rights. Companies in the information technology sector
are facing increased government and regulatory
scrutiny and may be subject to adverse government or regulatory action.
Companies in the software industry may be adversely affected
by, among other things, the decline or fluctuation of
subscription renewal rates for their products and services and
actual or perceived vulnerabilities in their products or
services.
Infrastructure
Industry Risk. Companies in the
infrastructure industry may be
subject to a variety of factors that could adversely affect
their business or operations, including high interest costs in
connection with capital construction programs, high degrees of
leverage, costs associated with governmental, environmental and
other regulations, the level of government spending on
infrastructure projects, and other
factors.
Issuer
Risk. The performance
of the Fund depends on the performance of
individual securities to which the Fund or an Underlying Fund
has exposure. Changes in the financial condition or credit rating
of an issuer of those securities may cause the value of the
securities to decline.
Large-Capitalization
Companies Risk.
Large-capitalization companies may be
less able than smaller capitalization companies to adapt
to changing market conditions. Large-capitalization companies may be
more mature and subject to more limited
growth potential compared with smaller capitalization
companies. During different market cycles, the performance of
large-capitalization companies has trailed the overall
performance of the broader securities
markets.
S-14
Management
Risk. The Fund and the
Underlying Funds are subject to
management risk, which is the risk that the investment process,
techniques and risk analyses applied by BFA will not produce the
desired results, and that securities selected by BFA may underperform
the market or any relevant benchmark. In addition,
legislative, regulatory, or tax developments may affect the investment
techniques available to BFA in connection with managing the Fund
and the Underlying Funds and may also adversely affect
the ability of the Fund and the Underlying Funds to achieve their
investment objective.
Market
Trading Risk. The Fund and
the Underlying Funds face numerous market
trading risks, including the potential lack of an active market for
their shares, losses from trading in secondary markets, periods
of high volatility and disruptions in the creation/redemption
process. ANY
OF THESE FACTORS, AMONG
OTHERS, MAY LEAD TO THE FUND'S SHARES TRADING
AT A PREMIUM OR DISCOUNT TO NAV.
Mid-Capitalization
Companies Risk. Compared to
large-capitalization companies,
mid-capitalization companies may be less stable and
more susceptible to adverse developments. In addition, the
securities of mid-capitalization companies may be more volatile and
less liquid than those of large-capitalization companies.
National
Closed Market Trading Risk. To the extent
that the underlying
securities or other instruments held by the Fund or the Underlying Funds
trade on foreign exchanges or in foreign markets that may
be closed when the securities exchange on which the Fund’s
or an Underlying Fund's shares trade is open, there are likely
to be deviations between the current price of such an underlying
security and the last quoted price for the underlying security
(i.e., the Fund’s or
an Underlying Fund's quote from the closed foreign
market). The impact of a
closed foreign market on the Fund or an
Underlying Fund is likely to be greater where a large portion of
the Fund’s or an Underlying Fund's underlying securities or
other instruments trade on that closed foreign market or when the
foreign market is closed for unscheduled reasons. These
deviations could result in premiums or discounts to the Fund’s
or an Underlying Fund's NAV that may be greater than those
experienced by other ETFs.
Non-U.S.
Issuers Risk. Securities issued
by non-U.S. issuers carry different
risks from securities issued by U.S. issuers. These risks include
differences in accounting, auditing and financial reporting
standards, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control
regulations, political instability, regulatory and economic differences, and
potential restrictions on the flow of international capital. The Fund
is specifically exposed to Asian Economic
Risk,
European Economic Risk and North
American Economic
Risk.
Non-U.S.
Securities Risk. Investments in
the securities of non-U.S. issuers are
subject to the risks associated with investing in those non-U.S.
markets, such as heightened risks of inflation or nationalization.
The Fund or an Underlying
Fund may
lose money due to political, economic and geographic events affecting issuers
of non-U.S. securities or non-U.S.
markets. In
addition, non-U.S.
securities markets may trade a small number of securities and may
be unable to respond effectively to changes in trading volume,
potentially making prompt liquidation of holdings difficult or
impossible at times. The Fund is specifically exposed to Asian Economic
Risk, European Economic Risk and North
American
Economic Risk.
Operational
Risk. The
Fund and the Underlying
Funds are 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, the Underlying Funds
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.
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.
Real
Estate Investment Risk. Companies that
invest in real estate (“Real Estate
Companies”), such as REITs,
real estate holding and
operating companies and real estate management or development
companies, expose investors in the Fund to the risks of owning real
estate directly, as well as to risks that relate specifically to
the way in which Real Estate Companies are organized and
operated. Real estate is highly sensitive to general and local economic
conditions and developments, and characterized by
intense competition and periodic overbuilding. If the Fund's
investments in Real Estate Companies are concentrated in
one geographic region, industry or property type, the Fund will be
particularly subject to the risks associated with that region,
industry or property type. Many Real Estate Companies,
including REITs, utilize leverage
(and some may be highly leveraged),
which increases investment risk and the risk normally
associated with debt financing, and could potentially magnify the Fund’s
losses. Rising interest rates could result in higher costs of
capital for Real Estate Companies, which could negatively affect
a Real Estate Company's ability to meet its payment
obligations or its financing activity and could decrease the market prices
for REITs and for properties held by such
REITs.
Reinvestment
Risk. The Fund or
an Underlying Fund may invest a portion of its
assets in short-term fixed-income instruments and, as a result,
may be adversely affected if interest rates fall because they may
have to invest in lower-yielding bonds as bonds
mature.
Risk
of Investing in China.
Investments in
Chinese securities, including certain
Hong Kong-listed and U.S.-listed securities, subject the Fund
or the Underlying Funds to risks specific to China. China may
be subject to considerable degrees of economic,
political and social instability. China is an emerging market and
demonstrates significantly higher volatility from time to time in
comparison to developed markets. Over the last few decades, the
Chinese government has undertaken reform of
S-15
economic and
market practices and has expanded the sphere of private ownership
of property in China. However, Chinese markets generally continue
to experience inefficiency, volatility and pricing anomalies
resulting from governmental influence, a lack of publicly available
information and/or political and social instability.
Chinese companies
are also subject to the risk that Chinese authorities can
intervene in their operations and structure. Internal social
unrest or confrontations with neighboring countries,
including military conflicts in response to such events, may also disrupt
economic development in China and result in a greater risk of
currency fluctuations, currency non-convertibility, interest rate
fluctuations and higher rates of
inflation.
China has
experienced security concerns, such as terrorism and strained
international relations. Additionally, China is alleged to have participated
in state-sponsored cyberattacks against foreign companies and
foreign governments. Actual and threatened responses to such
activity and strained international relations, including
purchasing restrictions, sanctions, tariffs or cyberattacks on
the Chinese government or Chinese companies, may impact China’s
economy and Chinese issuers of securities in which the Fund
invests. Incidents involving China's or the region's security may cause
uncertainty in Chinese markets and may adversely affect
the Chinese economy and the Fund's investments.
Export growth continues to be a major driver of China's rapid
economic growth. Reduction in spending on Chinese products and
services, institution of additional tariffs or other trade
barriers (including as a result of heightened trade tensions or a trade war
between China and the U.S. or in response to actual or alleged
Chinese cyber activity) or a downturn in any of the economies of
China's key trading partners may have an adverse impact on
the Chinese economy.
Chinese companies,
including Chinese companies that are listed on U.S. exchanges,
are not subject to the same degree of regulatory
requirements, accounting standards or auditor oversight as
companies in more developed countries. As a result, information about
the Chinese securities in which the Fund invests may be
less reliable or complete. Chinese companies with securities listed
on U.S. exchanges may be delisted if they do not meet U.S.
accounting standards and auditor oversight requirements,
which would significantly decrease the liquidity and value of the
securities. There may be significant obstacles to obtaining
information necessary for investigations into or litigation against
Chinese companies, and shareholders may have limited legal
remedies. The Fund is not actively managed and does not select
investments based on investor protection considerations.
Risk
of Investing in Developed Countries.
The
Fund’s and the Underlying Fund's
investment in developed country issuers may subject the Fund
to legal, regulatory, political, currency, security, economic and
other risks associated with developed countries. Developed
countries tend to represent a significant portion of the global economy and
have generally experienced slower economic growth than some
less developed countries. Certain developed countries have
experienced security concerns, such as war, terrorism and
strained international relations. Incidents involving
a country’s or
region’s security may cause uncertainty in its markets and may
adversely affect its economy and the Fund’s or an Underlying
Fund's investments. In addition, developed countries may be
adversely impacted by changes to the economic conditions of
certain key trading partners, regulatory burdens, debt burdens and
the price or availability of certain
commodities.
Risk
of Investing in India. Investments in
Indian issuers involve risks that are
specific to India, including legal, regulatory, political, currency and
economic risks. Political and legal uncertainty, greater government
control over the economy, currency fluctuations or
blockage, and the risk of nationalization or expropriation of
assets may result in higher potential for losses. The securities
markets in India are relatively underdeveloped and may subject the
Fund or an Underlying Fund to higher transaction costs or greater
uncertainty than investments in more developed securities
markets.
Risk
of Investing in Japan. The Japanese
economy may be subject to
considerable degrees of economic, political and social instability, which
could have a negative impact on Japanese securities. Since
2000, Japan’s economic growth rate has generally remained
low relative to other advanced economies, and it may remain low
in the future. In addition, Japan is subject to the risk of natural
disasters, such as earthquakes, volcanic eruptions, typhoons and
tsunamis, which could negatively affect the Fund or an Underlying
Fund. Japan’s relations with its neighbors have at times been
strained, and strained relations may cause uncertainty in the Japanese
markets and adversely affect the overall Japanese economy.
Risk
of Investing in Russia. Investing in
Russian securities involves
significant risks, including legal, regulatory, currency and economic risks
that are specific to Russia. In addition, investing in Russian securities
involves risks associated with the settlement of portfolio
transactions and loss of the Fund’s or an Underlying
Fund's ownership
rights in its portfolio securities as a result of the system of share
registration and custody in Russia. Governments in the U.S. and
many other countries have imposed economic sanctions on
certain Russian individuals and Russian corporate and banking
entities. A number of jurisdictions may also institute broader sanctions
on Russia. Russia has issued a number of countersanctions,
some of which restrict the distribution of profits by limited
liability companies (e.g., dividends), and
prohibit Russian persons
from entering into transactions with designated persons from
“unfriendly
states” as well as the
export of raw materials or other
products from Russia to certain sanctioned persons. Russia
launched a large-scale invasion of Ukraine on February 24, 2022.
The extent and duration of the military action, resulting
sanctions and resulting future market disruptions, including declines
in its stock markets and the value of the ruble against the U.S.
dollar, are impossible to predict, but could be significant.
Disruptions caused by Russian military action or other actions (including
cyberattacks and espionage) or resulting actual and threatened
responses to such activity, including purchasing and financing
restrictions, boycotts or changes in consumer or purchaser
preferences, sanctions, import and export restrictions, tariffs or
cyberattacks on the Russian government, Russian companies, or
Russian individuals, including politicians, may impact Russia’s
economy and Russian companies in which the
S-16
Fund or an Underlying
Fund invests. Actual and threatened responses to
Russian military action may also impact the markets for certain
Russian commodities, such as oil and natural gas, as well as other
sectors of the Russian economy, and are likely to have collateral
impacts on such sectors globally. Russian companies may be
unable to pay dividends and, if they pay dividends, the
Fund or an Underlying
Fund may be unable to receive them. As a
result of sanctions, the Fund is currently restricted from
trading in Russian securities, including those in its portfolio, while
the Underlying Indexes of the Underlying Funds have removed
Russian securities. It is unknown when, or if, sanctions may be
lifted or the Fund’s ability to trade in Russian securities will
resume.
Risk
of Investing in Saudi Arabia. The ability of
foreign investors (such as the
Fund or an Underlying
Fund) to invest in the securities of
Saudi Arabian issuers is relatively new. Such ability could be
restricted by the Saudi Arabian government at any time, and unforeseen
risks could materialize with respect to foreign ownership in such
securities. The economy of Saudi Arabia is dominated by
petroleum exports. A sustained decrease in petroleum prices
could have a negative impact on all aspects of the economy.
Investments in the securities of Saudi Arabian issuers involve
risks not typically associated with investments in securities of
issuers in more developed countries that may negatively affect
the value of the Fund’s or Underlying
Fund's investments. Such
heightened risks may include, among others, expropriation
and/or nationalization of assets, restrictions on and government
intervention in international trade, confiscatory taxation,
political instability, including authoritarian and/or military
involvement in governmental decision making, armed conflict, crime
and instability as a result of religious, ethnic and/or
socioeconomic unrest. There remains the possibility that instability in the
larger Middle East region could adversely impact the economy of
Saudi Arabia, and there is no assurance of political
stability in Saudi Arabia.
Saudi
Arabia Broker Risk. There are a
number of different ways of conducting
transactions in equity securities in the Saudi Arabian
market. The Fund (or an Underlying Fund) generally expects to conduct
its transactions in a manner in which the Fund would not be
limited by Saudi Arabian regulations to a single broker. However,
there may be a limited number of brokers who can provide
services to the Fund (or an Underlying Fund), which may have an
adverse impact on the prices, quantity or timing of Fund (or an
Underlying Fund) transactions.
Risk
of Investing in Taiwan. Investments in
Taiwanese issuers involve risks that
are specific to Taiwan, including legal, regulatory,
political, currency and economic risks. Political and economic
developments of Taiwan’s neighbors may have an adverse effect on
Taiwan’s economy. Specifically, Taiwan’s geographic
proximity and history of political contention with China have
resulted in ongoing tensions, which may materially affect the
Taiwanese economy and its securities
market.
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 or the Underlying Funds has exposure.
Securities
Lending Risk. The Fund or
an Underlying Fund may engage in
securities lending. Securities lending involves the risk that the Fund or
the Underlying Funds may lose money because the borrower of
the loaned securities fails to return the securities in a timely manner
or at all. The Fund or the Underlying Funds 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 or an Underlying
Fund.
Small-Capitalization
Companies Risk. Compared to mid-
and large-capitalization
companies, small-capitalization companies may be less stable
and more susceptible to adverse developments. In
addition, the securities of small-capitalization companies may be
more volatile and less liquid than those of mid- and
large-capitalization companies.
Tax
Risk. Because the Fund
is expected to invest in the Underlying Funds,
the Fund’s realized losses on sales of shares of an Underlying Fund
may be indefinitely or permanently deferred as “wash
sales.” Distributions of
short-term capital gains by an Underlying Fund
will be recognized as ordinary income by the Fund and would not
be offset by the Fund’s capital loss carryforwards, if
any. Capital loss carryforwards of an Underlying Fund, if any,
would not offset net capital gains of the
Fund.
Technology
Sector Risk. Technology
companies, including information
technology companies, may have limited
product lines, markets,
financial resources or personnel. Technology companies
typically face intense competition and potentially rapid product
obsolescence. They are also heavily dependent on intellectual
property rights and may be adversely affected by the loss or impairment
of those rights. Companies in the technology sector may face
increased government and regulatory scrutiny and may be subject
to adverse government or regulatory
action.
Utilities
Sector Risk. The utilities
sector is subject to significant government
regulation and oversight. Deregulation, however, may subject utility
companies to greater competition and may reduce their
profitability. Companies in the utilities sector may be adversely affected
due to increases in fuel and operating costs, rising costs of
financing capital construction and the cost of complying with
U.S. federal and state regulations, among other factors.
Valuation
Risk. The price the
Fund or an Underlying Fund could receive upon the
sale of a security or other asset may differ from the
Fund's or the Underlying
Fund's valuation of the security or other asset,
particularly for securities or other assets that trade in low volume or
volatile markets, or assets that are impacted by market disruption
events or that are valued using a fair value methodology as a
result of trade suspensions or for other reasons. In
addition, the value of the securities or other assets in the Fund's or an
Underlying Fund's portfolio may change on days
S-17
or during time
periods when shareholders will not be able to purchase or sell
the Fund's or an Underlying Fund's shares. Authorized
Participants who purchase or redeem shares of the Fund or an
Underlying Fund on days when the Fund or an Underlying Fund
is holding fair-valued securities or other instruments may
receive fewer or more shares, or lower or higher redemption
proceeds, than they would have received had the securities or
other instruments not been fair valued or been valued using a
different methodology. The ability to value
investments may be
impacted by technological issues or errors by pricing services
or other third-party service
providers.
Performance
Information
As of the date of
the Prospectus, the Fund has not commenced operations and
therefore has no performance information to report.
S-18
Management
Investment
Adviser. BlackRock Fund
Advisors.
Portfolio
Managers. Christopher Chung
and Suzanne Ly (the “Portfolio
Managers”) are primarily
responsible for the day-to-day management of the
Fund. Each Portfolio Manager supervises a portfolio
management team. Mr. Chung and Ms. Ly have been Portfolio Managers
of the Fund since inception (2023).
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 you 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 taxed 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.
S-19
iShares
LifePath® Target Date 2030
ETF
Ticker:
ITDB Stock
Exchange: NYSE Arca
Investment
Objective
The iShares
LifePath Target Date 2030 ETF (the “2030
Fund” or the
“Fund”) seeks to provide
retirement outcomes through exposure to a broad portfolio of
ETFs which adjusts its allocation as it approaches its target
date.
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 iShares Trust (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. Acquired Fund Fees and
Expenses are not included in the calculation of the ratio of
expenses to average
net assets shown in the Financial
Highlights section of the Fund’s
prospectus (the “ Prospectus ” ).
You may pay other
fees, such as brokerage commissions and other fees to financial intermediaries,
which are not reflected in the tables and examples
below.
|
| ||||
|
Management
Fees |
Distribution
and
Service
(12b-1)
Fees |
Other
Expenses2
|
Acquired
Fund Fees
and
Expenses 3
|
Total
Annual
Fund
Operating
Expenses |
|
|
|
|
|
|
1
2
3
|
|
1
Year |
3
Years |
|
|
|
$ |
$ |
|
Principal
Investment Strategies
The 2030 Fund is
actively managed and allocates and reallocates its assets among a
combination of Underlying Funds in proportions based
on its own investment strategy.
The 2030 Fund is
one of a group of funds referred to as the “LifePath
ETFs,” each of which
seeks to provide for retirement outcomes based on
quantitatively measured risk that investors on average may be
willing to accept given a particular time
horizon.
S-20
BFA employs a
multi-dimensional approach to assess risk for the 2030 Fund and to
determine its allocation across asset classes. As part of this
multi-dimensional approach, BFA aims to quantify risk using
proprietary risk measurement tools that, among other things, analyze
historical and forward-looking securities market data, including
risk, asset class correlations, and expected returns. Under
normal circumstances, the 2030 Fund intends to invest primarily
in affiliated exchange-traded funds (“ETFs”).
The 2030 Fund will
invest, under normal circumstances, at least 80% of its assets
in securities or other financial instruments that are components of
or have economic characteristics similar to the securities
included in its custom model benchmark, the 2030 Target Date Custom
Benchmark. BFA will not publish its custom benchmark but will
apply a proprietary model to monitor performance of the
2030 Fund. The 2030 Fund is designed for investors
expecting to retire or to begin withdrawing assets around the year
2030. At inception, BFA expects the 2030 Fund to hold
approximately 56.40% of its assets in Underlying Funds that seek to track
particular underlying indexes of equity securities,
approximately 43.60% of its assets in Underlying Funds that seek to track
particular fixed-income indexes and the remainder of its
assets in Underlying Funds that invest primarily in money market
instruments.
At inception, the
Fund invests in the iShares 0-5 Year TIPS Bond ETF, iShares 1-5
Year Investment Grade Corporate Bond ETF, iShares 5-10 Year
Investment Grade Corporate Bond ETF, iShares 10+ Year
Investment Grade Corporate Bond ETF, iShares 10-20 Year Treasury Bond
ETF, iShares Core MSCI Emerging Markets ETF, iShares Core
MSCI International Developed Markets ETF, iShares Core U.S.
REIT ETF, iShares Global Infrastructure ETF, iShares MBS ETF,
iShares Russell 1000 ETF, iShares Russell 2000 ETF, iShares U.S.
Treasury Bond ETF and money market funds advised by BFA or
its affiliates (“BlackRock Cash
Funds”). Factors
such
as fund classifications, historical risk and performance, and the relationship
to other Underlying Funds in the Fund are considered when
selecting Underlying Funds. The specific Underlying Funds
selected for the Fund are determined at BFA’s discretion and may
change as deemed appropriate to allow the Fund to meet its
investment objective. See the “Information About
the
Underlying Funds” section of the
prospectus for a list of the Underlying Funds,
their classification into equity, fixed-income or money market funds
and a brief description of their investment objectives and
primary investment strategies.
Under normal
circumstances, the Fund’s asset allocation will change over time
according to a predetermined “glide
path” as the Fund
approaches its target date. The glide path below represents the
shifting of asset classes over time. As the glide path shows, as
time elapses prior to retirement, the Fund’s asset allocations become
more conservative. This reflects the need for reduced investment
risk as retirement approaches and the need for lower
volatility of the Fund, which for certain investors may be a primary source
of income after retirement. During the year prior to the Fund’s
maturity date, its allocation of assets is expected to be similar to that
of the Retirement Fund. Further, as retirement approaches, such
Fund and the Retirement Fund is expected to, subject to
approval by the Trust’s Board of Trustees (the “Board”), merge into a
single fund.
The following
chart illustrates the glide path — the target allocation among
asset classes as the LifePath ETFs approach their target
dates:
The following
table lists the target allocation by years until retirement:
|
Years
to
Retirement |
Equity
Allocation
(including
REITs) |
Fixed-Income
Allocation |
|
45 |
99% |
1% |
|
40 |
99% |
1% |
|
35 |
99% |
1% |
|
30 |
98% |
2% |
|
25 |
95% |
5% |
|
20 |
87% |
13% |
|
15 |
77% |
23% |
|
10 |
65% |
35% |
|
5 |
53% |
47% |
|
0 |
40% |
60% |
The asset
allocation targets are established by the Fund’s portfolio
managers. The investment team, including the portfolio managers, meets
regularly to assess market conditions, review the asset
allocation targets of the Fund, and determine whether any changes are
required to enable the Fund to achieve its investment
objective.
Although the asset
allocation targets listed for the glide path are general, long-term
targets, BFA may periodically adjust the proportion of
equity and fixed-income Underlying Funds in the Fund, based on an
assessment of the current market conditions, the potential
contribution of each asset class to the expected risk and return
characteristics of the Fund, reallocations of the Fund’s composition to
reflect intra-year movement along the glide path and other factors.
In general, such adjustments will be limited; however, BFA may
determine that a greater degree of variation is warranted to
protect the Fund or achieve its investment
objective.
BFA’s second step
in the structuring of the Fund is the selection of the Underlying
Funds. Factors such as fund classifications, historical risk
and performance, and the relationship to other Underlying Funds
in the Fund are considered when selecting Underlying Funds.
The specific Underlying Funds selected for the Fund are
determined at BFA’s discretion and may change as
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deemed appropriate
to allow the Fund to meet its investment objective. See the
“Information About
the Underlying Funds”
section of the
prospectus for a list of the Underlying Funds, their classification
into equity, fixed-income or money market funds and a brief
description of their investment objectives and primary investment
strategies.
Within the
prescribed percentage allocations to equity and fixed-income index funds, BFA
seeks to diversify the Fund. The allocation to
Underlying Funds that track equity indexes may be further
diversified by style (including both value and growth), market
capitalization (including emerging growth, large-, mid-, and small-capitalization),
region (i.e., U.S, and
international, including emerging markets)
or other attributes. The allocation to Underlying Funds
that track fixed-income indexes may be further diversified by
sector (including government, corporate, U.S. agency MBS or
debentures, CMBS, and other sectors), duration (a of measurement of
interest rate risk), credit quality (including investment grade
bonds and high yield bonds), geographic location
(including U.S. and non-U.S. securities, including bonds of emerging market
issuers), currency (U.S. dollar-denominated or local currency
bonds) or other attributes. Though BFA seeks to diversify the
Fund, certain Underlying Funds may concentrate their investments
in specific sectors or geographic regions or countries. The
percentage allocation to the various styles of equity and
fixed-income Underlying Funds is determined at the discretion of the
investment team and can be changed to reflect the current market
environment.
Certain Underlying
Funds may invest in real estate investment trusts
(“REITs”), foreign
securities, emerging market securities, high yield bonds
and derivative securities or instruments, such as options and
futures, the value of which is derived from another security, a
currency or commodity, an interest rate or an index, when seeking to
match the performance of a particular market index. The Fund
and certain Underlying Funds may also lend securities with a
value up to one-third of their respective total assets to
financial institutions that provide cash or securities issued or
guaranteed by the U.S. Government as
collateral.
Summary
of Principal Risks
Equity
Securities Risk. Equity securities
are subject to changes in value, and
their values may be more volatile than those of other asset classes.
Certain Underlying Funds invest in common stocks, which generally
subject their holders to
more risks than preferred stocks and debt
securities because common stockholders’ claims
are subordinated
to those of holders of preferred stocks and debt securities upon
the bankruptcy of the issuer.
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 or an Underlying
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.
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 or an Underlying 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 or an Underlying 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.
U.S.
Treasury Obligations Risk. U.S. Treasury
obligations may differ from other
securities in their interest rates, maturities, times of issuance
and other characteristics and may provide relatively lower
returns than those of other securities. Similar to other issuers,
changes to the financial condition or credit rating of a government may
cause the value of the Fund's or an Underlying Fund's U.S.
Treasury obligations to decline.
Allocation
Risk.
The Fund’s ability to achieve its investment objective depends
upon BFA's ability to develop a model that accurately
assesses the Fund’s asset class allocation and selects an appropriate mix
of Underlying Funds and other ETFs. There is a risk that BFA's
evaluations and assumptions regarding asset classes or
Underlying Funds, which are utilized as inputs in the model, may be
incorrect in view of actual market
conditions.
Investment
in Underlying Funds Risk. The Fund invests
substantially all
of its assets in the Underlying
Funds, so the Fund’s investment
performance is directly related to the performance of the
Underlying Funds. The Fund’s NAV will change with changes in
the value of the Underlying Funds and other securities in
which the Fund invests based on their market
S-22
valuations. An
investment in the Fund will entail more costs and expenses than a
direct investment in the Underlying
Funds.
As the Underlying
Funds, or the Fund’s allocations among the Underlying Funds,
change from time to time, or to the extent that the total annual
fund operating expenses of any Underlying Fund change, the
weighted average operating expenses borne by the Fund may increase
or decrease.
Affiliated
Fund Risk. In managing the
Fund, BFA has the ability to select Underlying
Funds and substitute Underlying Funds with other ETFs that it
believes will achieve the Fund’s objective. BFA may be subject to
potential conflicts of interest in selecting Underlying Funds
and substituting Underlying Funds with other ETFs because the
fees paid to BFA by some Underlying Funds and other ETFs managed
by BFA may be higher than the fees paid by other Underlying
Funds. If an Underlying Fund or other ETF holds interests in an
affiliated fund in excess of a certain amount, the Fund may be
prohibited from purchasing shares of that Underlying Fund or other
ETF.
Retirement
Income Risk. The 2030 Fund does
not provide a guarantee that
sufficient capital appreciation will be achieved to provide adequate
income at and through retirement. The 2030 Fund also does not
ensure that you will have assets in your account sufficient
to cover your retirement expenses; this will depend on the
amount of money you have invested in the 2030 Fund, the length
of time you have held your investment, the returns of the
markets over time, the amount you spend in retirement, and
your other assets and income sources.
Selection
Risk.
Selection risk is the risk that the securities selected by the
2030 Fund management will underperform the markets, the
relevant indices or the securities selected by other funds with similar
investment objectives and investment strategies. This
means you may lose money.
Market
Risk. The
Fund and the Underlying
Funds 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, public
health issues, recessions, the prospect or occurrence of a
sovereign default or other financial crisis, or other events could have
a significant impact on the Fund, the Underlying Funds
and their investments and could result in increased premiums
or discounts to the Fund’s or Underlying
Fund's
NAV.
Asset
Class Risk. Securities and
other assets in the Fund's or an Underlying Fund's
portfolio may underperform in comparison to the general
financial markets, a particular financial market or other asset
classes.
Authorized
Participant Concentration Risk. Only an
Authorized Participant (as
defined in the Creations
and Redemptions section
of
this prospectus (the “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.
Authorized Participant concentration risk may be heightened for
ETFs, such as the Fund, that invest in securities issued by non-U.S.
issuers or other securities or instruments that have lower trading
volumes.
Call
Risk.
During periods of
falling interest rates, an issuer of a callable bond held
by the Fund or an Underlying Fund may “call”
or
repay the security before its stated maturity, and the Fund or an Underlying 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.
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 or an Underlying 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.
Currency
Risk. Because the
Fund's and the Underlying Funds' NAVs are
determined in U.S. dollars, the Fund's NAV could decline if a currency of a
non-U.S. market in which a Fund or an Underlying
Fund invests depreciates against the U.S. dollar or if there are delays
or limits on repatriation of such currency. Currency exchange
rates can be very volatile and can change quickly and
unpredictably. As a result, the Fund's NAV may change quickly and
without warning.
Cybersecurity
Risk. Failures or
breaches of the electronic systems of the
Fund or the Underlying Funds, the Funds' or the Underlying Funds'
adviser, distributor, the benchmark provider 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 benchmark provider
and other service providers, market makers, Authorized
Participants or issuers of securities in which the Fund invests.
Derivatives
Risk. The Fund or
an Underlying Fund may invest in certain types of
derivatives contracts, including futures, options and swaps, which
can be more sensitive to changes in interest rates or to sudden
fluctuations in market prices than conventional securities, which
can result in greater losses to the Fund.
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Energy
Sector Risk. The market value
of securities in the energy sector may decline
for many reasons, including, among others, changes in energy
prices, energy supply and demand, government regulations, costs
related to exploration and production and energy
conservation efforts. Companies in the energy sector may also be
significantly impacted by natural disasters, social and political unrest,
war and environmental damage and may also be at risk for
increased litigation and negative publicity or public perception. The
energy sector may experience significant market volatility
(e.g., as a result of
Russia’s invasion of Ukraine in February 2022 and
the resulting sanctions on Russia and other responses by the
U.S. and other actors).
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 or an Underlying Fund's
investments.
Financials
Sector Risk. The performance
of companies in the financials sector
may be adversely impacted by many factors, including, among
others, changes in government regulations, economic
conditions, and interest rates, credit rating downgrades,
adverse public perception, exposure concentration and decreased
liquidity in credit markets. The impact of changes in regulation of
any individual financial company, or of the financials sector
as a whole, cannot be predicted. Cybersecurity incidents and
technology malfunctions and failures have become increasingly
frequent and have caused significant losses to companies in this
sector, which may negatively impact an Underlying
Fund.
Geographic
Risk. A natural
disaster could occur in a geographic region in which
the Fund or an Underlying Fund invests, which could adversely
affect the economy or the business operations of companies in the
specific geographic region, causing an adverse impact on the
Fund's or an Underlying Fund's investments in, or which are exposed
to, the affected region.
Healthcare
Sector Risk. The profitability
of companies in the healthcare sector
may be affected by government regulations and government
healthcare programs, increases or decreases in the cost of medical
products and services, an increased emphasis on outpatient
services, demand for medical products and services and product
liability claims, among other factors. Many healthcare companies are
heavily dependent on patent protection, and the expiration of a
company’s patent may adversely affect that company’s
profitability. Healthcare companies are subject to competitive forces
that may result in price discounting, and may be thinly
capitalized and susceptible to product
obsolescence.
Income
Risk. The Fund's income
may decline if interest rates fall. This decline in
income can occur because an Underlying Fund may subsequently
invest in lower-yielding securities as securities in an Underlying Fund's
portfolio mature, are near maturity or are called, securities
are substituted, or an Underlying Fund otherwise needs to purchase
additional bonds.
Indexing
Investment Risk. The Underlying
Funds are not actively managed, and BFA
generally does not attempt to take defensive positions in the
Underlying Funds under any market conditions, including
declining markets.
Industrials
Sector Risk. Companies in the
industrials sector may be adversely
affected by changes in the supply of and demand for products and
services, product obsolescence, claims for environmental
damage or product liability and changes in general economic
conditions, among other factors.
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 elevated tracking error and 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.
Information
Technology Sector Risk. Information
technology companies face
intense competition and potentially rapid product obsolescence. They
are also heavily dependent on intellectual property rights
and may be adversely affected by the loss or impairment of
those rights. Companies in the information technology sector
are facing increased government and regulatory
scrutiny and may be subject to adverse government or regulatory action.
Companies in the software industry may be adversely affected
by, among other things, the decline or fluctuation of
subscription renewal rates for their products and services and
actual or perceived vulnerabilities in their products or
services.
Infrastructure
Industry Risk. Companies in the
infrastructure industry may be
subject to a variety of factors that could adversely affect
their business or operations, including high interest costs in
connection with capital construction programs, high degrees of
leverage, costs associated with governmental, environmental and
other regulations, the level of government spending on
infrastructure projects, and other
factors.
Issuer
Risk. The performance
of the Fund depends on the performance of
individual securities to which the Fund or an Underlying Fund
has exposure. Changes in the financial condition or credit rating
of an issuer of those securities may cause the value of the
securities to decline.
Large-Capitalization
Companies Risk.
Large-capitalization companies may be
less able than smaller capitalization companies to adapt
to changing market conditions. Large-capitalization companies may be
more mature and subject to more limited
growth potential compared with smaller capitalization
companies. During different market cycles, the
S-24
performance of
large-capitalization companies has trailed the overall
performance of the broader securities
markets.
Management
Risk. The Fund and the
Underlying Funds are subject to
management risk, which is the risk that the investment process,
techniques and risk analyses applied by BFA will not produce the
desired results, and that securities selected by BFA may underperform
the market or any relevant benchmark. In addition,
legislative, regulatory, or tax developments may affect the investment
techniques available to BFA in connection with managing the Fund
and the Underlying Funds and may also adversely affect
the ability of the Fund and the Underlying Funds to achieve their
investment objective.
Market
Trading Risk. The Fund and
the Underlying Funds face numerous market
trading risks, including the potential lack of an active market for
their shares, losses from trading in secondary markets, periods
of high volatility and disruptions in the creation/redemption
process. ANY
OF THESE FACTORS, AMONG
OTHERS, MAY LEAD TO THE FUND'S SHARES TRADING
AT A PREMIUM OR DISCOUNT TO NAV.
Mid-Capitalization
Companies Risk. Compared to
large-capitalization companies,
mid-capitalization companies may be less stable and
more susceptible to adverse developments. In addition, the
securities of mid-capitalization companies may be more volatile and
less liquid than those of large-capitalization companies.
National
Closed Market Trading Risk. To the extent
that the underlying
securities or other instruments held by the Fund or the Underlying Funds
trade on foreign exchanges or in foreign markets that may
be closed when the securities exchange on which the Fund’s
or an Underlying Fund's shares trade is open, there are likely
to be deviations between the current price of such an underlying
security and the last quoted price for the underlying security
(i.e., the Fund’s or
an Underlying Fund's quote from the closed foreign
market). The impact of a
closed foreign market on the Fund or an
Underlying Fund is likely to be greater where a large portion of
the Fund’s or an Underlying Fund's underlying securities or
other instruments trade on that closed foreign market or when the
foreign market is closed for unscheduled reasons. These
deviations could result in premiums or discounts to the Fund’s
or an Underlying Fund's NAV that may be greater than those
experienced by other ETFs.
Non-U.S.
Issuers Risk. Securities issued
by non-U.S. issuers carry different
risks from securities issued by U.S. issuers. These risks include
differences in accounting, auditing and financial reporting
standards, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control
regulations, political instability, regulatory and economic differences, and
potential restrictions on the flow of international capital. The Fund
is specifically exposed to Asian Economic
Risk,
European Economic Risk and North
American Economic
Risk.
Non-U.S.
Securities Risk. Investments in
the securities of non-U.S. issuers are
subject to the risks associated with investing in
those non-U.S.
markets, such as heightened risks of inflation or nationalization.
The Fund or an Underlying
Fund may
lose money due to political, economic and geographic events affecting issuers
of non-U.S. securities or non-U.S.
markets. In addition, non-U.S.
securities markets may trade a small number of securities and may
be unable to respond effectively to changes in trading volume,
potentially making prompt liquidation of holdings difficult or
impossible at times. The Fund is specifically exposed to Asian Economic
Risk, European Economic Risk and North
American
Economic Risk.
Operational
Risk. The
Fund and the Underlying
Funds are 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, the Underlying Funds
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.
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.
Real
Estate Investment Risk. Companies that
invest in real estate (“Real Estate
Companies”), such as REITs,
real estate holding and
operating companies and real estate management or development
companies, expose investors in the Fund to the risks of owning real
estate directly, as well as to risks that relate specifically to
the way in which Real Estate Companies are organized and
operated. Real estate is highly sensitive to general and local economic
conditions and developments, and characterized by
intense competition and periodic overbuilding. If the Fund's
investments in Real Estate Companies are concentrated in
one geographic region, industry or property type, the Fund will be
particularly subject to the risks associated with that region,
industry or property type. Many Real Estate Companies,
including REITs, utilize leverage
(and some may be highly leveraged),
which increases investment risk and the risk normally
associated with debt financing, and could potentially magnify the Fund’s
losses. Rising interest rates could result in higher costs of
capital for Real Estate Companies, which could negatively affect
a Real Estate Company's ability to meet its payment
obligations or its financing activity and could decrease the market prices
for REITs and for properties held by such
REITs.
Reinvestment
Risk. The Fund or
an Underlying Fund may invest a portion of its
assets in short-term fixed-income instruments and, as a result,
may be adversely affected if interest rates fall because they may
have to invest in lower-yielding bonds as bonds
mature.
Risk
of Investing in China.
Investments in
Chinese securities, including certain
Hong Kong-listed and U.S.-listed securities, subject the Fund
or the Underlying Funds to risks specific to China. China may
be subject to considerable degrees of
S-25
economic,
political and social instability. China is an emerging market and
demonstrates significantly higher volatility from time to time in
comparison to developed markets. Over the last few decades, the
Chinese government has undertaken reform of economic and
market practices and has expanded the sphere of private ownership
of property in China. However, Chinese markets generally continue
to experience inefficiency, volatility and pricing anomalies
resulting from governmental influence, a lack of publicly available
information and/or political and social instability.
Chinese companies
are also subject to the risk that Chinese authorities can
intervene in their operations and structure. Internal social
unrest or confrontations with neighboring countries,
including military conflicts in response to such events, may also disrupt
economic development in China and result in a greater risk of
currency fluctuations, currency non-convertibility, interest rate
fluctuations and higher rates of
inflation.
China has
experienced security concerns, such as terrorism and strained
international relations. Additionally, China is alleged to have participated
in state-sponsored cyberattacks against foreign companies and
foreign governments. Actual and threatened responses to such
activity and strained international relations, including
purchasing restrictions, sanctions, tariffs or cyberattacks on
the Chinese government or Chinese companies, may impact China’s
economy and Chinese issuers of securities in which the Fund
invests. Incidents involving China's or the region's security may cause
uncertainty in Chinese markets and may adversely affect
the Chinese economy and the Fund's investments.
Export growth continues to be a major driver of China's rapid
economic growth. Reduction in spending on Chinese products and
services, institution of additional tariffs or other trade
barriers (including as a result of heightened trade tensions or a trade war
between China and the U.S. or in response to actual or alleged
Chinese cyber activity) or a downturn in any of the economies of
China's key trading partners may have an adverse impact on
the Chinese economy.
Chinese companies,
including Chinese companies that are listed on U.S. exchanges,
are not subject to the same degree of regulatory
requirements, accounting standards or auditor oversight as
companies in more developed countries. As a result, information about
the Chinese securities in which the Fund invests may be
less reliable or complete. Chinese companies with securities listed
on U.S. exchanges may be delisted if they do not meet U.S.
accounting standards and auditor oversight requirements,
which would significantly decrease the liquidity and value of the
securities. There may be significant obstacles to obtaining
information necessary for investigations into or litigation against
Chinese companies, and shareholders may have limited legal
remedies. The Fund is not actively managed and does not select
investments based on investor protection considerations.
Risk
of Investing in Developed Countries.
The
Fund’s and the Underlying Fund's
investment in developed country issuers may subject the Fund
to legal, regulatory, political, currency, security, economic and
other risks associated with developed countries. Developed
countries tend to represent a significant portion of the
global economy and
have generally experienced slower economic growth than some
less developed countries. Certain developed countries have
experienced security concerns, such as war, terrorism and
strained international relations. Incidents involving a country’s or
region’s security may cause uncertainty in its markets and may
adversely affect its economy and the Fund’s or an Underlying
Fund's investments. In addition, developed countries may be
adversely impacted by changes to the economic conditions of
certain key trading partners, regulatory burdens, debt burdens and
the price or availability of certain
commodities.
Risk
of Investing in India. Investments in
Indian issuers involve risks that are
specific to India, including legal, regulatory, political, currency and
economic risks. Political and legal uncertainty, greater government
control over the economy, currency fluctuations or
blockage, and the risk of nationalization or expropriation of
assets may result in higher potential for losses. The securities
markets in India are relatively underdeveloped and may subject the
Fund or an Underlying Fund to higher transaction costs or greater
uncertainty than investments in more developed securities
markets.
Risk
of Investing in Japan. The Japanese
economy may be subject to
considerable degrees of economic, political and social instability, which
could have a negative impact on Japanese securities. Since
2000, Japan’s economic growth rate has generally remained
low relative to other advanced economies, and it may remain low
in the future. In addition, Japan is subject to the risk of natural
disasters, such as earthquakes, volcanic eruptions, typhoons and
tsunamis, which could negatively affect the Fund or an Underlying
Fund. Japan’s relations with its neighbors have at times been
strained, and strained relations may cause uncertainty in the Japanese
markets and adversely affect the overall Japanese economy.
Risk
of Investing in Russia. Investing in
Russian securities involves
significant risks, including legal, regulatory, currency and economic risks
that are specific to Russia. In addition, investing in Russian securities
involves risks associated with the settlement of portfolio
transactions and loss of the Fund’s or an Underlying
Fund's ownership
rights in its portfolio securities as a result of the system of share
registration and custody in Russia. Governments in the U.S. and
many other countries have imposed economic sanctions on
certain Russian individuals and Russian corporate and banking
entities. A number of jurisdictions may also institute broader sanctions
on Russia. Russia has issued a number of countersanctions,
some of which restrict the distribution of profits by limited
liability companies (e.g., dividends), and
prohibit Russian persons
from entering into transactions with designated persons from
“unfriendly
states” as well as the
export of raw materials or other
products from Russia to certain sanctioned persons. Russia
launched a large-scale invasion of Ukraine on February 24, 2022.
The extent and duration of the military action, resulting
sanctions and resulting future market disruptions, including declines
in its stock markets and the value of the ruble against the U.S.
dollar, are impossible to predict, but could be significant.
Disruptions caused by Russian military action or other actions (including
cyberattacks and espionage) or resulting actual and threatened
responses to such activity, including purchasing and financing
restrictions, boycotts or changes in consumer or
S-26
purchaser
preferences, sanctions, import and export restrictions, tariffs or
cyberattacks on the Russian government, Russian companies, or
Russian individuals, including politicians, may impact Russia’s
economy and Russian companies in which the Fund or an Underlying
Fund invests. Actual and threatened responses to
Russian military action may also impact the markets for certain
Russian commodities, such as oil and natural gas, as well as other
sectors of the Russian economy, and are likely to have collateral
impacts on such sectors globally. Russian companies may be
unable to pay dividends and, if they pay dividends, the
Fund or an Underlying
Fund may be unable to receive them. As a
result of sanctions, the Fund is currently restricted from
trading in Russian securities, including those in its portfolio, while
the Underlying Indexes of the Underlying Funds have removed
Russian securities. It is unknown when, or if, sanctions may be
lifted or the Fund’s ability to trade in Russian securities will
resume.
Risk
of Investing in Saudi Arabia. The ability of
foreign investors (such as the
Fund or an Underlying
Fund) to invest in the securities of
Saudi Arabian issuers is relatively new. Such ability could be
restricted by the Saudi Arabian government at any time, and unforeseen
risks could materialize with respect to foreign ownership in such
securities. The economy of Saudi Arabia is dominated by
petroleum exports. A sustained decrease in petroleum prices
could have a negative impact on all aspects of the economy.
Investments in the securities of Saudi Arabian issuers involve
risks not typically associated with investments in securities of
issuers in more developed countries that may negatively affect
the value of the Fund’s or Underlying
Fund's investments. Such
heightened risks may include, among others, expropriation
and/or nationalization of assets, restrictions on and government
intervention in international trade, confiscatory taxation,
political instability, including authoritarian and/or military
involvement in governmental decision making, armed conflict, crime
and instability as a result of religious, ethnic and/or
socioeconomic unrest. There remains the possibility that instability in the
larger Middle East region could adversely impact the economy of
Saudi Arabia, and there is no assurance of political
stability in Saudi Arabia.
Saudi
Arabia Broker Risk. There are a
number of different ways of conducting
transactions in equity securities in the Saudi Arabian
market. The Fund (or an Underlying Fund) generally expects to conduct
its transactions in a manner in which the Fund would not be
limited by Saudi Arabian regulations to a single broker. However,
there may be a limited number of brokers who can provide
services to the Fund (or an Underlying Fund), which may have an
adverse impact on the prices, quantity or timing of Fund (or an
Underlying Fund) transactions.
Risk
of Investing in Taiwan. Investments in
Taiwanese issuers involve risks that
are specific to Taiwan, including legal, regulatory,
political, currency and economic risks. Political and economic
developments of Taiwan’s neighbors may have an adverse effect on
Taiwan’s economy. Specifically, Taiwan’s geographic
proximity and history of political contention with China have
resulted in ongoing tensions, which may materially affect the
Taiwanese economy and its securities market.
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 or the Underlying Funds has exposure.
Securities
Lending Risk. The Fund or
an Underlying Fund may engage in
securities lending. Securities lending involves the risk that the Fund or
the Underlying Funds may lose money because the borrower of
the loaned securities fails to return the securities in a timely manner
or at all. The Fund or the Underlying Funds 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 or an Underlying
Fund.
Small-Capitalization
Companies Risk. Compared to mid-
and large-capitalization
companies, small-capitalization companies may be less stable
and more susceptible to adverse developments. In
addition, the securities of small-capitalization companies may be
more volatile and less liquid than those of mid- and
large-capitalization companies.
Tax
Risk. Because the Fund
is expected to invest in the Underlying Funds,
the Fund’s realized losses on sales of shares of an Underlying Fund
may be indefinitely or permanently deferred as “wash
sales.” Distributions of
short-term capital gains by an Underlying Fund
will be recognized as ordinary income by the Fund and would not
be offset by the Fund’s capital loss carryforwards, if
any. Capital loss carryforwards of an Underlying Fund, if any,
would not offset net capital gains of the
Fund.
Technology
Sector Risk. Technology
companies, including information
technology companies, may have limited
product lines, markets,
financial resources or personnel. Technology companies
typically face intense competition and potentially rapid product
obsolescence. They are also heavily dependent on intellectual
property rights and may be adversely affected by the loss or impairment
of those rights. Companies in the technology sector may face
increased government and regulatory scrutiny and may be subject
to adverse government or regulatory
action.
Utilities
Sector Risk. The utilities
sector is subject to significant government
regulation and oversight. Deregulation, however, may subject utility
companies to greater competition and may reduce their
profitability. Companies in the utilities sector may be adversely affected
due to increases in fuel and operating costs, rising costs of
financing capital construction and the cost of complying with
U.S. federal and state regulations, among other factors.
Valuation
Risk. The price the
Fund or an Underlying Fund could receive upon the
sale of a security or other asset may differ from the
Fund's or the Underlying
Fund's valuation of the security or other asset,
particularly for securities or other assets that trade in low volume or
volatile markets, or assets that are impacted by market disruption
events or that are valued using a fair value methodology as a
result of trade suspensions or for other
S-27
reasons. In
addition, the value of the securities or other assets in the Fund's or an
Underlying Fund's portfolio may change on days or during time
periods when shareholders will not be able to purchase or sell
the Fund's or an Underlying Fund's shares. Authorized
Participants who purchase or redeem shares of the Fund or an
Underlying Fund on days when the Fund or an Underlying Fund
is holding fair-valued securities or other instruments may
receive fewer or more shares, or lower or higher redemption
proceeds, than they would have received had the securities or
other instruments not been fair valued or been
valued using a
different methodology. The ability to value investments may be
impacted by technological issues or errors by pricing services
or other third-party service
providers.
Performance
Information
As of the date of
the Prospectus, the Fund has not commenced operations and
therefore has no performance information to report.
S-28
Management
Investment
Adviser. BlackRock Fund
Advisors.
Portfolio
Managers. Christopher Chung
and Suzanne Ly (the “Portfolio
Managers”) are primarily
responsible for the day-to-day management of the
Fund. Each Portfolio Manager supervises a portfolio
management team. Mr. Chung and Ms. Ly have been Portfolio Managers
of the Fund since inception (2023).
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 you 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 taxed 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.
S-29
iShares
LifePath® Target Date 2035
ETF
Ticker:
ITDC
Stock Exchange: NYSE Arca
Investment
Objective
The iShares
LifePath Target Date 2035 ETF (the “2035
Fund” or the
“Fund”) seeks to provide
retirement outcomes through exposure to a broad portfolio of
ETFs which adjusts its allocation as it approaches its target
date.
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 iShares Trust (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. Acquired Fund Fees
and Expenses are not included in the calculation of the ratio of
expenses to average
net assets shown in the Financial
Highlights section of the
Fund’s prospectus (the “ Prospectus ” ).
You may pay other
fees, such as brokerage commissions and other fees to financial intermediaries,
which are not reflected in the tables and examples
below.
|
| ||||
|
Management
Fees |
Distribution
and
Service
(12b-1)
Fees |
Other
Expenses2
|
Acquired
Fund Fees
and
Expenses 3
|
Total
Annual
Fund
Operating
Expenses |
|
|
|
|
|
|
1
2
3
|
|
1
Year |
3
Years |
|
|
|
$ |
$ |
|
Principal
Investment Strategies
The 2035 Fund is
actively managed and allocates and reallocates its assets among a
combination of Underlying Funds in proportions based
on its own investment strategy.
The 2035 Fund is
one of a group of funds referred to as the “LifePath
ETFs,” each of which
seeks to provide for retirement outcomes based on
quantitatively measured risk that investors on average may be
willing to accept given a particular time
horizon.
S-30
BFA employs a
multi-dimensional approach to assess risk for the 2035 Fund and to
determine its allocation across asset classes. As part of this
multi-dimensional approach, BFA aims to quantify risk using
proprietary risk measurement tools that, among other things, analyze
historical and forward-looking securities market data, including
risk, asset class correlations, and expected returns. Under
normal circumstances, the 2035 Fund intends to invest primarily
in affiliated exchange-traded funds (“ETFs”).
The 2035 Fund will
invest, under normal circumstances, at least 80% of its assets
in securities or other financial instruments that are components of
or have economic characteristics similar to the securities
included in its custom model benchmark, the 2035 Target Date Custom
Benchmark. BFA will not publish its custom benchmark but will
apply a proprietary model to monitor performance of the
2035 Fund. The 2035 Fund is designed for investors
expecting to retire or to begin withdrawing assets around the year
2035. At inception, BFA expects the 2035 Fund to hold
approximately 68.10% of its assets in Underlying Funds that seek to track
particular underlying indexes of equity securities,
approximately 31.90% of its assets in Underlying Funds that seek to track
particular fixed-income indexes and the remainder of its
assets in Underlying Funds that invest primarily in money market
instruments.
At inception, the
Fund invests in the iShares 0-5 Year TIPS Bond ETF, iShares 1-5
Year Investment Grade Corporate Bond ETF, iShares 5-10 Year
Investment Grade Corporate Bond ETF, iShares 10+ Year
Investment Grade Corporate Bond ETF, iShares 10-20 Year Treasury Bond
ETF, iShares Core MSCI Emerging Markets ETF, iShares Core
MSCI International Developed Markets ETF, iShares Core U.S.
REIT ETF, iShares Global Infrastructure ETF, iShares MBS ETF,
iShares Russell 1000 ETF, iShares Russell 2000 ETF, iShares U.S.
Treasury Bond ETF and money market funds advised by BFA or
its affiliates (“BlackRock Cash
Funds”). Factors
such
as fund classifications, historical risk and performance, and the relationship
to other Underlying Funds in the Fund are considered when
selecting Underlying Funds. The specific Underlying Funds
selected for the Fund are determined at BFA’s discretion and may
change as deemed appropriate to allow the Fund to meet its
investment objective. See the “Information About
the
Underlying Funds” section of the
prospectus for a list of the Underlying Funds,
their classification into equity, fixed-income or money market funds
and a brief description of their investment objectives and
primary investment strategies.
Under normal
circumstances, the Fund’s asset allocation will change over time
according to a predetermined “glide
path” as the Fund
approaches its target date. The glide path below represents the
shifting of asset classes over time. As the glide path shows, as
time elapses prior to retirement, the Fund’s asset allocations become
more conservative. This reflects the need for reduced investment
risk as retirement approaches and the need for lower
volatility of the Fund, which for certain investors may be a primary source
of income after retirement. During the year prior to the Fund’s
maturity date, its allocation of assets is expected to be similar to that
of the Retirement Fund. Further, as retirement approaches, such
Fund and the Retirement Fund is expected to, subject to
approval by the Trust’s Board of Trustees (the “Board”), merge into a
single fund.
The following
chart illustrates the glide path — the target allocation among
asset classes as the LifePath ETFs approach their target
dates:
The following
table lists the target allocation by years until retirement:
|
Years
to
Retirement |
Equity
Allocation
(including
REITs) |
Fixed-Income
Allocation |
|
45 |
99% |
1% |
|
40 |
99% |
1% |
|
35 |
99% |
1% |
|
30 |
98% |
2% |
|
25 |
95% |
5% |
|
20 |
87% |
13% |
|
15 |
77% |
23% |
|
10 |
65% |
35% |
|
5 |
53% |
47% |
|
0 |
40% |
60% |
The asset
allocation targets are established by the Fund’s portfolio
managers. The investment team, including the portfolio managers, meets
regularly to assess market conditions, review the asset
allocation targets of the Fund, and determine whether any changes are
required to enable the Fund to achieve its investment
objective.
Although the asset
allocation targets listed for the glide path are general, long-term
targets, BFA may periodically adjust the proportion of
equity and fixed-income Underlying Funds in the Fund, based on an
assessment of the current market conditions, the potential
contribution of each asset class to the expected risk and return
characteristics of the Fund, reallocations of the Fund’s composition to
reflect intra-year movement along the glide path and other factors.
In general, such adjustments will be limited; however, BFA may
determine that a greater degree of variation is warranted to
protect the Fund or achieve its investment
objective.
BFA’s second step
in the structuring of the Fund is the selection of the Underlying
Funds. Factors such as fund classifications, historical risk
and performance, and the relationship to other Underlying Funds
in the Fund are considered when selecting Underlying Funds.
The specific Underlying Funds selected for the Fund are
determined at BFA’s discretion and may change as
S-31
deemed appropriate
to allow the Fund to meet its investment objective. See the
“Information About
the Underlying Funds”
section of the
prospectus for a list of the Underlying Funds, their classification
into equity, fixed-income or money market funds and a brief
description of their investment objectives and primary investment
strategies.
Within the
prescribed percentage allocations to equity and fixed-income index funds, BFA
seeks to diversify the Fund. The allocation to
Underlying Funds that track equity indexes may be further
diversified by style (including both value and growth), market
capitalization (including emerging growth, large-, mid-, and small-capitalization),
region (i.e., U.S, and
international, including emerging markets)
or other attributes. The allocation to Underlying Funds
that track fixed-income indexes may be further diversified by
sector (including government, corporate, U.S. agency MBS or
debentures, CMBS, and other sectors), duration (a of measurement of
interest rate risk), credit quality (including investment grade
bonds and high yield bonds), geographic location
(including U.S. and non-U.S. securities, including bonds of emerging market
issuers), currency (U.S. dollar-denominated or local currency
bonds) or other attributes. Though BFA seeks to diversify the
Fund, certain Underlying Funds may concentrate their investments
in specific sectors or geographic regions or countries. The
percentage allocation to the various styles of equity and
fixed-income Underlying Funds is determined at the discretion of the
investment team and can be changed to reflect the current market
environment.
Certain Underlying
Funds may invest in real estate investment trusts
(“REITs”), foreign
securities, emerging market securities, high yield bonds
and derivative securities or instruments, such as options and
futures, the value of which is derived from another security, a
currency or commodity, an interest rate or an index, when seeking to
match the performance of a particular market index. The Fund
and certain Underlying Funds may also lend securities with a
value up to one-third of their respective total assets to
financial institutions that provide cash or securities issued or
guaranteed by the U.S. Government as
collateral.
Summary
of Principal Risks
Equity
Securities Risk. Equity securities
are subject to changes in value, and
their values may be more volatile than those of other asset classes.
Certain Underlying Funds invest in common stocks, which generally
subject their holders to
more risks than preferred stocks and debt
securities because common stockholders’ claims
are subordinated
to those of holders of preferred stocks and debt securities upon
the bankruptcy of the issuer.
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 or an Underlying
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.
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 or an Underlying 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 or an Underlying 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.
U.S.
Treasury Obligations Risk. U.S. Treasury
obligations may differ from other
securities in their interest rates, maturities, times of issuance
and other characteristics and may provide relatively lower
returns than those of other securities. Similar to other issuers,
changes to the financial condition or credit rating of a government may
cause the value of the Fund's or an Underlying Fund's U.S.
Treasury obligations to decline.
Allocation
Risk.
The Fund’s ability to achieve its investment objective depends
upon BFA's ability to develop a model that accurately
assesses the Fund’s asset class allocation and selects an appropriate mix
of Underlying Funds and other ETFs. There is a risk that BFA's
evaluations and assumptions regarding asset classes or
Underlying Funds, which are utilized as inputs in the model, may be
incorrect in view of actual market
conditions.
Investment
in Underlying Funds Risk. The Fund invests
substantially all
of its assets in the Underlying
Funds, so the Fund’s investment
performance is directly related to the performance of the
Underlying Funds. The Fund’s NAV will change with changes in
the value of the Underlying Funds and other securities in
which the Fund invests based on their market
S-32
valuations. An
investment in the Fund will entail more costs and expenses than a
direct investment in the Underlying
Funds.
As the Underlying
Funds, or the Fund’s allocations among the Underlying Funds,
change from time to time, or to the extent that the total annual
fund operating expenses of any Underlying Fund change, the
weighted average operating expenses borne by the Fund may increase
or decrease.
Affiliated
Fund Risk. In managing the
Fund, BFA has the ability to select Underlying
Funds and substitute Underlying Funds with other ETFs that it
believes will achieve the Fund’s objective. BFA may be subject to
potential conflicts of interest in selecting Underlying Funds
and substituting Underlying Funds with other ETFs because the
fees paid to BFA by some Underlying Funds and other ETFs managed
by BFA may be higher than the fees paid by other Underlying
Funds. If an Underlying Fund or other ETF holds interests in an
affiliated fund in excess of a certain amount, the Fund may be
prohibited from purchasing shares of that Underlying Fund or other
ETF.
Retirement
Income Risk. The 2035 Fund does
not provide a guarantee that
sufficient capital appreciation will be achieved to provide adequate
income at and through retirement. The 2035 Fund also does not
ensure that you will have assets in your account sufficient
to cover your retirement expenses; this will depend on the
amount of money you have invested in the 2035 Fund, the length
of time you have held your investment, the returns of the
markets over time, the amount you spend in retirement, and
your other assets and income sources.
Selection
Risk.
Selection risk is the risk that the securities selected by the
2035 Fund management will underperform the markets, the
relevant indices or the securities selected by other funds with similar
investment objectives and investment strategies. This
means you may lose money.
Market
Risk. The
Fund and the Underlying
Funds 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, public
health issues, recessions, the prospect or occurrence of a
sovereign default or other financial crisis, or other events could have
a significant impact on the Fund, the Underlying Funds
and their investments and could result in increased premiums
or discounts to the Fund’s or Underlying
Fund's
NAV.
Asset
Class Risk. Securities and
other assets in the Fund's or an Underlying Fund's
portfolio may underperform in comparison to the general
financial markets, a particular financial market or other asset
classes.
Authorized
Participant Concentration Risk. Only an
Authorized Participant (as
defined in the Creations
and Redemptions section
of
this prospectus (the “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.
Authorized Participant concentration risk may be heightened for
ETFs, such as the Fund, that invest in securities issued by non-U.S.
issuers or other securities or instruments that have lower trading
volumes.
Call
Risk.
During periods of
falling interest rates, an issuer of a callable bond held
by the Fund or an Underlying Fund may “call”
or
repay the security before its stated maturity, and the Fund or an Underlying 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.
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 or an Underlying 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.
Currency
Risk. Because the
Fund's and the Underlying Funds' NAVs are
determined in U.S. dollars, the Fund's NAV could decline if a currency of a
non-U.S. market in which a Fund or an Underlying
Fund invests depreciates against the U.S. dollar or if there are delays
or limits on repatriation of such currency. Currency exchange
rates can be very volatile and can change quickly and
unpredictably. As a result, the Fund's NAV may change quickly and
without warning.
Cybersecurity
Risk. Failures or
breaches of the electronic systems of the
Fund or the Underlying Funds, the Funds' or the Underlying Funds'
adviser, distributor, the benchmark provider 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 benchmark provider
and other service providers, market makers, Authorized
Participants or issuers of securities in which the Fund invests.
Derivatives
Risk. The Fund or
an Underlying Fund may invest in certain types of
derivatives contracts, including futures, options and swaps, which
can be more sensitive to changes in interest rates or to sudden
fluctuations in market prices than conventional securities, which
can result in greater losses to the Fund.
S-33
Energy
Sector Risk. The market value
of securities in the energy sector may decline
for many reasons, including, among others, changes in energy
prices, energy supply and demand, government regulations, costs
related to exploration and production and energy
conservation efforts. Companies in the energy sector may also be
significantly impacted by natural disasters, social and political unrest,
war and environmental damage and may also be at risk for
increased litigation and negative publicity or public perception. The
energy sector may experience significant market volatility
(e.g., as a result of
Russia’s invasion of Ukraine in February 2022 and
the resulting sanctions on Russia and other responses by the
U.S. and other actors).
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 or an Underlying Fund's
investments.
Financials
Sector Risk. The performance
of companies in the financials sector
may be adversely impacted by many factors, including, among
others, changes in government regulations, economic
conditions, and interest rates, credit rating downgrades,
adverse public perception, exposure concentration and decreased
liquidity in credit markets. The impact of changes in regulation of
any individual financial company, or of the financials sector
as a whole, cannot be predicted. Cybersecurity incidents and
technology malfunctions and failures have become increasingly
frequent and have caused significant losses to companies in this
sector, which may negatively impact an Underlying
Fund.
Geographic
Risk. A natural
disaster could occur in a geographic region in which
the Fund or an Underlying Fund invests, which could adversely
affect the economy or the business operations of companies in the
specific geographic region, causing an adverse impact on the
Fund's or an Underlying Fund's investments in, or which are exposed
to, the affected region.
Healthcare
Sector Risk. The profitability
of companies in the healthcare sector
may be affected by government regulations and government
healthcare programs, increases or decreases in the cost of medical
products and services, an increased emphasis on outpatient
services, demand for medical products and services and product
liability claims, among other factors. Many healthcare companies are
heavily dependent on patent protection, and the expiration of a
company’s patent may adversely affect that company’s
profitability. Healthcare companies are subject to competitive forces
that may result in price discounting, and may be thinly
capitalized and susceptible to product
obsolescence.
Income
Risk. The Fund's income
may decline if interest rates fall. This decline in
income can occur because an Underlying Fund may subsequently
invest in lower-yielding securities as securities in an Underlying Fund's
portfolio mature, are near maturity or are called, securities
are substituted, or an Underlying Fund otherwise needs to purchase
additional bonds.
Indexing
Investment Risk. The Underlying
Funds are not actively managed, and BFA
generally does not attempt to take defensive positions in the
Underlying Funds under any market conditions, including
declining markets.
Industrials
Sector Risk. Companies in the
industrials sector may be adversely
affected by changes in the supply of and demand for products and
services, product obsolescence, claims for environmental
damage or product liability and changes in general economic
conditions, among other factors.
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 elevated tracking error and 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.
Information
Technology Sector Risk. Information
technology companies face
intense competition and potentially rapid product obsolescence. They
are also heavily dependent on intellectual property rights
and may be adversely affected by the loss or impairment of
those rights. Companies in the information technology sector
are facing increased government and regulatory
scrutiny and may be subject to adverse government or regulatory action.
Companies in the software industry may be adversely affected
by, among other things, the decline or fluctuation of
subscription renewal rates for their products and services and
actual or perceived vulnerabilities in their products or
services.
Infrastructure
Industry Risk. Companies in the
infrastructure industry may be
subject to a variety of factors that could adversely affect
their business or operations, including high interest costs in
connection with capital construction programs, high degrees of
leverage, costs associated with governmental, environmental and
other regulations, the level of government spending on
infrastructure projects, and other
factors.
Issuer
Risk. The performance
of the Fund depends on the performance of
individual securities to which the Fund or an Underlying Fund
has exposure. Changes in the financial condition or credit rating
of an issuer of those securities may cause the value of the
securities to decline.
Large-Capitalization
Companies Risk.
Large-capitalization companies may be
less able than smaller capitalization companies to adapt
to changing market conditions. Large-capitalization companies may be
more mature and subject to more limited
growth potential compared with smaller capitalization
companies. During different market cycles, the
S-34
performance of
large-capitalization companies has trailed the overall
performance of the broader securities
markets.
Management
Risk. The Fund and the
Underlying Funds are subject to
management risk, which is the risk that the investment process,
techniques and risk analyses applied by BFA will not produce the
desired results, and that securities selected by BFA may underperform
the market or any relevant benchmark. In addition,
legislative, regulatory, or tax developments may affect the investment
techniques available to BFA in connection with managing the Fund
and the Underlying Funds and may also adversely affect
the ability of the Fund and the Underlying Funds to achieve their
investment objective.
Market
Trading Risk. The Fund and
the Underlying Funds face numerous market
trading risks, including the potential lack of an active market for
their shares, losses from trading in secondary markets, periods
of high volatility and disruptions in the creation/redemption
process. ANY
OF THESE FACTORS, AMONG
OTHERS, MAY LEAD TO THE FUND'S SHARES TRADING
AT A PREMIUM OR DISCOUNT TO NAV.
Mid-Capitalization
Companies Risk. Compared to
large-capitalization companies,
mid-capitalization companies may be less stable and
more susceptible to adverse developments. In addition, the
securities of mid-capitalization companies may be more volatile and
less liquid than those of large-capitalization companies.
National
Closed Market Trading Risk. To the extent
that the underlying
securities or other instruments held by the Fund or the Underlying Funds
trade on foreign exchanges or in foreign markets that may
be closed when the securities exchange on which the Fund’s
or an Underlying Fund's shares trade is open, there are likely
to be deviations between the current price of such an underlying
security and the last quoted price for the underlying security
(i.e., the Fund’s or
an Underlying Fund's quote from the closed foreign
market). The impact of a
closed foreign market on the Fund or an
Underlying Fund is likely to be greater where a large portion of
the Fund’s or an Underlying Fund's underlying securities or
other instruments trade on that closed foreign market or when the
foreign market is closed for unscheduled reasons. These
deviations could result in premiums or discounts to the Fund’s
or an Underlying Fund's NAV that may be greater than those
experienced by other ETFs.
Non-U.S.
Issuers Risk. Securities issued
by non-U.S. issuers carry different
risks from securities issued by U.S. issuers. These risks include
differences in accounting, auditing and financial reporting
standards, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control
regulations, political instability, regulatory and economic differences, and
potential restrictions on the flow of international capital. The Fund
is specifically exposed to Asian Economic
Risk,
European Economic Risk and North
American Economic
Risk.
Non-U.S.
Securities Risk. Investments in
the securities of non-U.S. issuers are
subject to the risks associated with investing in
those non-U.S.
markets, such as heightened risks of inflation or nationalization.
The Fund or an Underlying
Fund may
lose money due to political, economic and geographic events affecting issuers
of non-U.S. securities or non-U.S.
markets. In addition, non-U.S.
securities markets may trade a small number of securities and may
be unable to respond effectively to changes in trading volume,
potentially making prompt liquidation of holdings difficult or
impossible at times. The Fund is specifically exposed to Asian Economic
Risk, European Economic Risk and North
American
Economic Risk.
Operational
Risk. The
Fund and the Underlying
Funds are 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, the Underlying Funds
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.
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.
Real
Estate Investment Risk. Companies that
invest in real estate (“Real Estate
Companies”), such as REITs,
real estate holding and
operating companies and real estate management or development
companies, expose investors in the Fund to the risks of owning real
estate directly, as well as to risks that relate specifically to
the way in which Real Estate Companies are organized and
operated. Real estate is highly sensitive to general and local economic
conditions and developments, and characterized by
intense competition and periodic overbuilding. If the Fund's
investments in Real Estate Companies are concentrated in
one geographic region, industry or property type, the Fund will be
particularly subject to the risks associated with that region,
industry or property type. Many Real Estate Companies,
including REITs, utilize leverage
(and some may be highly leveraged),
which increases investment risk and the risk normally
associated with debt financing, and could potentially magnify the Fund’s
losses. Rising interest rates could result in higher costs of
capital for Real Estate Companies, which could negatively affect
a Real Estate Company's ability to meet its payment
obligations or its financing activity and could decrease the market prices
for REITs and for properties held by such
REITs.
Reinvestment
Risk. The Fund or
an Underlying Fund may invest a portion of its
assets in short-term fixed-income instruments and, as a result,
may be adversely affected if interest rates fall because they may
have to invest in lower-yielding bonds as bonds
mature.
Risk
of Investing in China.
Investments in
Chinese securities, including certain
Hong Kong-listed and U.S.-listed securities, subject the Fund
or the Underlying Funds to risks specific to China. China may
be subject to considerable degrees of
S-35
economic,
political and social instability. China is an emerging market and
demonstrates significantly higher volatility from time to time in
comparison to developed markets. Over the last few decades, the
Chinese government has undertaken reform of economic and
market practices and has expanded the sphere of private ownership
of property in China. However, Chinese markets generally continue
to experience inefficiency, volatility and pricing anomalies
resulting from governmental influence, a lack of publicly available
information and/or political and social instability.
Chinese companies
are also subject to the risk that Chinese authorities can
intervene in their operations and structure. Internal social
unrest or confrontations with neighboring countries,
including military conflicts in response to such events, may also disrupt
economic development in China and result in a greater risk of
currency fluctuations, currency non-convertibility, interest rate
fluctuations and higher rates of
inflation.
China has
experienced security concerns, such as terrorism and strained
international relations. Additionally, China is alleged to have participated
in state-sponsored cyberattacks against foreign companies and
foreign governments. Actual and threatened responses to such
activity and strained international relations, including
purchasing restrictions, sanctions, tariffs or cyberattacks on
the Chinese government or Chinese companies, may impact China’s
economy and Chinese issuers of securities in which the Fund
invests. Incidents involving China's or the region's security may cause
uncertainty in Chinese markets and may adversely affect
the Chinese economy and the Fund's investments.
Export growth continues to be a major driver of China's rapid
economic growth. Reduction in spending on Chinese products and
services, institution of additional tariffs or other trade
barriers (including as a result of heightened trade tensions or a trade war
between China and the U.S. or in response to actual or alleged
Chinese cyber activity) or a downturn in any of the economies of
China's key trading partners may have an adverse impact on
the Chinese economy.
Chinese companies,
including Chinese companies that are listed on U.S. exchanges,
are not subject to the same degree of regulatory
requirements, accounting standards or auditor oversight as
companies in more developed countries. As a result, information about
the Chinese securities in which the Fund invests may be
less reliable or complete. Chinese companies with securities listed
on U.S. exchanges may be delisted if they do not meet U.S.
accounting standards and auditor oversight requirements,
which would significantly decrease the liquidity and value of the
securities. There may be significant obstacles to obtaining
information necessary for investigations into or litigation against
Chinese companies, and shareholders may have limited legal
remedies. The Fund is not actively managed and does not select
investments based on investor protection considerations.
Risk
of Investing in Developed Countries.
The
Fund’s and the Underlying Fund's
investment in developed country issuers may subject the Fund
to legal, regulatory, political, currency, security, economic and
other risks associated with developed countries. Developed
countries tend to represent a significant portion of the
global economy and
have generally experienced slower economic growth than some
less developed countries. Certain developed countries have
experienced security concerns, such as war, terrorism and
strained international relations. Incidents involving a country’s or
region’s security may cause uncertainty in its markets and may
adversely affect its economy and the Fund’s or an Underlying
Fund's investments. In addition, developed countries may be
adversely impacted by changes to the economic conditions of
certain key trading partners, regulatory burdens, debt burdens and
the price or availability of certain
commodities.
Risk
of Investing in India. Investments in
Indian issuers involve risks that are
specific to India, including legal, regulatory, political, currency and
economic risks. Political and legal uncertainty, greater government
control over the economy, currency fluctuations or
blockage, and the risk of nationalization or expropriation of
assets may result in higher potential for losses. The securities
markets in India are relatively underdeveloped and may subject the
Fund or an Underlying Fund to higher transaction costs or greater
uncertainty than investments in more developed securities
markets.
Risk
of Investing in Japan. The Japanese
economy may be subject to
considerable degrees of economic, political and social instability, which
could have a negative impact on Japanese securities. Since
2000, Japan’s economic growth rate has generally remained
low relative to other advanced economies, and it may remain low
in the future. In addition, Japan is subject to the risk of natural
disasters, such as earthquakes, volcanic eruptions, typhoons and
tsunamis, which could negatively affect the Fund or an Underlying
Fund. Japan’s relations with its neighbors have at times been
strained, and strained relations may cause uncertainty in the Japanese
markets and adversely affect the overall Japanese economy.
Risk
of Investing in Russia. Investing in
Russian securities involves
significant risks, including legal, regulatory, currency and economic risks
that are specific to Russia. In addition, investing in Russian securities
involves risks associated with the settlement of portfolio
transactions and loss of the Fund’s or an Underlying
Fund's ownership
rights in its portfolio securities as a result of the system of share
registration and custody in Russia. Governments in the U.S. and
many other countries have imposed economic sanctions on
certain Russian individuals and Russian corporate and banking
entities. A number of jurisdictions may also institute broader sanctions
on Russia. Russia has issued a number of countersanctions,
some of which restrict the distribution of profits by limited
liability companies (e.g., dividends), and
prohibit Russian persons
from entering into transactions with designated persons from
“unfriendly
states” as well as the
export of raw materials or other
products from Russia to certain sanctioned persons. Russia
launched a large-scale invasion of Ukraine on February 24, 2022.
The extent and duration of the military action, resulting
sanctions and resulting future market disruptions, including declines
in its stock markets and the value of the ruble against the U.S.
dollar, are impossible to predict, but could be significant.
Disruptions caused by Russian military action or other actions (including
cyberattacks and espionage) or resulting actual and threatened
responses to such activity, including purchasing and financing
restrictions, boycotts or changes in consumer or
S-36
purchaser
preferences, sanctions, import and export restrictions, tariffs or
cyberattacks on the Russian government, Russian companies, or
Russian individuals, including politicians, may impact Russia’s
economy and Russian companies in which the Fund or an Underlying
Fund invests. Actual and threatened responses to
Russian military action may also impact the markets for certain
Russian commodities, such as oil and natural gas, as well as other
sectors of the Russian economy, and are likely to have collateral
impacts on such sectors globally. Russian companies may be
unable to pay dividends and, if they pay dividends, the
Fund or an Underlying
Fund may be unable to receive them. As a
result of sanctions, the Fund is currently restricted from
trading in Russian securities, including those in its portfolio, while
the Underlying Indexes of the Underlying Funds have removed
Russian securities. It is unknown when, or if, sanctions may be
lifted or the Fund’s ability to trade in Russian securities will
resume.
Risk
of Investing in Saudi Arabia. The ability of
foreign investors (such as the
Fund or an Underlying
Fund) to invest in the securities of
Saudi Arabian issuers is relatively new. Such ability could be
restricted by the Saudi Arabian government at any time, and unforeseen
risks could materialize with respect to foreign ownership in such
securities. The economy of Saudi Arabia is dominated by
petroleum exports. A sustained decrease in petroleum prices
could have a negative impact on all aspects of the economy.
Investments in the securities of Saudi Arabian issuers involve
risks not typically associated with investments in securities of
issuers in more developed countries that may negatively affect
the value of the Fund’s or Underlying
Fund's investments. Such
heightened risks may include, among others, expropriation
and/or nationalization of assets, restrictions on and government
intervention in international trade, confiscatory taxation,
political instability, including authoritarian and/or military
involvement in governmental decision making, armed conflict, crime
and instability as a result of religious, ethnic and/or
socioeconomic unrest. There remains the possibility that instability in the
larger Middle East region could adversely impact the economy of
Saudi Arabia, and there is no assurance of political
stability in Saudi Arabia.
Saudi
Arabia Broker Risk. There are a
number of different ways of conducting
transactions in equity securities in the Saudi Arabian
market. The Fund (or an Underlying Fund) generally expects to conduct
its transactions in a manner in which the Fund would not be
limited by Saudi Arabian regulations to a single broker. However,
there may be a limited number of brokers who can provide
services to the Fund (or an Underlying Fund), which may have an
adverse impact on the prices, quantity or timing of Fund (or an
Underlying Fund) transactions.
Risk
of Investing in Taiwan. Investments in
Taiwanese issuers involve risks that
are specific to Taiwan, including legal, regulatory,
political, currency and economic risks. Political and economic
developments of Taiwan’s neighbors may have an adverse effect on
Taiwan’s economy. Specifically, Taiwan’s geographic
proximity and history of political contention with China have
resulted in ongoing tensions, which may materially affect the
Taiwanese economy and its securities market.
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 or the Underlying Funds has exposure.
Securities
Lending Risk. The Fund or
an Underlying Fund may engage in
securities lending. Securities lending involves the risk that the Fund or
the Underlying Funds may lose money because the borrower of
the loaned securities fails to return the securities in a timely manner
or at all. The Fund or the Underlying Funds 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 or an Underlying
Fund.
Small-Capitalization
Companies Risk. Compared to mid-
and large-capitalization
companies, small-capitalization companies may be less stable
and more susceptible to adverse developments. In
addition, the securities of small-capitalization companies may be
more volatile and less liquid than those of mid- and
large-capitalization companies.
Tax
Risk. Because the Fund
is expected to invest in the Underlying Funds,
the Fund’s realized losses on sales of shares of an Underlying Fund
may be indefinitely or permanently deferred as “wash
sales.” Distributions of
short-term capital gains by an Underlying Fund
will be recognized as ordinary income by the Fund and would not
be offset by the Fund’s capital loss carryforwards, if
any. Capital loss carryforwards of an Underlying Fund, if any,
would not offset net capital gains of the
Fund.
Technology
Sector Risk. Technology
companies, including information
technology companies, may have limited
product lines, markets,
financial resources or personnel. Technology companies
typically face intense competition and potentially rapid product
obsolescence. They are also heavily dependent on intellectual
property rights and may be adversely affected by the loss or impairment
of those rights. Companies in the technology sector may face
increased government and regulatory scrutiny and may be subject
to adverse government or regulatory
action.
Utilities
Sector Risk. The utilities
sector is subject to significant government
regulation and oversight. Deregulation, however, may subject utility
companies to greater competition and may reduce their
profitability. Companies in the utilities sector may be adversely affected
due to increases in fuel and operating costs, rising costs of
financing capital construction and the cost of complying with
U.S. federal and state regulations, among other factors.
Valuation
Risk. The price the
Fund or an Underlying Fund could receive upon the
sale of a security or other asset may differ from the
Fund's or the Underlying
Fund's valuation of the security or other asset,
particularly for securities or other assets that trade in low volume or
volatile markets, or assets that are impacted by market disruption
events or that are valued using a fair value methodology as a
result of trade suspensions or for other
S-37
reasons. In
addition, the value of the securities or other assets in the Fund's or an
Underlying Fund's portfolio may change on days or during time
periods when shareholders will not be able to purchase or sell
the Fund's or an Underlying Fund's shares. Authorized
Participants who purchase or redeem shares of the Fund or an
Underlying Fund on days when the Fund or an Underlying Fund
is holding fair-valued securities or other instruments may
receive fewer or more shares, or lower or higher redemption
proceeds, than they would have received had the securities or
other instruments not been fair valued or been
valued using a
different methodology. The ability to value investments may be
impacted by technological issues or errors by pricing services
or other third-party service
providers.
Performance
Information
S-38
Management
Investment
Adviser. BlackRock Fund
Advisors.
Portfolio
Managers. Christopher Chung
and Suzanne Ly (the “Portfolio
Managers”) are primarily
responsible for the day-to-day management of the
Fund. Each Portfolio Manager supervises a portfolio
management team. Mr. Chung and Ms. Ly have been Portfolio Managers
of the Fund since inception (2023).
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 you 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 taxed 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.
S-39
iShares
LifePath® Target Date 2040
ETF
Ticker:
ITDD
Stock Exchange: NYSE Arca
Investment
Objective
The iShares
LifePath Target Date 2040 ETF (the “2040
Fund” or the
“Fund”) seeks to provide
retirement outcomes through exposure to a broad portfolio of
ETFs which adjusts its allocation as it approaches its target
date.
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 iShares Trust (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. Acquired Fund Fees
and Expenses are not included in the calculation of the ratio of
expenses to average
net assets shown in the Financial
Highlights section of the
Fund’s prospectus (the “ Prospectus ” ).
You may pay other
fees, such as brokerage commissions and other fees to financial intermediaries,
which are not reflected in the tables and examples
below.
|
| ||||
|
Management
Fees |
Distribution
and
Service
(12b-1)
Fees |
Other
Expenses2
|
Acquired
Fund Fees
and
Expenses 3
|
Total
Annual
Fund
Operating
Expenses |
|
|
|
|
|
|
1
2
3
|
|
1
Year |
3
Years |
|
|
|
$ |
$ |
|
Principal
Investment Strategies
The 2040 Fund is
actively managed and allocates and reallocates its assets among a
combination of Underlying Funds in proportions based
on its own investment strategy.
The 2040 Fund is
one of a group of funds referred to as the “LifePath
ETFs,” each of which
seeks to provide for retirement outcomes based on
quantitatively measured risk that investors on average may be
willing to accept given a particular time
horizon.
S-40
BFA employs a
multi-dimensional approach to assess risk for the 2040 Fund and to
determine its allocation across asset classes. As part of this
multi-dimensional approach, BFA aims to quantify risk using
proprietary risk measurement tools that, among other things, analyze
historical and forward-looking securities market data, including
risk, asset class correlations, and expected returns. Under
normal circumstances, the 2040 Fund intends to invest primarily
in affiliated exchange-traded funds (“ETFs”).
The 2040 Fund will
invest, under normal circumstances, at least 80% of its assets
in securities or other financial instruments that are components of
or have economic characteristics similar to the securities
included in its custom model benchmark, the 2040 Target Date Custom
Benchmark. BFA will not publish its custom benchmark but will
apply a proprietary model to monitor performance of the
2040 Fund. The 2040 Fund is designed for investors
expecting to retire or to begin withdrawing assets around the year
2040. At inception, BFA expects the 2040 Fund to hold
approximately 79.30% of its assets in Underlying Funds that seek to track
particular underlying indexes of equity securities,
approximately 20.70% of its assets in Underlying Funds that seek to track
particular fixed-income indexes and the remainder of its
assets in Underlying Funds that invest primarily in money market
instruments.
At inception, the
Fund invests in the iShares 0-5 Year TIPS Bond ETF, iShares 1-5
Year Investment Grade Corporate Bond ETF, iShares 5-10 Year
Investment Grade Corporate Bond ETF, iShares 10+ Year
Investment Grade Corporate Bond ETF, iShares 10-20 Year Treasury Bond
ETF, iShares Core MSCI Emerging Markets ETF, iShares Core
MSCI International Developed Markets ETF, iShares Core U.S.
REIT ETF, iShares Global Infrastructure ETF, iShares MBS ETF,
iShares Russell 1000 ETF, iShares Russell 2000 ETF, iShares U.S.
Treasury Bond ETF and money market funds advised by BFA or
its affiliates (“BlackRock Cash
Funds”). Factors
such
as fund classifications, historical risk and performance, and the relationship
to other Underlying Funds in the Fund are considered when
selecting Underlying Funds. The specific Underlying Funds
selected for the Fund are determined at BFA’s discretion and may
change as deemed appropriate to allow the Fund to meet its
investment objective. See the “Information About
the
Underlying Funds” section of the
prospectus for a list of the Underlying Funds,
their classification into equity, fixed-income or money market funds
and a brief description of their investment objectives and
primary investment strategies.
Under normal
circumstances, the Fund’s asset allocation will change over time
according to a predetermined “glide
path” as the Fund
approaches its target date. The glide path below represents the
shifting of asset classes over time. As the glide path shows, as
time elapses prior to retirement, the Fund’s asset allocations become
more conservative. This reflects the need for reduced investment
risk as retirement approaches and the need for lower
volatility of the Fund, which for certain investors may be a primary source
of income after retirement. During the year prior to the Fund’s
maturity date, its allocation of assets is expected to be similar to that
of the Retirement Fund. Further, as retirement approaches, such
Fund and the Retirement Fund is expected to, subject to
approval by the Trust’s Board of Trustees (the “Board”), merge into a
single fund.
The following
chart illustrates the glide path — the target allocation among
asset classes as the LifePath ETFs approach their target
dates:
The following
table lists the target allocation by years until retirement:
|
Years
to
Retirement |
Equity
Allocation
(including
REITs) |
Fixed-Income
Allocation |
|
45 |
99% |
1% |
|
40 |
99% |
1% |
|
35 |
99% |
1% |
|
30 |
98% |
2% |
|
25 |
95% |
5% |
|
20 |
87% |
13% |
|
15 |
77% |
23% |
|
10 |
65% |
35% |
|
5 |
53% |
47% |
|
0 |
40% |
60% |
The asset
allocation targets are established by the Fund’s portfolio
managers. The investment team, including the portfolio managers, meets
regularly to assess market conditions, review the asset
allocation targets of the Fund, and determine whether any changes are
required to enable the Fund to achieve its investment
objective.
Although the asset
allocation targets listed for the glide path are general, long-term
targets, BFA may periodically adjust the proportion of
equity and fixed-income Underlying Funds in the Fund, based on an
assessment of the current market conditions, the potential
contribution of each asset class to the expected risk and return
characteristics of the Fund, reallocations of the Fund’s composition to
reflect intra-year movement along the glide path and other factors.
In general, such adjustments will be limited; however, BFA may
determine that a greater degree of variation is warranted to
protect the Fund or achieve its investment
objective.
BFA’s second step
in the structuring of the Fund is the selection of the Underlying
Funds. Factors such as fund classifications, historical risk
and performance, and the relationship to other Underlying Funds
in the Fund are considered when selecting Underlying Funds.
The specific Underlying Funds selected for the Fund are
determined at BFA’s discretion and may change as
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deemed appropriate
to allow the Fund to meet its investment objective. See the
“Information About
the Underlying Funds”
section of the
prospectus for a list of the Underlying Funds, their classification
into equity, fixed-income or money market funds and a brief
description of their investment objectives and primary investment
strategies.
Within the
prescribed percentage allocations to equity and fixed-income index funds, BFA
seeks to diversify the Fund. The allocation to
Underlying Funds that track equity indexes may be further
diversified by style (including both value and growth), market
capitalization (including emerging growth, large-, mid-, and small-capitalization),
region (i.e., U.S, and
international, including emerging markets)
or other attributes. The allocation to Underlying Funds
that track fixed-income indexes may be further diversified by
sector (including government, corporate, U.S. agency MBS or
debentures, CMBS, and other sectors), duration (a of measurement of
interest rate risk), credit quality (including investment grade
bonds and high yield bonds), geographic location
(including U.S. and non-U.S. securities, including bonds of emerging market
issuers), currency (U.S. dollar-denominated or local currency
bonds) or other attributes. Though BFA seeks to diversify the
Fund, certain Underlying Funds may concentrate their investments
in specific sectors or geographic regions or countries. The
percentage allocation to the various styles of equity and
fixed-income Underlying Funds is determined at the discretion of the
investment team and can be changed to reflect the current market
environment.
Certain Underlying
Funds may invest in real estate investment trusts
(“REITs”), foreign
securities, emerging market securities, high yield bonds
and derivative securities or instruments, such as options and
futures, the value of which is derived from another security, a
currency or commodity, an interest rate or an index, when seeking to
match the performance of a particular market index. The Fund
and certain Underlying Funds may also lend securities with a
value up to one-third of their respective total assets to
financial institutions that provide cash or securities issued or
guaranteed by the U.S. Government as
collateral.
Summary
of Principal Risks
Equity
Securities Risk. Equity securities
are subject to changes in value, and
their values may be more volatile than those of other asset classes.
Certain Underlying Funds invest in common stocks, which generally
subject their holders to
more risks than preferred stocks and debt
securities because common stockholders’ claims
are subordinated
to those of holders of preferred stocks and debt securities upon
the bankruptcy of the issuer.
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 or an Underlying
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.
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 or an Underlying 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 or an Underlying 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.
U.S.
Treasury Obligations Risk. U.S. Treasury
obligations may differ from other
securities in their interest rates, maturities, times of issuance
and other characteristics and may provide relatively lower
returns than those of other securities. Similar to other issuers,
changes to the financial condition or credit rating of a government may
cause the value of the Fund's or an Underlying Fund's U.S.
Treasury obligations to decline.
Allocation
Risk.
The Fund’s ability to achieve its investment objective depends
upon BFA's ability to develop a model that accurately
assesses the Fund’s asset class allocation and selects an appropriate mix
of Underlying Funds and other ETFs. There is a risk that BFA's
evaluations and assumptions regarding asset classes or
Underlying Funds, which are utilized as inputs in the model, may be
incorrect in view of actual market
conditions.
Investment
in Underlying Funds Risk. The Fund invests
substantially all
of its assets in the Underlying
Funds, so the Fund’s investment
performance is directly related to the performance of the
Underlying Funds. The Fund’s NAV will change with changes in
the value of the Underlying Funds and other securities in
which the Fund invests based on their market
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valuations. An
investment in the Fund will entail more costs and expenses than a
direct investment in the Underlying
Funds.
As the Underlying
Funds, or the Fund’s allocations among the Underlying Funds,
change from time to time, or to the extent that the total annual
fund operating expenses of any Underlying Fund change, the
weighted average operating expenses borne by the Fund may increase
or decrease.
Affiliated
Fund Risk. In managing the
Fund, BFA has the ability to select Underlying
Funds and substitute Underlying Funds with other ETFs that it
believes will achieve the Fund’s objective. BFA may be subject to
potential conflicts of interest in selecting Underlying Funds
and substituting Underlying Funds with other ETFs because the
fees paid to BFA by some Underlying Funds and other ETFs managed
by BFA may be higher than the fees paid by other Underlying
Funds. If an Underlying Fund or other ETF holds interests in an
affiliated fund in excess of a certain amount, the Fund may be
prohibited from purchasing shares of that Underlying Fund or other
ETF.
Retirement
Income Risk. The 2040 Fund does
not provide a guarantee that
sufficient capital appreciation will be achieved to provide adequate
income at and through retirement. The 2040 Fund also does not
ensure that you will have assets in your account sufficient
to cover your retirement expenses; this will depend on the
amount of money you have invested in the 2040 Fund, the length
of time you have held your investment, the returns of the
markets over time, the amount you spend in retirement, and
your other assets and income sources.
Selection
Risk.
Selection risk is the risk that the securities selected by the
2040 Fund management will underperform the markets, the
relevant indices or the securities selected by other funds with similar
investment objectives and investment strategies. This
means you may lose money.
Market
Risk. The
Fund and the Underlying
Funds 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, public
health issues, recessions, the prospect or occurrence of a
sovereign default or other financial crisis, or other events could have
a significant impact on the Fund, the Underlying Funds
and their investments and could result in increased premiums
or discounts to the Fund’s or Underlying
Fund's
NAV.
Asset
Class Risk. Securities and
other assets in the Fund's or an Underlying Fund's
portfolio may underperform in comparison to the general
financial markets, a particular financial market or other asset
classes.
Authorized
Participant Concentration Risk. Only an
Authorized Participant (as
defined in the Creations
and Redemptions section
of
this prospectus (the “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.
Authorized Participant concentration risk may be heightened for
ETFs, such as the Fund, that invest in securities issued by non-U.S.
issuers or other securities or instruments that have lower trading
volumes.
Call
Risk.
During periods of
falling interest rates, an issuer of a callable bond held
by the Fund or an Underlying Fund may “call”
or
repay the security before its stated maturity, and the Fund or an Underlying 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.
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 or an Underlying 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.
Currency
Risk. Because the
Fund's and the Underlying Funds' NAVs are
determined in U.S. dollars, the Fund's NAV could decline if a currency of a
non-U.S. market in which a Fund or an Underlying
Fund invests depreciates against the U.S. dollar or if there are delays
or limits on repatriation of such currency. Currency exchange
rates can be very volatile and can change quickly and
unpredictably. As a result, the Fund's NAV may change quickly and
without warning.
Cybersecurity
Risk. Failures or
breaches of the electronic systems of the
Fund or the Underlying Funds, the Funds' or the Underlying Funds'
adviser, distributor, the benchmark provider 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 benchmark provider
and other service providers, market makers, Authorized
Participants or issuers of securities in which the Fund invests.
Derivatives
Risk. The Fund or
an Underlying Fund may invest in certain types of
derivatives contracts, including futures, options and swaps, which
can be more sensitive to changes in interest rates or to sudden
fluctuations in market prices than conventional securities, which
can result in greater losses to the Fund.
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Energy
Sector Risk. The market value
of securities in the energy sector may decline
for many reasons, including, among others, changes in energy
prices, energy supply and demand, government regulations, costs
related to exploration and production and energy
conservation efforts. Companies in the energy sector may also be
significantly impacted by natural disasters, social and political unrest,
war and environmental damage and may also be at risk for
increased litigation and negative publicity or public perception. The
energy sector may experience significant market volatility
(e.g., as a result of
Russia’s invasion of Ukraine in February 2022 and
the resulting sanctions on Russia and other responses by the
U.S. and other actors).
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 or an Underlying Fund's
investments.
Financials
Sector Risk. The performance
of companies in the financials sector
may be adversely impacted by many factors, including, among
others, changes in government regulations, economic
conditions, and interest rates, credit rating downgrades,
adverse public perception, exposure concentration and decreased
liquidity in credit markets. The impact of changes in regulation of
any individual financial company, or of the financials sector
as a whole, cannot be predicted. Cybersecurity incidents and
technology malfunctions and failures have become increasingly
frequent and have caused significant losses to companies in this
sector, which may negatively impact an Underlying
Fund.
Geographic
Risk. A natural
disaster could occur in a geographic region in which
the Fund or an Underlying Fund invests, which could adversely
affect the economy or the business operations of companies in the
specific geographic region, causing an adverse impact on the
Fund's or an Underlying Fund's investments in, or which are exposed
to, the affected region.
Healthcare
Sector Risk. The profitability
of companies in the healthcare sector
may be affected by government regulations and government
healthcare programs, increases or decreases in the cost of medical
products and services, an increased emphasis on outpatient
services, demand for medical products and services and product
liability claims, among other factors. Many healthcare companies are
heavily dependent on patent protection, and the expiration of a
company’s patent may adversely affect that company’s
profitability. Healthcare companies are subject to competitive forces
that may result in price discounting, and may be thinly
capitalized and susceptible to product
obsolescence.
Income
Risk. The Fund's income
may decline if interest rates fall. This decline in
income can occur because an Underlying Fund may subsequently
invest in lower-yielding securities as securities in an Underlying Fund's
portfolio mature, are near maturity or are called, securities
are substituted, or an Underlying Fund otherwise needs to purchase
additional bonds.
Indexing
Investment Risk. The Underlying
Funds are not actively managed, and BFA
generally does not attempt to take defensive positions in the
Underlying Funds under any market conditions, including
declining markets.
Industrials
Sector Risk. Companies in the
industrials sector may be adversely
affected by changes in the supply of and demand for products and
services, product obsolescence, claims for environmental
damage or product liability and changes in general economic
conditions, among other factors.
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 elevated tracking error and 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.
Information
Technology Sector Risk. Information
technology companies face
intense competition and potentially rapid product obsolescence. They
are also heavily dependent on intellectual property rights
and may be adversely affected by the loss or impairment of
those rights. Companies in the information technology sector
are facing increased government and regulatory
scrutiny and may be subject to adverse government or regulatory action.
Companies in the software industry may be adversely affected
by, among other things, the decline or fluctuation of
subscription renewal rates for their products and services and
actual or perceived vulnerabilities in their products or
services.
Infrastructure
Industry Risk. Companies in the
infrastructure industry may be
subject to a variety of factors that could adversely affect
their business or operations, including high interest costs in
connection with capital construction programs, high degrees of
leverage, costs associated with governmental, environmental and
other regulations, the level of government spending on
infrastructure projects, and other
factors.
Issuer
Risk. The performance
of the Fund depends on the performance of
individual securities to which the Fund or an Underlying Fund
has exposure. Changes in the financial condition or credit rating
of an issuer of those securities may cause the value of the
securities to decline.
Large-Capitalization
Companies Risk.
Large-capitalization companies may be
less able than smaller capitalization companies to adapt
to changing market conditions. Large-capitalization companies may be
more mature and subject to more limited
growth potential compared with smaller capitalization
companies. During different market cycles, the
S-44
performance of
large-capitalization companies has trailed the overall
performance of the broader securities
markets.
Management
Risk. The Fund and the
Underlying Funds are subject to
management risk, which is the risk that the investment process,
techniques and risk analyses applied by BFA will not produce the
desired results, and that securities selected by BFA may underperform
the market or any relevant benchmark. In addition,
legislative, regulatory, or tax developments may affect the investment
techniques available to BFA in connection with managing the Fund
and the Underlying Funds and may also adversely affect
the ability of the Fund and the Underlying Funds to achieve their
investment objective.
Market
Trading Risk. The Fund and
the Underlying Funds face numerous market
trading risks, including the potential lack of an active market for
their shares, losses from trading in secondary markets, periods
of high volatility and disruptions in the creation/redemption
process. ANY
OF THESE FACTORS, AMONG
OTHERS, MAY LEAD TO THE FUND'S SHARES TRADING
AT A PREMIUM OR DISCOUNT TO NAV.
Mid-Capitalization
Companies Risk. Compared to
large-capitalization companies,
mid-capitalization companies may be less stable and
more susceptible to adverse developments. In addition, the
securities of mid-capitalization companies may be more volatile and
less liquid than those of large-capitalization companies.
National
Closed Market Trading Risk. To the extent
that the underlying
securities or other instruments held by the Fund or the Underlying Funds
trade on foreign exchanges or in foreign markets that may
be closed when the securities exchange on which the Fund’s
or an Underlying Fund's shares trade is open, there are likely
to be deviations between the current price of such an underlying
security and the last quoted price for the underlying security
(i.e., the Fund’s or
an Underlying Fund's quote from the closed foreign
market). The impact of a
closed foreign market on the Fund or an
Underlying Fund is likely to be greater where a large portion of
the Fund’s or an Underlying Fund's underlying securities or
other instruments trade on that closed foreign market or when the
foreign market is closed for unscheduled reasons. These
deviations could result in premiums or discounts to the Fund’s
or an Underlying Fund's NAV that may be greater than those
experienced by other ETFs.
Non-U.S.
Issuers Risk. Securities issued
by non-U.S. issuers carry different
risks from securities issued by U.S. issuers. These risks include
differences in accounting, auditing and financial reporting
standards, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control
regulations, political instability, regulatory and economic differences, and
potential restrictions on the flow of international capital. The Fund
is specifically exposed to Asian Economic
Risk,
European Economic Risk and North
American Economic
Risk.
Non-U.S.
Securities Risk. Investments in
the securities of non-U.S. issuers are
subject to the risks associated with investing in
those non-U.S.
markets, such as heightened risks of inflation or nationalization.
The Fund or an Underlying
Fund may
lose money due to political, economic and geographic events affecting issuers
of non-U.S. securities or non-U.S.
markets. In addition, non-U.S.
securities markets may trade a small number of securities and may
be unable to respond effectively to changes in trading volume,
potentially making prompt liquidation of holdings difficult or
impossible at times. The Fund is specifically exposed to Asian Economic
Risk, European Economic Risk and North
American
Economic Risk.
Operational
Risk. The
Fund and the Underlying
Funds are 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, the Underlying Funds
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.
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.
Real
Estate Investment Risk. Companies that
invest in real estate (“Real Estate
Companies”), such as REITs,
real estate holding and
operating companies and real estate management or development
companies, expose investors in the Fund to the risks of owning real
estate directly, as well as to risks that relate specifically to
the way in which Real Estate Companies are organized and
operated. Real estate is highly sensitive to general and local economic
conditions and developments, and characterized by
intense competition and periodic overbuilding. If the Fund's
investments in Real Estate Companies are concentrated in
one geographic region, industry or property type, the Fund will be
particularly subject to the risks associated with that region,
industry or property type. Many Real Estate Companies,
including REITs, utilize leverage
(and some may be highly leveraged),
which increases investment risk and the risk normally
associated with debt financing, and could potentially magnify the Fund’s
losses. Rising interest rates could result in higher costs of
capital for Real Estate Companies, which could negatively affect
a Real Estate Company's ability to meet its payment
obligations or its financing activity and could decrease the market prices
for REITs and for properties held by such
REITs.
Reinvestment
Risk. The Fund or
an Underlying Fund may invest a portion of its
assets in short-term fixed-income instruments and, as a result,
may be adversely affected if interest rates fall because they may
have to invest in lower-yielding bonds as bonds
mature.
Risk
of Investing in China.
Investments in
Chinese securities, including certain
Hong Kong-listed and U.S.-listed securities, subject the Fund
or the Underlying Funds to risks specific to China. China may
be subject to considerable degrees of
S-45
economic,
political and social instability. China is an emerging market and
demonstrates significantly higher volatility from time to time in
comparison to developed markets. Over the last few decades, the
Chinese government has undertaken reform of economic and
market practices and has expanded the sphere of private ownership
of property in China. However, Chinese markets generally continue
to experience inefficiency, volatility and pricing anomalies
resulting from governmental influence, a lack of publicly available
information and/or political and social instability.
Chinese companies
are also subject to the risk that Chinese authorities can
intervene in their operations and structure. Internal social
unrest or confrontations with neighboring countries,
including military conflicts in response to such events, may also disrupt
economic development in China and result in a greater risk of
currency fluctuations, currency non-convertibility, interest rate
fluctuations and higher rates of
inflation.
China has
experienced security concerns, such as terrorism and strained
international relations. Additionally, China is alleged to have participated
in state-sponsored cyberattacks against foreign companies and
foreign governments. Actual and threatened responses to such
activity and strained international relations, including
purchasing restrictions, sanctions, tariffs or cyberattacks on
the Chinese government or Chinese companies, may impact China’s
economy and Chinese issuers of securities in which the Fund
invests. Incidents involving China's or the region's security may cause
uncertainty in Chinese markets and may adversely affect
the Chinese economy and the Fund's investments.
Export growth continues to be a major driver of China's rapid
economic growth. Reduction in spending on Chinese products and
services, institution of additional tariffs or other trade
barriers (including as a result of heightened trade tensions or a trade war
between China and the U.S. or in response to actual or alleged
Chinese cyber activity) or a downturn in any of the economies of
China's key trading partners may have an adverse impact on
the Chinese economy.
Chinese companies,
including Chinese companies that are listed on U.S. exchanges,
are not subject to the same degree of regulatory
requirements, accounting standards or auditor oversight as
companies in more developed countries. As a result, information about
the Chinese securities in which the Fund invests may be
less reliable or complete. Chinese companies with securities listed
on U.S. exchanges may be delisted if they do not meet U.S.
accounting standards and auditor oversight requirements,
which would significantly decrease the liquidity and value of the
securities. There may be significant obstacles to obtaining
information necessary for investigations into or litigation against
Chinese companies, and shareholders may have limited legal
remedies. The Fund is not actively managed and does not select
investments based on investor protection considerations.
Risk
of Investing in Developed Countries.
The
Fund’s and the Underlying Fund's
investment in developed country issuers may subject the Fund
to legal, regulatory, political, currency, security, economic and
other risks associated with developed countries. Developed
countries tend to represent a significant portion of the
global economy and
have generally experienced slower economic growth than some
less developed countries. Certain developed countries have
experienced security concerns, such as war, terrorism and
strained international relations. Incidents involving a country’s or
region’s security may cause uncertainty in its markets and may
adversely affect its economy and the Fund’s or an Underlying
Fund's investments. In addition, developed countries may be
adversely impacted by changes to the economic conditions of
certain key trading partners, regulatory burdens, debt burdens and
the price or availability of certain
commodities.
Risk
of Investing in India. Investments in
Indian issuers involve risks that are
specific to India, including legal, regulatory, political, currency and
economic risks. Political and legal uncertainty, greater government
control over the economy, currency fluctuations or
blockage, and the risk of nationalization or expropriation of
assets may result in higher potential for losses. The securities
markets in India are relatively underdeveloped and may subject the
Fund or an Underlying Fund to higher transaction costs or greater
uncertainty than investments in more developed securities
markets.
Risk
of Investing in Japan. The Japanese
economy may be subject to
considerable degrees of economic, political and social instability, which
could have a negative impact on Japanese securities. Since
2000, Japan’s economic growth rate has generally remained
low relative to other advanced economies, and it may remain low
in the future. In addition, Japan is subject to the risk of natural
disasters, such as earthquakes, volcanic eruptions, typhoons and
tsunamis, which could negatively affect the Fund or an Underlying
Fund. Japan’s relations with its neighbors have at times been
strained, and strained relations may cause uncertainty in the Japanese
markets and adversely affect the overall Japanese economy.
Risk
of Investing in Russia. Investing in
Russian securities involves
significant risks, including legal, regulatory, currency and economic risks
that are specific to Russia. In addition, investing in Russian securities
involves risks associated with the settlement of portfolio
transactions and loss of the Fund’s or an Underlying
Fund's ownership
rights in its portfolio securities as a result of the system of share
registration and custody in Russia. Governments in the U.S. and
many other countries have imposed economic sanctions on
certain Russian individuals and Russian corporate and banking
entities. A number of jurisdictions may also institute broader sanctions
on Russia. Russia has issued a number of countersanctions,
some of which restrict the distribution of profits by limited
liability companies (e.g., dividends), and
prohibit Russian persons
from entering into transactions with designated persons from
“unfriendly
states” as well as the
export of raw materials or other
products from Russia to certain sanctioned persons. Russia
launched a large-scale invasion of Ukraine on February 24, 2022.
The extent and duration of the military action, resulting
sanctions and resulting future market disruptions, including declines
in its stock markets and the value of the ruble against the U.S.
dollar, are impossible to predict, but could be significant.
Disruptions caused by Russian military action or other actions (including
cyberattacks and espionage) or resulting actual and threatened
responses to such activity, including purchasing and financing
restrictions, boycotts or changes in consumer or
S-46
purchaser
preferences, sanctions, import and export restrictions, tariffs or
cyberattacks on the Russian government, Russian companies, or
Russian individuals, including politicians, may impact Russia’s
economy and Russian companies in which the Fund or an Underlying
Fund invests. Actual and threatened responses to
Russian military action may also impact the markets for certain
Russian commodities, such as oil and natural gas, as well as other
sectors of the Russian economy, and are likely to have collateral
impacts on such sectors globally. Russian companies may be
unable to pay dividends and, if they pay dividends, the
Fund or an Underlying
Fund may be unable to receive them. As a
result of sanctions, the Fund is currently restricted from
trading in Russian securities, including those in its portfolio, while
the Underlying Indexes of the Underlying Funds have removed
Russian securities. It is unknown when, or if, sanctions may be
lifted or the Fund’s ability to trade in Russian securities will
resume.
Risk
of Investing in Saudi Arabia. The ability of
foreign investors (such as the
Fund or an Underlying
Fund) to invest in the securities of
Saudi Arabian issuers is relatively new. Such ability could be
restricted by the Saudi Arabian government at any time, and unforeseen
risks could materialize with respect to foreign ownership in such
securities. The economy of Saudi Arabia is dominated by
petroleum exports. A sustained decrease in petroleum prices
could have a negative impact on all aspects of the economy.
Investments in the securities of Saudi Arabian issuers involve
risks not typically associated with investments in securities of
issuers in more developed countries that may negatively affect
the value of the Fund’s or Underlying
Fund's investments. Such
heightened risks may include, among others, expropriation
and/or nationalization of assets, restrictions on and government
intervention in international trade, confiscatory taxation,
political instability, including authoritarian and/or military
involvement in governmental decision making, armed conflict, crime
and instability as a result of religious, ethnic and/or
socioeconomic unrest. There remains the possibility that instability in the
larger Middle East region could adversely impact the economy of
Saudi Arabia, and there is no assurance of political
stability in Saudi Arabia.
Saudi
Arabia Broker Risk. There are a
number of different ways of conducting
transactions in equity securities in the Saudi Arabian
market. The Fund (or an Underlying Fund) generally expects to conduct
its transactions in a manner in which the Fund would not be
limited by Saudi Arabian regulations to a single broker. However,
there may be a limited number of brokers who can provide
services to the Fund (or an Underlying Fund), which may have an
adverse impact on the prices, quantity or timing of Fund (or an
Underlying Fund) transactions.
Risk
of Investing in Taiwan. Investments in
Taiwanese issuers involve risks that
are specific to Taiwan, including legal, regulatory,
political, currency and economic risks. Political and economic
developments of Taiwan’s neighbors may have an adverse effect on
Taiwan’s economy. Specifically, Taiwan’s geographic
proximity and history of political contention with China have
resulted in ongoing tensions, which may materially affect the
Taiwanese economy and its securities market.
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 or the Underlying Funds has exposure.
Securities
Lending Risk. The Fund or
an Underlying Fund may engage in
securities lending. Securities lending involves the risk that the Fund or
the Underlying Funds may lose money because the borrower of
the loaned securities fails to return the securities in a timely manner
or at all. The Fund or the Underlying Funds 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 or an Underlying
Fund.
Small-Capitalization
Companies Risk. Compared to mid-
and large-capitalization
companies, small-capitalization companies may be less stable
and more susceptible to adverse developments. In
addition, the securities of small-capitalization companies may be
more volatile and less liquid than those of mid- and
large-capitalization companies.
Tax
Risk. Because the Fund
is expected to invest in the Underlying Funds,
the Fund’s realized losses on sales of shares of an Underlying Fund
may be indefinitely or permanently deferred as “wash
sales.” Distributions of
short-term capital gains by an Underlying Fund
will be recognized as ordinary income by the Fund and would not
be offset by the Fund’s capital loss carryforwards, if
any. Capital loss carryforwards of an Underlying Fund, if any,
would not offset net capital gains of the
Fund.
Technology
Sector Risk. Technology
companies, including information
technology companies, may have limited
product lines, markets,
financial resources or personnel. Technology companies
typically face intense competition and potentially rapid product
obsolescence. They are also heavily dependent on intellectual
property rights and may be adversely affected by the loss or impairment
of those rights. Companies in the technology sector may face
increased government and regulatory scrutiny and may be subject
to adverse government or regulatory
action.
Utilities
Sector Risk. The utilities
sector is subject to significant government
regulation and oversight. Deregulation, however, may subject utility
companies to greater competition and may reduce their
profitability. Companies in the utilities sector may be adversely affected
due to increases in fuel and operating costs, rising costs of
financing capital construction and the cost of complying with
U.S. federal and state regulations, among other factors.
Valuation
Risk. The price the
Fund or an Underlying Fund could receive upon the
sale of a security or other asset may differ from the
Fund's or the Underlying
Fund's valuation of the security or other asset,
particularly for securities or other assets that trade in low volume or
volatile markets, or assets that are impacted by market disruption
events or that are valued using a fair value methodology as a
result of trade suspensions or for other
S-47
reasons. In
addition, the value of the securities or other assets in the Fund's or an
Underlying Fund's portfolio may change on days or during time
periods when shareholders will not be able to purchase or sell
the Fund's or an Underlying Fund's shares. Authorized
Participants who purchase or redeem shares of the Fund or an
Underlying Fund on days when the Fund or an Underlying Fund
is holding fair-valued securities or other instruments may
receive fewer or more shares, or lower or higher redemption
proceeds, than they would have received had the securities or
other instruments not been fair valued or been
valued using a
different methodology. The ability to value investments may be
impacted by technological issues or errors by pricing services
or other third-party service
providers.
Performance
Information
S-48
Management
Investment
Adviser. BlackRock Fund
Advisors.
Portfolio
Managers. Christopher Chung
and Suzanne Ly (the “Portfolio
Managers”) are primarily
responsible for the day-to-day management of the
Fund. Each Portfolio Manager supervises a portfolio
management team. Mr. Chung and Ms. Ly have been Portfolio Managers
of the Fund since inception (2023).
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 you 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 taxed 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.
S-49
iShares
LifePath® Target Date 2045
ETF
Ticker:
ITDE Stock
Exchange: NYSE Arca
Investment
Objective
The iShares
LifePath Target Date 2045 ETF (the “2045
Fund” or the
“Fund”) seeks to provide
retirement outcomes through exposure to a broad portfolio of
ETFs which adjusts its allocation as it approaches its target
date.
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 iShares Trust (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. Acquired Fund Fees and
Expenses are not included in the calculation of the ratio of
expenses to average
net assets shown in the Financial
Highlights section of the Fund’s
prospectus (the “ Prospectus ” ).
You may pay other
fees, such as brokerage commissions and other fees to financial intermediaries,
which are not reflected in the tables and examples
below.
|
| ||||
|
Management
Fees |
Distribution
and
Service
(12b-1)
Fees |
Other
Expenses2
|
Acquired
Fund Fees
and
Expenses 3
|
Total
Annual
Fund
Operating
Expenses |
|
|
|
|
|
|
1
2
3
|
|
1
Year |
3
Years |
|
|
|
$ |
$ |
|
Principal
Investment Strategies
The 2045 Fund is
actively managed and allocates and reallocates its assets among a
combination of Underlying Funds in proportions based
on its own investment strategy.
The 2045 Fund is
one of a group of funds referred to as the “LifePath
ETFs,” each of which
seeks to provide for retirement outcomes based on
quantitatively measured risk that investors on average may be
willing to accept given a particular time
horizon.
S-50
BFA employs a
multi-dimensional approach to assess risk for the 2045 Fund and to
determine its allocation across asset classes. As part of this
multi-dimensional approach, BFA aims to quantify risk using
proprietary risk measurement tools that, among other things, analyze
historical and forward-looking securities market data, including
risk, asset class correlations, and expected returns. Under
normal circumstances, the 2045 Fund intends to invest primarily
in affiliated exchange-traded funds (“ETFs”).
The 2045 Fund will
invest, under normal circumstances, at least 80% of its assets
in securities or other financial instruments that are components of
or have economic characteristics similar to the securities
included in its custom model benchmark, the 2045 Target Date Custom
Benchmark. BFA will not publish its custom benchmark but will
apply a proprietary model to monitor performance of the
2045 Fund. The 2045 Fund is designed for investors
expecting to retire or to begin withdrawing assets around the year
2045. At inception, BFA expects the 2045 Fund to hold
approximately 89.60% of its assets in Underlying Funds that seek to track
particular underlying indexes of equity securities,
approximately 10.40% of its assets in Underlying Funds that seek to track
particular fixed-income indexes and the remainder of its
assets in Underlying Funds that invest primarily in money market
instruments.
At inception, the
Fund invests in the iShares 1-5 Year Investment Grade Corporate
Bond ETF, iShares 5-10 Year Investment Grade Corporate Bond
ETF, iShares 10+ Year Investment Grade Corporate Bond
ETF, iShares 10-20 Year Treasury Bond ETF, iShares Core MSCI
Emerging Markets ETF, iShares Core MSCI International
Developed Markets ETF, iShares Core U.S. REIT ETF, iShares MBS ETF,
iShares Russell 1000 ETF, iShares Russell 2000 ETF, iShares U.S.
Treasury Bond ETF and money market funds advised by BFA or
its affiliates (“BlackRock Cash
Funds”). Factors
such
as fund classifications, historical risk and performance, and the relationship
to other Underlying Funds in the Fund are considered when
selecting Underlying Funds. The specific Underlying Funds
selected for the Fund are determined at BFA’s discretion and may
change as deemed appropriate to allow the Fund to meet its
investment objective. See the “Information About
the
Underlying Funds” section of the
prospectus for a list of the Underlying Funds,
their classification into equity, fixed-income or money market funds
and a brief description of their investment objectives and
primary investment strategies.
Under normal
circumstances, the Fund’s asset allocation will change over time
according to a predetermined “glide
path” as the Fund
approaches its target date. The glide path below represents the
shifting of asset classes over time. As the glide path shows, as
time elapses prior to retirement, the Fund’s asset allocations become
more conservative. This reflects the need for reduced investment
risk as retirement approaches and the need for lower
volatility of the Fund, which for certain investors may be a primary source
of income after retirement. During the year prior to the Fund’s
maturity date, its allocation of assets is expected to be similar to that
of the Retirement Fund. Further, as retirement approaches, such
Fund and the Retirement Fund is expected to, subject to
approval by the Trust’s Board of Trustees (the “Board”), merge into a
single fund.
The following
chart illustrates the glide path — the target allocation among
asset classes as the LifePath ETFs approach their target
dates:
The following
table lists the target allocation by years until retirement:
|
Years
to
Retirement |
Equity
Allocation
(including
REITs) |
Fixed-Income
Allocation |
|
45 |
99% |
1% |
|
40 |
99% |
1% |
|
35 |
99% |
1% |
|
30 |
98% |
2% |
|
25 |
95% |
5% |
|
20 |
87% |
13% |
|
15 |
77% |
23% |
|
10 |
65% |
35% |
|
5 |
53% |
47% |
|
0 |
40% |
60% |
The asset
allocation targets are established by the Fund’s portfolio
managers. The investment team, including the portfolio managers, meets
regularly to assess market conditions, review the asset
allocation targets of the Fund, and determine whether any changes are
required to enable the Fund to achieve its investment
objective.
Although the asset
allocation targets listed for the glide path are general, long-term
targets, BFA may periodically adjust the proportion of
equity and fixed-income Underlying Funds in the Fund, based on an
assessment of the current market conditions, the potential
contribution of each asset class to the expected risk and return
characteristics of the Fund, reallocations of the Fund’s composition to
reflect intra-year movement along the glide path and other factors.
In general, such adjustments will be limited; however, BFA may
determine that a greater degree of variation is warranted to
protect the Fund or achieve its investment
objective.
BFA’s second step
in the structuring of the Fund is the selection of the Underlying
Funds. Factors such as fund classifications, historical risk
and performance, and the relationship to other Underlying Funds
in the Fund are considered when selecting Underlying Funds.
The specific Underlying Funds selected for the Fund are
determined at BFA’s discretion and may change as
S-51
deemed appropriate
to allow the Fund to meet its investment objective. See the
“Information About
the Underlying Funds”
section of the
prospectus for a list of the Underlying Funds, their classification
into equity, fixed-income or money market funds and a brief
description of their investment objectives and primary investment
strategies.
Within the
prescribed percentage allocations to equity and fixed-income index funds, BFA
seeks to diversify the Fund. The allocation to
Underlying Funds that track equity indexes may be further
diversified by style (including both value and growth), market
capitalization (including emerging growth, large-, mid-, and small-capitalization),
region (i.e., U.S, and
international, including emerging markets)
or other attributes. The allocation to Underlying Funds
that track fixed-income indexes may be further diversified by
sector (including government, corporate, U.S. agency MBS or
debentures, CMBS, and other sectors), duration (a of measurement of
interest rate risk), credit quality (including investment grade
bonds and high yield bonds), geographic location
(including U.S. and non-U.S. securities, including bonds of emerging market
issuers), currency (U.S. dollar-denominated or local currency
bonds) or other attributes. Though BFA seeks to diversify the
Fund, certain Underlying Funds may concentrate their investments
in specific sectors or geographic regions or countries. The
percentage allocation to the various styles of equity and
fixed-income Underlying Funds is determined at the discretion of the
investment team and can be changed to reflect the current market
environment.
Certain Underlying
Funds may invest in real estate investment trusts
(“REITs”), foreign
securities, emerging market securities, high yield bonds
and derivative securities or instruments, such as options and
futures, the value of which is derived from another security, a
currency or commodity, an interest rate or an index, when seeking to
match the performance of a particular market index. The Fund
and certain Underlying Funds may also lend securities with a
value up to one-third of their respective total assets to
financial institutions that provide cash or securities issued or
guaranteed by the U.S. Government as
collateral.
Summary
of Principal Risks
Equity
Securities Risk. Equity securities
are subject to changes in value, and
their values may be more volatile than those of other asset classes.
Certain Underlying Funds invest in common stocks, which generally
subject their holders to
more risks than preferred stocks and debt
securities because common stockholders’ claims
are subordinated
to those of holders of preferred stocks and debt securities upon
the bankruptcy of the issuer.
Allocation
Risk.
The Fund’s ability to achieve its investment objective depends
upon BFA's ability to develop a model that accurately
assesses the Fund’s asset class allocation and selects an appropriate mix
of Underlying Funds and other ETFs. There is a risk that BFA's
evaluations and assumptions regarding asset classes or
Underlying Funds, which are utilized as inputs in the model, may be
incorrect in view of actual market
conditions.
Investment
in Underlying Funds Risk. The Fund invests
substantially all
of its assets in the Underlying
Funds, so the Fund’s investment
performance is directly related to the performance of the
Underlying Funds. The Fund’s NAV will change with changes in
the value of the Underlying Funds and other securities in
which the Fund invests based on their market valuations. An
investment in the Fund will entail more costs and expenses than a
direct investment in the Underlying
Funds.
As the Underlying
Funds, or the Fund’s allocations among the Underlying Funds,
change from time to time, or to the extent that the total annual
fund operating expenses of any Underlying Fund change, the
weighted average operating expenses borne by the Fund may increase
or decrease.
Affiliated
Fund Risk. In managing the
Fund, BFA has the ability to select Underlying
Funds and substitute Underlying Funds with other ETFs that it
believes will achieve the Fund’s objective. BFA may be subject to
potential conflicts of interest in selecting Underlying Funds
and substituting Underlying Funds with other ETFs because the
fees paid to BFA by some Underlying Funds and other ETFs managed
by BFA may be higher than the fees paid by other Underlying
Funds. If an Underlying Fund or other ETF holds interests in an
affiliated fund in excess of a certain amount, the Fund may be
prohibited from purchasing shares of that Underlying Fund or other
ETF.
Retirement
Income Risk. The 2045 Fund does
not provide a guarantee that
sufficient capital appreciation will be achieved to provide adequate
income at and through retirement. The 2045 Fund also does not
ensure that you will have assets in your account sufficient
to cover your retirement expenses; this will depend on the
amount of money you have invested in the 2045 Fund, the length
of time you have held your investment, the returns of the
markets over time, the amount you spend in retirement, and
your other assets and income sources.
Selection
Risk.
Selection risk is the risk that the securities selected by the
2045 Fund management will underperform the markets, the
relevant indices or the securities selected by other funds with similar
investment objectives and investment strategies. This
means you may lose money.
Market
Risk. The
Fund and the Underlying
Funds 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, public
health issues, recessions, the prospect or
S-52
occurrence of a
sovereign default or other financial crisis, or other events could have
a significant impact on the Fund, the Underlying Funds
and their investments and could result in increased premiums
or discounts to the Fund’s or Underlying
Fund's
NAV.
Asset
Class Risk. Securities and
other assets in the Fund's or an Underlying Fund's
portfolio may underperform in comparison to the general
financial markets, a particular financial market or other asset
classes.
Authorized
Participant Concentration Risk. Only an
Authorized Participant (as
defined in the Creations
and Redemptions section
of
this prospectus (the “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 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 or an Underlying 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.
Currency
Risk. Because the
Fund's and the Underlying Funds' NAVs are
determined in U.S. dollars, the Fund's NAV could decline if a currency of a
non-U.S. market in which a Fund or an Underlying
Fund invests depreciates against the U.S. dollar or if there are delays
or limits on repatriation of such currency. Currency exchange
rates can be very volatile and can change quickly and
unpredictably. As a result, the Fund's NAV may change quickly and
without warning.
Cybersecurity
Risk. Failures or
breaches of the electronic systems of the
Fund or the Underlying Funds, the Funds' or the Underlying Funds'
adviser, distributor, the benchmark provider 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 benchmark provider
and other service providers, market makers, Authorized
Participants or issuers of securities in which the Fund invests.
Derivatives
Risk. The Fund or
an Underlying Fund may invest in certain types of
derivatives contracts, including futures, options and swaps, which
can be more sensitive to changes in interest rates or to sudden
fluctuations in market prices than conventional securities, which
can result in greater losses to the
Fund.
Energy
Sector Risk. The market value
of securities in the energy sector may decline
for many reasons, including, among others, changes in energy
prices, energy supply and demand, government regulations, costs
related to exploration and production and energy
conservation efforts. Companies in the energy sector may also be
significantly impacted by natural disasters, social and political unrest,
war and environmental damage and may also be at risk for
increased litigation and negative publicity or public perception. The
energy sector may experience significant market volatility
(e.g., as a result of
Russia’s invasion of Ukraine in February 2022 and
the resulting sanctions on Russia and other responses by the
U.S. and other actors).
Financials
Sector Risk. The performance
of companies in the financials sector
may be adversely impacted by many factors, including, among
others, changes in government regulations, economic
conditions, and interest rates, credit rating downgrades,
adverse public perception, exposure concentration and decreased
liquidity in credit markets. The impact of changes in regulation of
any individual financial company, or of the financials sector
as a whole, cannot be predicted. Cybersecurity incidents and
technology malfunctions and failures have become increasingly
frequent and have caused significant losses to companies in this
sector, which may negatively impact an Underlying
Fund.
Geographic
Risk. A natural
disaster could occur in a geographic region in which
the Fund or an Underlying Fund invests, which could adversely
affect the economy or the business operations of companies in the
specific geographic region, causing an adverse impact on the
Fund's or an Underlying Fund's investments in, or which are exposed
to, the affected region.
Healthcare
Sector Risk. The profitability
of companies in the healthcare sector
may be affected by government regulations and government
healthcare programs, increases or decreases in the cost of medical
products and services, an increased emphasis on outpatient
services, demand for medical products and services and product
liability claims, among other factors. Many healthcare companies are
heavily dependent on patent protection, and the expiration of a
company’s patent may adversely affect that company’s
profitability. Healthcare companies are subject to competitive forces
that may result in price discounting, and may be thinly
capitalized and susceptible to product
obsolescence.
Indexing
Investment Risk. The Underlying
Funds are not actively managed, and BFA
generally does not attempt to take defensive positions in the
Underlying Funds under any market conditions, including
declining markets.
Industrials
Sector Risk. Companies in the
industrials sector may be adversely
affected by changes in the supply of and demand for products and
services, product obsolescence, claims for
S-53
environmental
damage or product liability and changes in general economic
conditions, among other factors.
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 elevated tracking error and 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.
Information
Technology Sector Risk. Information
technology companies face
intense competition and potentially rapid product obsolescence. They
are also heavily dependent on intellectual property rights
and may be adversely affected by the loss or impairment of
those rights. Companies in the information technology sector
are facing increased government and regulatory
scrutiny and may be subject to adverse government or regulatory action.
Companies in the software industry may be adversely affected
by, among other things, the decline or fluctuation of
subscription renewal rates for their products and services and
actual or perceived vulnerabilities in their products or
services.
Issuer
Risk. The performance
of the Fund depends on the performance of
individual securities to which the Fund or an Underlying Fund
has exposure. Changes in the financial condition or credit rating
of an issuer of those securities may cause the value of the
securities to decline.
Large-Capitalization
Companies Risk.
Large-capitalization companies may be
less able than smaller capitalization companies to adapt
to changing market conditions. Large-capitalization companies may be
more mature and subject to more limited
growth potential compared with smaller capitalization
companies. During different market cycles, the performance of
large-capitalization companies has trailed the overall
performance of the broader securities
markets.
Management
Risk. The Fund and the
Underlying Funds are subject to
management risk, which is the risk that the investment process,
techniques and risk analyses applied by BFA will not produce the
desired results, and that securities selected by BFA may underperform
the market or any relevant benchmark. In addition,
legislative, regulatory, or tax developments may affect the investment
techniques available to BFA in connection with managing the Fund
and the Underlying Funds and may also adversely affect
the ability of the Fund and the Underlying Funds to achieve their
investment objective.
Market
Trading Risk. The Fund and
the Underlying Funds face numerous market
trading risks, including the potential lack of an
active market for
their shares, losses from trading in secondary markets, periods
of high volatility and disruptions in the creation/redemption
process. ANY
OF THESE FACTORS, AMONG
OTHERS, MAY LEAD TO THE FUND'S SHARES TRADING
AT A PREMIUM OR DISCOUNT TO NAV.
Mid-Capitalization
Companies Risk. Compared to
large-capitalization companies,
mid-capitalization companies may be less stable and
more susceptible to adverse developments. In addition, the
securities of mid-capitalization companies may be more volatile and
less liquid than those of large-capitalization companies.
National
Closed Market Trading Risk. To the extent
that the underlying
securities or other instruments held by the Fund or the Underlying Funds
trade on foreign exchanges or in foreign markets that may
be closed when the securities exchange on which the Fund’s
or an Underlying Fund's shares trade is open, there are likely
to be deviations between the current price of such an underlying
security and the last quoted price for the underlying security
(i.e., the Fund’s or
an Underlying Fund's quote from the closed foreign
market). The impact of a
closed foreign market on the Fund or an
Underlying Fund is likely to be greater where a large portion of
the Fund’s or an Underlying Fund's underlying securities or
other instruments trade on that closed foreign market or when the
foreign market is closed for unscheduled reasons. These
deviations could result in premiums or discounts to the Fund’s
or an Underlying Fund's NAV that may be greater than those
experienced by other ETFs.
Non-U.S.
Issuers Risk. Securities issued
by non-U.S. issuers carry different
risks from securities issued by U.S. issuers. These risks include
differences in accounting, auditing and financial reporting
standards, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control
regulations, political instability, regulatory and economic differences, and
potential restrictions on the flow of international capital. The Fund
is specifically exposed to Asian Economic
Risk,
European Economic Risk and North
American Economic
Risk.
Non-U.S.
Securities Risk. Investments in
the securities of non-U.S. issuers are
subject to the risks associated with investing in those non-U.S.
markets, such as heightened risks of inflation or nationalization.
The Fund or an Underlying
Fund may
lose money due to political, economic and geographic events affecting issuers
of non-U.S. securities or non-U.S.
markets. In addition, non-U.S.
securities markets may trade a small number of securities and may
be unable to respond effectively to changes in trading volume,
potentially making prompt liquidation of holdings difficult or
impossible at times. The Fund is specifically exposed to Asian Economic
Risk, European Economic Risk and North
American
Economic Risk.
Operational
Risk. The
Fund and the Underlying
Funds are 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, the
S-54
Underlying Funds
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 China.
Investments in
Chinese securities, including certain
Hong Kong-listed and U.S.-listed securities, subject the Fund
or the Underlying Funds to risks specific to China. China may
be subject to considerable degrees of economic,
political and social instability. China is an emerging market and
demonstrates significantly higher volatility from time to time in
comparison to developed markets. Over the last few decades, the
Chinese government has undertaken reform of economic and
market practices and has expanded the sphere of private ownership
of property in China. However, Chinese markets generally continue
to experience inefficiency, volatility and pricing anomalies
resulting from governmental influence, a lack of publicly available
information and/or political and social instability.
Chinese companies
are also subject to the risk that Chinese authorities can
intervene in their operations and structure. Internal social
unrest or confrontations with neighboring countries,
including military conflicts in response to such events, may also disrupt
economic development in China and result in a greater risk of
currency fluctuations, currency non-convertibility, interest rate
fluctuations and higher rates of
inflation.
China has
experienced security concerns, such as terrorism and strained
international relations. Additionally, China is alleged to have participated
in state-sponsored cyberattacks against foreign companies and
foreign governments. Actual and threatened responses to such
activity and strained international relations, including
purchasing restrictions, sanctions, tariffs or cyberattacks on
the Chinese government or Chinese companies, may impact China’s
economy and Chinese issuers of securities in which the Fund
invests. Incidents involving China's or the region's security may cause
uncertainty in Chinese markets and may adversely affect
the Chinese economy and the Fund's investments.
Export growth continues to be a major driver of China's rapid
economic growth. Reduction in spending on Chinese products and
services, institution of additional tariffs or other trade
barriers (including as a result of heightened trade tensions or a trade war
between China and the U.S. or in response to actual or alleged
Chinese cyber activity) or a downturn in any of the economies of
China's key trading partners may have an adverse impact on
the Chinese economy.
Chinese companies,
including Chinese companies that are listed on U.S. exchanges,
are not subject to the same degree of regulatory
requirements, accounting standards or auditor oversight as
companies in more developed countries. As a result, information about
the Chinese securities in which the Fund invests may be
less reliable or complete. Chinese companies with securities listed
on U.S. exchanges may be delisted if they do not meet U.S.
accounting standards and auditor oversight requirements,
which would significantly decrease the liquidity and value of the
securities. There may be significant obstacles to obtaining
information necessary for investigations into or litigation against
Chinese companies, and shareholders may have
limited legal
remedies. The Fund is not actively managed and does not select
investments based on investor protection considerations.
Risk
of Investing in Developed Countries.
The
Fund’s and the Underlying Fund's
investment in developed country issuers may subject the Fund
to legal, regulatory, political, currency, security, economic and
other risks associated with developed countries. Developed
countries tend to represent a significant portion of the global economy and
have generally experienced slower economic growth than some
less developed countries. Certain developed countries have
experienced security concerns, such as war, terrorism and
strained international relations. Incidents involving a country’s or
region’s security may cause uncertainty in its markets and may
adversely affect its economy and the Fund’s or an Underlying
Fund's investments. In addition, developed countries may be
adversely impacted by changes to the economic conditions of
certain key trading partners, regulatory burdens, debt burdens and
the price or availability of certain
commodities.
Risk
of Investing in India. Investments in
Indian issuers involve risks that are
specific to India, including legal, regulatory, political, currency and
economic risks. Political and legal uncertainty, greater government
control over the economy, currency fluctuations or
blockage, and the risk of nationalization or expropriation of
assets may result in higher potential for losses. The securities
markets in India are relatively underdeveloped and may subject the
Fund or an Underlying Fund to higher transaction costs or greater
uncertainty than investments in more developed securities
markets.
Risk
of Investing in Japan. The Japanese
economy may be subject to
considerable degrees of economic, political and social instability, which
could have a negative impact on Japanese securities. Since
2000, Japan’s economic growth rate has generally remained
low relative to other advanced economies, and it may remain low
in the future. In addition, Japan is subject to the risk of natural
disasters, such as earthquakes, volcanic eruptions, typhoons and
tsunamis, which could negatively affect the Fund or an Underlying
Fund. Japan’s relations with its neighbors have at times been
strained, and strained relations may cause uncertainty in the Japanese
markets and adversely affect the overall Japanese economy.
Risk
of Investing in Russia. Investing in
Russian securities involves
significant risks, including legal, regulatory, currency and economic risks
that are specific to Russia. In addition, investing in Russian securities
involves risks associated with the settlement of portfolio
transactions and loss of the Fund’s or an Underlying
Fund's ownership
rights in its portfolio securities as a result of the system of share
registration and custody in Russia. Governments in the U.S. and
many other countries have imposed economic sanctions on
certain Russian individuals and Russian corporate and banking
entities. A number of jurisdictions may also institute broader sanctions
on Russia. Russia has issued a number of countersanctions,
some of which restrict the distribution of profits by limited
liability companies (e.g., dividends), and
prohibit Russian persons
from entering into transactions with designated persons from
“unfriendly
states” as well as the
export of raw materials or other
products from Russia to certain sanctioned
S-55
persons. Russia
launched a large-scale invasion of Ukraine on February 24, 2022.
The extent and duration of the military action, resulting
sanctions and resulting future market disruptions, including declines
in its stock markets and the value of the ruble against the U.S.
dollar, are impossible to predict, but could be significant.
Disruptions caused by Russian military action or other actions (including
cyberattacks and espionage) or resulting actual and threatened
responses to such activity, including purchasing and financing
restrictions, boycotts or changes in consumer or purchaser
preferences, sanctions, import and export restrictions, tariffs or
cyberattacks on the Russian government, Russian companies, or
Russian individuals, including politicians, may impact Russia’s
economy and Russian companies in which the Fund or an Underlying
Fund invests. Actual and threatened responses to
Russian military action may also impact the markets for certain
Russian commodities, such as oil and natural gas, as well as other
sectors of the Russian economy, and are likely to have collateral
impacts on such sectors globally. Russian companies may be
unable to pay dividends and, if they pay dividends, the
Fund or an Underlying
Fund may be unable to receive them. As a
result of sanctions, the Fund is currently restricted from
trading in Russian securities, including those in its portfolio, while
the Underlying Indexes of the Underlying Funds have removed
Russian securities. It is unknown when, or if, sanctions may be
lifted or the Fund’s ability to trade in Russian securities will
resume.
Risk
of Investing in Saudi Arabia. The ability of
foreign investors (such as the
Fund or an Underlying
Fund) to invest in the securities of
Saudi Arabian issuers is relatively new. Such ability could be
restricted by the Saudi Arabian government at any time, and unforeseen
risks could materialize with respect to foreign ownership in such
securities. The economy of Saudi Arabia is dominated by
petroleum exports. A sustained decrease in petroleum prices
could have a negative impact on all aspects of the economy.
Investments in the securities of Saudi Arabian issuers involve
risks not typically associated with investments in securities of
issuers in more developed countries that may negatively affect
the value of the Fund’s or Underlying
Fund's investments. Such
heightened risks may include, among others, expropriation
and/or nationalization of assets, restrictions on and government
intervention in international trade, confiscatory taxation,
political instability, including authoritarian and/or military
involvement in governmental decision making, armed conflict, crime
and instability as a result of religious, ethnic and/or
socioeconomic unrest. There remains the possibility that instability in the
larger Middle East region could adversely impact the economy of
Saudi Arabia, and there is no assurance of political
stability in Saudi Arabia.
Saudi
Arabia Broker Risk. There are a
number of different ways of conducting
transactions in equity securities in the Saudi Arabian
market. The Fund (or an Underlying Fund) generally expects to conduct
its transactions in a manner in which the Fund would not be
limited by Saudi Arabian regulations to a single broker. However,
there may be a limited number of brokers who can provide
services to the Fund (or an Underlying Fund), which may have an
adverse impact on the prices, quantity or timing of Fund (or an
Underlying Fund) transactions.
Risk
of Investing in Taiwan. Investments in
Taiwanese issuers involve risks that
are specific to Taiwan, including legal, regulatory,
political, currency and economic risks. Political and economic
developments of Taiwan’s neighbors may have an adverse effect on
Taiwan’s economy. Specifically, Taiwan’s geographic
proximity and history of political contention with China have
resulted in ongoing tensions, which may materially affect the
Taiwanese economy and its securities
market.
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 or the Underlying Funds has exposure.
Securities
Lending Risk. The Fund or
an Underlying Fund may engage in
securities lending. Securities lending involves the risk that the Fund or
the Underlying Funds may lose money because the borrower of
the loaned securities fails to return the securities in a timely manner
or at all. The Fund or the Underlying Funds 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 or an Underlying
Fund.
Small-Capitalization
Companies Risk. Compared to mid-
and large-capitalization
companies, small-capitalization companies may be less stable
and more susceptible to adverse developments. In
addition, the securities of small-capitalization companies may be
more volatile and less liquid than those of mid- and
large-capitalization companies.
Tax
Risk. Because the Fund
is expected to invest in the Underlying Funds,
the Fund’s realized losses on sales of shares of an Underlying Fund
may be indefinitely or permanently deferred as “wash
sales.” Distributions of
short-term capital gains by an Underlying Fund
will be recognized as ordinary income by the Fund and would not
be offset by the Fund’s capital loss carryforwards, if
any. Capital loss carryforwards of an Underlying Fund, if any,
would not offset net capital gains of the
Fund.
Technology
Sector Risk. Technology
companies, including information
technology companies, may have limited
product lines, markets,
financial resources or personnel. Technology companies
typically face intense competition and potentially rapid product
obsolescence. They are also heavily dependent on intellectual
property rights and may be adversely affected by the loss or impairment
of those rights. Companies in the technology sector may face
increased government and regulatory scrutiny and may be subject
to adverse government or regulatory
action.
Utilities
Sector Risk. The utilities
sector is subject to significant government
regulation and oversight. Deregulation, however, may subject utility
companies to greater competition and may reduce their
profitability. Companies in the utilities sector may be adversely affected
due to increases in fuel and operating costs,
S-56
rising costs of
financing capital construction and the cost of complying with
U.S. federal and state regulations, among other factors.
Valuation
Risk. The price the
Fund or an Underlying Fund could receive upon the
sale of a security or other asset may differ from the
Fund's or the Underlying
Fund's valuation of the security or other asset,
particularly for securities or other assets that trade in low volume or
volatile markets, or assets that are impacted by market disruption
events or that are valued using a fair value methodology as a
result of trade suspensions or for other reasons. In
addition, the value of the securities or other assets in the Fund's or an
Underlying Fund's portfolio may change on days or during time
periods when shareholders will not be able to purchase or sell
the Fund's or an Underlying Fund's shares. Authorized
Participants who purchase or redeem shares of the
Fund or an
Underlying Fund on days when the Fund or an Underlying Fund
is holding fair-valued securities or other instruments may
receive fewer or more shares, or lower or higher redemption
proceeds, than they would have received had the securities or
other instruments not been fair valued or been valued using a
different methodology. The ability to value investments may be
impacted by technological issues or errors by pricing services
or other third-party service
providers.
Performance
Information
S-57
Management
Investment
Adviser. BlackRock Fund
Advisors.
Portfolio
Managers. Christopher Chung
and Suzanne Ly (the “Portfolio
Managers”) are primarily
responsible for the day-to-day management of the
Fund. Each Portfolio Manager supervises a portfolio
management team. Mr. Chung and Ms. Ly have been Portfolio Managers
of the Fund since inception (2023).
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 you 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 taxed 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.
S-58
iShares
LifePath® Target Date 2050
ETF
Ticker:
ITDF Stock
Exchange: NYSE Arca
Investment
Objective
The iShares
LifePath Target Date 2050 ETF (the “2050
Fund” or the
“Fund”) seeks to provide
retirement outcomes through exposure to a broad portfolio of
ETFs which adjusts its allocation as it approaches its target
date.
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 iShares Trust (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. Acquired Fund Fees and
Expenses are not included in the calculation of the ratio of
expenses to average
net assets shown in the Financial
Highlights section of the Fund’s
prospectus (the “ Prospectus ” ).
You may pay other
fees, such as brokerage commissions and other fees to financial intermediaries,
which are not reflected in the tables and examples
below.
|
| ||||
|
Management
Fees |
Distribution
and
Service
(12b-1)
Fees |
Other
Expenses2
|
Acquired
Fund Fees
and
Expenses 3
|
Total
Annual
Fund
Operating
Expenses |
|
|
|
|
|
|
1
2
3
|
|
1
Year |
3
Years |
|
|
|
$ |
$ |
|
Principal
Investment Strategies
The 2050 Fund is
actively managed and allocates and reallocates its assets among a
combination of Underlying Funds in proportions based
on its own investment strategy.
The 2050 Fund is
one of a group of funds referred to as the “LifePath
ETFs,” each of which
seeks to provide for retirement outcomes based on
quantitatively measured risk that investors on average may be
willing to accept given a particular time
horizon.
S-59
BFA employs a
multi-dimensional approach to assess risk for the 2050 Fund and to
determine its allocation across asset classes. As part of this
multi-dimensional approach, BFA aims to quantify risk using
proprietary risk measurement tools that, among other things, analyze
historical and forward-looking securities market data, including
risk, asset class correlations, and expected returns. Under
normal circumstances, the 2050 Fund intends to invest primarily
in affiliated exchange-traded funds (“ETFs”).
The 2050 Fund will
invest, under normal circumstances, at least 80% of its assets
in securities or other financial instruments that are components of
or have economic characteristics similar to the securities
included in its custom model benchmark, the 2050 Target Date Custom
Benchmark. BFA will not publish its custom benchmark but will
apply a proprietary model to monitor performance of the
2050 Fund. The 2050 Fund is designed for investors
expecting to retire or to begin withdrawing assets around the year
2050. At inception, BFA expects the 2050 Fund to hold
approximately 96.20% of its assets in Underlying Funds that seek to track
particular underlying indexes of equity securities,
approximately 3.80% of its assets in Underlying Funds that seek to track
particular fixed-income indexes and the remainder of its
assets in Underlying Funds that invest primarily in money market
instruments.
At inception, the
Fund invests in the iShares 1-5 Year Investment Grade Corporate
Bond ETF, iShares 5-10 Year Investment Grade Corporate Bond
ETF, iShares 10+ Year Investment Grade Corporate Bond
ETF, iShares 10-20 Year Treasury Bond ETF, iShares Core MSCI
Emerging Markets ETF, iShares Core MSCI International
Developed Markets ETF, iShares Russell 1000 ETF, iShares Russell
2000 ETF and money market funds advised by BFA or its
affiliates (“BlackRock Cash
Funds”). Factors such as
fund
classifications, historical risk and performance, and the relationship to
other Underlying Funds in the Fund are considered when selecting
Underlying Funds. The specific Underlying Funds selected for the
Fund are determined at BFA’s discretion and may change as deemed
appropriate to allow the Fund to meet its investment
objective. See the “Information About
the Underlying Funds” section of the
prospectus for a list of the Underlying Funds, their
classification into equity, fixed-income or money market funds and a
brief description of their investment objectives and
primary investment strategies.
Under normal
circumstances, the Fund’s asset allocation will change over time
according to a predetermined “glide
path” as the Fund
approaches its target date. The glide path below represents the
shifting of asset classes over time. As the glide path shows, as
time elapses prior to retirement, the Fund’s asset allocations become
more conservative. This reflects the need for reduced investment
risk as retirement approaches and the need for lower
volatility of the Fund, which for certain investors may be a primary source
of income after retirement. During the year prior to the Fund’s
maturity date, its allocation of assets is expected to be similar to that
of the Retirement Fund. Further, as retirement approaches, such
Fund and the Retirement Fund is expected to, subject to
approval by the Trust’s Board of Trustees (the “Board”), merge into a
single fund.
The following
chart illustrates the glide path — the target allocation among
asset classes as the LifePath ETFs approach their target
dates:
The following
table lists the target allocation by years until retirement:
|
Years
to
Retirement |
Equity
Allocation
(including
REITs) |
Fixed-Income
Allocation |
|
45 |
99% |
1% |
|
40 |
99% |
1% |
|
35 |
99% |
1% |
|
30 |
98% |
2% |
|
25 |
95% |
5% |
|
20 |
87% |
13% |
|
15 |
77% |
23% |
|
10 |
65% |
35% |
|
5 |
53% |
47% |
|
0 |
40% |
60% |
The asset
allocation targets are established by the Fund’s portfolio
managers. The investment team, including the portfolio managers, meets
regularly to assess market conditions, review the asset
allocation targets of the Fund, and determine whether any changes are
required to enable the Fund to achieve its investment
objective.
Although the asset
allocation targets listed for the glide path are general, long-term
targets, BFA may periodically adjust the proportion of
equity and fixed-income Underlying Funds in the Fund, based on an
assessment of the current market conditions, the potential
contribution of each asset class to the expected risk and return
characteristics of the Fund, reallocations of the Fund’s composition to
reflect intra-year movement along the glide path and other factors.
In general, such adjustments will be limited; however, BFA may
determine that a greater degree of variation is warranted to
protect the Fund or achieve its investment
objective.
BFA’s second step
in the structuring of the Fund is the selection of the Underlying
Funds. Factors such as fund classifications, historical risk
and performance, and the relationship to other Underlying Funds
in the Fund are considered when selecting Underlying Funds.
The specific Underlying Funds selected for the Fund are
determined at BFA’s discretion and may change as
S-60
deemed appropriate
to allow the Fund to meet its investment objective. See the
“Information About
the Underlying Funds”
section of the
prospectus for a list of the Underlying Funds, their classification
into equity, fixed-income or money market funds and a brief
description of their investment objectives and primary investment
strategies.
Within the
prescribed percentage allocations to equity and fixed-income index funds, BFA
seeks to diversify the Fund. The allocation to
Underlying Funds that track equity indexes may be further
diversified by style (including both value and growth), market
capitalization (including emerging growth, large-, mid-, and small-capitalization),
region (i.e., U.S, and
international, including emerging markets)
or other attributes. The allocation to Underlying Funds
that track fixed-income indexes may be further diversified by
sector (including government, corporate, U.S. agency MBS or
debentures, CMBS, and other sectors), duration (a of measurement of
interest rate risk), credit quality (including investment grade
bonds and high yield bonds), geographic location
(including U.S. and non-U.S. securities, including bonds of emerging market
issuers), currency (U.S. dollar-denominated or local currency
bonds) or other attributes. Though BFA seeks to diversify the
Fund, certain Underlying Funds may concentrate their investments
in specific sectors or geographic regions or countries. The
percentage allocation to the various styles of equity and
fixed-income Underlying Funds is determined at the discretion of the
investment team and can be changed to reflect the current market
environment.
Certain Underlying
Funds may invest in real estate investment trusts
(“REITs”), foreign
securities, emerging market securities, high yield bonds
and derivative securities or instruments, such as options and
futures, the value of which is derived from another security, a
currency or commodity, an interest rate or an index, when seeking to
match the performance of a particular market index. The Fund
and certain Underlying Funds may also lend securities with a
value up to one-third of their respective total assets to
financial institutions that provide cash or securities issued or
guaranteed by the U.S. Government as
collateral.
Summary
of Principal Risks
Equity
Securities Risk. Equity securities
are subject to changes in value, and
their values may be more volatile than those of other asset classes.
Certain Underlying Funds invest in common stocks, which generally
subject their holders to
more risks than preferred stocks and debt
securities because common stockholders’ claims
are subordinated
to those of holders of preferred stocks and debt securities upon
the bankruptcy of the issuer.
Allocation
Risk.
The Fund’s ability to achieve its investment objective depends
upon BFA's ability to develop a model that accurately
assesses the Fund’s asset class allocation and selects an appropriate mix
of Underlying Funds and other ETFs. There is a risk that BFA's
evaluations and assumptions regarding asset classes or
Underlying Funds, which are utilized as inputs in the model, may be
incorrect in view of actual market
conditions.
Investment
in Underlying Funds Risk. The Fund invests
substantially all
of its assets in the Underlying
Funds, so the Fund’s investment
performance is directly related to the performance of the
Underlying Funds. The Fund’s NAV will change with changes in
the value of the Underlying Funds and other securities in
which the Fund invests based on their market valuations. An
investment in the Fund will entail more costs and expenses than a
direct investment in the Underlying
Funds.
As the Underlying
Funds, or the Fund’s allocations among the Underlying Funds,
change from time to time, or to the extent that the total annual
fund operating expenses of any Underlying Fund change, the
weighted average operating expenses borne by the Fund may increase
or decrease.
Affiliated
Fund Risk. In managing the
Fund, BFA has the ability to select Underlying
Funds and substitute Underlying Funds with other ETFs that it
believes will achieve the Fund’s objective. BFA may be subject to
potential conflicts of interest in selecting Underlying Funds
and substituting Underlying Funds with other ETFs because the
fees paid to BFA by some Underlying Funds and other ETFs managed
by BFA may be higher than the fees paid by other Underlying
Funds. If an Underlying Fund or other ETF holds interests in an
affiliated fund in excess of a certain amount, the Fund may be
prohibited from purchasing shares of that Underlying Fund or other
ETF.
Retirement
Income Risk. The 2050 Fund does
not provide a guarantee that
sufficient capital appreciation will be achieved to provide adequate
income at and through retirement. The 2050 Fund also does not
ensure that you will have assets in your account sufficient
to cover your retirement expenses; this will depend on the
amount of money you have invested in the 2050 Fund, the length
of time you have held your investment, the returns of the
markets over time, the amount you spend in retirement, and
your other assets and income sources.
Selection
Risk.
Selection risk is the risk that the securities selected by the
2050 Fund management will underperform the markets, the
relevant indices or the securities selected by other funds with similar
investment objectives and investment strategies. This
means you may lose money.
Market
Risk. The
Fund and the Underlying
Funds 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, public
health issues, recessions, the prospect or
S-61
occurrence of a
sovereign default or other financial crisis, or other events could have
a significant impact on the Fund, the Underlying Funds
and their investments and could result in increased premiums
or discounts to the Fund’s or Underlying
Fund's
NAV.
Asset
Class Risk. Securities and
other assets in the Fund's or an Underlying Fund's
portfolio may underperform in comparison to the general
financial markets, a particular financial market or other asset
classes.
Authorized
Participant Concentration Risk. Only an
Authorized Participant (as
defined in the Creations
and Redemptions section
of
this prospectus (the “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 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 or an Underlying 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.
Currency
Risk. Because the
Fund's and the Underlying Funds' NAVs are
determined in U.S. dollars, the Fund's NAV could decline if a currency of a
non-U.S. market in which a Fund or an Underlying
Fund invests depreciates against the U.S. dollar or if there are delays
or limits on repatriation of such currency. Currency exchange
rates can be very volatile and can change quickly and
unpredictably. As a result, the Fund's NAV may change quickly and
without warning.
Cybersecurity
Risk. Failures or
breaches of the electronic systems of the
Fund or the Underlying Funds, the Funds' or the Underlying Funds'
adviser, distributor, the benchmark provider 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 benchmark provider
and other service providers, market makers, Authorized
Participants or issuers of securities in which the Fund invests.
Derivatives
Risk. The Fund or
an Underlying Fund may invest in certain types of
derivatives contracts, including futures, options and swaps, which
can be more sensitive to changes in interest rates or to sudden
fluctuations in market prices than conventional securities, which
can result in greater losses to the
Fund.
Energy
Sector Risk. The market value
of securities in the energy sector may decline
for many reasons, including, among others, changes in energy
prices, energy supply and demand, government regulations, costs
related to exploration and production and energy
conservation efforts. Companies in the energy sector may also be
significantly impacted by natural disasters, social and political unrest,
war and environmental damage and may also be at risk for
increased litigation and negative publicity or public perception. The
energy sector may experience significant market volatility
(e.g., as a result of
Russia’s invasion of Ukraine in February 2022 and
the resulting sanctions on Russia and other responses by the
U.S. and other actors).
Financials
Sector Risk. The performance
of companies in the financials sector
may be adversely impacted by many factors, including, among
others, changes in government regulations, economic
conditions, and interest rates, credit rating downgrades,
adverse public perception, exposure concentration and decreased
liquidity in credit markets. The impact of changes in regulation of
any individual financial company, or of the financials sector
as a whole, cannot be predicted. Cybersecurity incidents and
technology malfunctions and failures have become increasingly
frequent and have caused significant losses to companies in this
sector, which may negatively impact an Underlying
Fund.
Geographic
Risk. A natural
disaster could occur in a geographic region in which
the Fund or an Underlying Fund invests, which could adversely
affect the economy or the business operations of companies in the
specific geographic region, causing an adverse impact on the
Fund's or an Underlying Fund's investments in, or which are exposed
to, the affected region.
Healthcare
Sector Risk. The profitability
of companies in the healthcare sector
may be affected by government regulations and government
healthcare programs, increases or decreases in the cost of medical
products and services, an increased emphasis on outpatient
services, demand for medical products and services and product
liability claims, among other factors. Many healthcare companies are
heavily dependent on patent protection, and the expiration of a
company’s patent may adversely affect that company’s
profitability. Healthcare companies are subject to competitive forces
that may result in price discounting, and may be thinly
capitalized and susceptible to product
obsolescence.
Indexing
Investment Risk. The Underlying
Funds are not actively managed, and BFA
generally does not attempt to take defensive positions in the
Underlying Funds under any market conditions, including
declining markets.
Industrials
Sector Risk. Companies in the
industrials sector may be adversely
affected by changes in the supply of and demand for products and
services, product obsolescence, claims for
S-62
environmental
damage or product liability and changes in general economic
conditions, among other factors.
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 elevated tracking error and 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.
Information
Technology Sector Risk. Information
technology companies face
intense competition and potentially rapid product obsolescence. They
are also heavily dependent on intellectual property rights
and may be adversely affected by the loss or impairment of
those rights. Companies in the information technology sector
are facing increased government and regulatory
scrutiny and may be subject to adverse government or regulatory action.
Companies in the software industry may be adversely affected
by, among other things, the decline or fluctuation of
subscription renewal rates for their products and services and
actual or perceived vulnerabilities in their products or
services.
Infrastructure
Industry Risk. Companies in the
infrastructure industry may be
subject to a variety of factors that could adversely affect
their business or operations, including high interest costs in
connection with capital construction programs, high degrees of
leverage, costs associated with governmental, environmental and
other regulations, the level of government spending on
infrastructure projects, and other
factors.
Issuer
Risk. The performance
of the Fund depends on the performance of
individual securities to which the Fund or an Underlying Fund
has exposure. Changes in the financial condition or credit rating
of an issuer of those securities may cause the value of the
securities to decline.
Large-Capitalization
Companies Risk.
Large-capitalization companies may be
less able than smaller capitalization companies to adapt
to changing market conditions. Large-capitalization companies may be
more mature and subject to more limited
growth potential compared with smaller capitalization
companies. During different market cycles, the performance of
large-capitalization companies has trailed the overall
performance of the broader securities
markets.
Management
Risk. The Fund and the
Underlying Funds are subject to
management risk, which is the risk that the investment process,
techniques and risk analyses applied by BFA will not produce the
desired results, and that securities selected by BFA may underperform
the market or any relevant benchmark. In
addition,
legislative, regulatory, or tax developments may affect the investment
techniques available to BFA in connection with managing the Fund
and the Underlying Funds and may also adversely affect
the ability of the Fund and the Underlying Funds to achieve their
investment objective.
Market
Trading Risk. The Fund and
the Underlying Funds face numerous market
trading risks, including the potential lack of an active market for
their shares, losses from trading in secondary markets, periods
of high volatility and disruptions in the creation/redemption
process. ANY
OF THESE FACTORS, AMONG
OTHERS, MAY LEAD TO THE FUND'S SHARES TRADING
AT A PREMIUM OR DISCOUNT TO NAV.
Mid-Capitalization
Companies Risk. Compared to
large-capitalization companies,
mid-capitalization companies may be less stable and
more susceptible to adverse developments. In addition, the
securities of mid-capitalization companies may be more volatile and
less liquid than those of large-capitalization companies.
National
Closed Market Trading Risk. To the extent
that the underlying
securities or other instruments held by the Fund or the Underlying Funds
trade on foreign exchanges or in foreign markets that may
be closed when the securities exchange on which the Fund’s
or an Underlying Fund's shares trade is open, there are likely
to be deviations between the current price of such an underlying
security and the last quoted price for the underlying security
(i.e., the Fund’s or
an Underlying Fund's quote from the closed foreign
market). The impact of a
closed foreign market on the Fund or an
Underlying Fund is likely to be greater where a large portion of
the Fund’s or an Underlying Fund's underlying securities or
other instruments trade on that closed foreign market or when the
foreign market is closed for unscheduled reasons. These
deviations could result in premiums or discounts to the Fund’s
or an Underlying Fund's NAV that may be greater than those
experienced by other ETFs.
Non-U.S.
Issuers Risk. Securities issued
by non-U.S. issuers carry different
risks from securities issued by U.S. issuers. These risks include
differences in accounting, auditing and financial reporting
standards, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control
regulations, political instability, regulatory and economic differences, and
potential restrictions on the flow of international capital. The Fund
is specifically exposed to Asian Economic
Risk,
European Economic Risk and North
American Economic
Risk.
Non-U.S.
Securities Risk. Investments in
the securities of non-U.S. issuers are
subject to the risks associated with investing in those non-U.S.
markets, such as heightened risks of inflation or nationalization.
The Fund or an Underlying
Fund may
lose money due to political, economic and geographic events affecting issuers
of non-U.S. securities or non-U.S.
markets. In addition, non-U.S.
securities markets may trade a small number of securities and may
be unable to respond effectively to changes in trading volume,
potentially making prompt liquidation of holdings difficult or
impossible at times. The Fund is specifically exposed
S-63
to Asian Economic
Risk, European Economic Risk and North
American
Economic Risk.
Operational
Risk. The
Fund and the Underlying
Funds are 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, the Underlying Funds
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 China.
Investments in
Chinese securities, including certain
Hong Kong-listed and U.S.-listed securities, subject the Fund
or the Underlying Funds to risks specific to China. China may
be subject to considerable degrees of economic,
political and social instability. China is an emerging market and
demonstrates significantly higher volatility from time to time in
comparison to developed markets. Over the last few decades, the
Chinese government has undertaken reform of economic and
market practices and has expanded the sphere of private ownership
of property in China. However, Chinese markets generally continue
to experience inefficiency, volatility and pricing anomalies
resulting from governmental influence, a lack of publicly available
information and/or political and social instability.
Chinese companies
are also subject to the risk that Chinese authorities can
intervene in their operations and structure. Internal social
unrest or confrontations with neighboring countries,
including military conflicts in response to such events, may also disrupt
economic development in China and result in a greater risk of
currency fluctuations, currency non-convertibility, interest rate
fluctuations and higher rates of
inflation.
China has
experienced security concerns, such as terrorism and strained
international relations. Additionally, China is alleged to have participated
in state-sponsored cyberattacks against foreign companies and
foreign governments. Actual and threatened responses to such
activity and strained international relations, including
purchasing restrictions, sanctions, tariffs or cyberattacks on
the Chinese government or Chinese companies, may impact China’s
economy and Chinese issuers of securities in which the Fund
invests. Incidents involving China's or the region's security may cause
uncertainty in Chinese markets and may adversely affect
the Chinese economy and the Fund's investments.
Export growth continues to be a major driver of China's rapid
economic growth. Reduction in spending on Chinese products and
services, institution of additional tariffs or other trade
barriers (including as a result of heightened trade tensions or a trade war
between China and the U.S. or in response to actual or alleged
Chinese cyber activity) or a downturn in any of the economies of
China's key trading partners may have an adverse impact on
the Chinese economy.
Chinese companies,
including Chinese companies that are listed on U.S. exchanges,
are not subject to the same degree of regulatory
requirements, accounting standards or auditor
oversight as
companies in more developed countries. As a result, information about
the Chinese securities in which the Fund invests may be
less reliable or complete. Chinese companies with securities listed
on U.S. exchanges may be delisted if they do not meet U.S.
accounting standards and auditor oversight requirements,
which would significantly decrease the liquidity and value of the
securities. There may be significant obstacles to obtaining
information necessary for investigations into or litigation against
Chinese companies, and shareholders may have limited legal
remedies. The Fund is not actively managed and does not select
investments based on investor protection considerations.
Risk
of Investing in Developed Countries.
The
Fund’s and the Underlying Fund's
investment in developed country issuers may subject the Fund
to legal, regulatory, political, currency, security, economic and
other risks associated with developed countries. Developed
countries tend to represent a significant portion of the global economy and
have generally experienced slower economic growth than some
less developed countries. Certain developed countries have
experienced security concerns, such as war, terrorism and
strained international relations. Incidents involving a country’s or
region’s security may cause uncertainty in its markets and may
adversely affect its economy and the Fund’s or an Underlying
Fund's investments. In addition, developed countries may be
adversely impacted by changes to the economic conditions of
certain key trading partners, regulatory burdens, debt burdens and
the price or availability of certain
commodities.
Risk
of Investing in India. Investments in
Indian issuers involve risks that are
specific to India, including legal, regulatory, political, currency and
economic risks. Political and legal uncertainty, greater government
control over the economy, currency fluctuations or
blockage, and the risk of nationalization or expropriation of
assets may result in higher potential for losses. The securities
markets in India are relatively underdeveloped and may subject the
Fund or an Underlying Fund to higher transaction costs or greater
uncertainty than investments in more developed securities
markets.
Risk
of Investing in Japan. The Japanese
economy may be subject to
considerable degrees of economic, political and social instability, which
could have a negative impact on Japanese securities. Since
2000, Japan’s economic growth rate has generally remained
low relative to other advanced economies, and it may remain low
in the future. In addition, Japan is subject to the risk of natural
disasters, such as earthquakes, volcanic eruptions, typhoons and
tsunamis, which could negatively affect the Fund or an Underlying
Fund. Japan’s relations with its neighbors have at times been
strained, and strained relations may cause uncertainty in the Japanese
markets and adversely affect the overall Japanese economy.
Risk
of Investing in Russia. Investing in
Russian securities involves
significant risks, including legal, regulatory, currency and economic risks
that are specific to Russia. In addition, investing in Russian securities
involves risks associated with the settlement of portfolio
transactions and loss of the Fund’s or an Underlying
Fund's ownership
rights in its portfolio securities as a result of the system of share
registration and custody in Russia. Governments
S-64
in the U.S. and
many other countries have imposed economic sanctions on
certain Russian individuals and Russian corporate and banking
entities. A number of jurisdictions may also institute broader sanctions
on Russia. Russia has issued a number of countersanctions,
some of which restrict the distribution of profits by limited
liability companies (e.g., dividends), and
prohibit Russian persons
from entering into transactions with designated persons from
“unfriendly
states” as well as the
export of raw materials or other
products from Russia to certain sanctioned persons. Russia
launched a large-scale invasion of Ukraine on February 24, 2022.
The extent and duration of the military action, resulting
sanctions and resulting future market disruptions, including declines
in its stock markets and the value of the ruble against the U.S.
dollar, are impossible to predict, but could be significant.
Disruptions caused by Russian military action or other actions (including
cyberattacks and espionage) or resulting actual and threatened
responses to such activity, including purchasing and financing
restrictions, boycotts or changes in consumer or purchaser
preferences, sanctions, import and export restrictions, tariffs or
cyberattacks on the Russian government, Russian companies, or
Russian individuals, including politicians, may impact Russia’s
economy and Russian companies in which the Fund or an Underlying
Fund invests. Actual and threatened responses to
Russian military action may also impact the markets for certain
Russian commodities, such as oil and natural gas, as well as other
sectors of the Russian economy, and are likely to have collateral
impacts on such sectors globally. Russian companies may be
unable to pay dividends and, if they pay dividends, the
Fund or an Underlying
Fund may be unable to receive them. As a
result of sanctions, the Fund is currently restricted from
trading in Russian securities, including those in its portfolio, while
the Underlying Indexes of the Underlying Funds have removed
Russian securities. It is unknown when, or if, sanctions may be
lifted or the Fund’s ability to trade in Russian securities will
resume.
Risk
of Investing in Saudi Arabia. The ability of
foreign investors (such as the
Fund or an Underlying
Fund) to invest in the securities of
Saudi Arabian issuers is relatively new. Such ability could be
restricted by the Saudi Arabian government at any time, and unforeseen
risks could materialize with respect to foreign ownership in such
securities. The economy of Saudi Arabia is dominated by
petroleum exports. A sustained decrease in petroleum prices
could have a negative impact on all aspects of the economy.
Investments in the securities of Saudi Arabian issuers involve
risks not typically associated with investments in securities of
issuers in more developed countries that may negatively affect
the value of the Fund’s or Underlying
Fund's investments. Such
heightened risks may include, among others, expropriation
and/or nationalization of assets, restrictions on and government
intervention in international trade, confiscatory taxation,
political instability, including authoritarian and/or military
involvement in governmental decision making, armed conflict, crime
and instability as a result of religious, ethnic and/or
socioeconomic unrest. There remains the possibility that instability in the
larger Middle East region could adversely impact the economy of
Saudi Arabia, and there is no assurance of political
stability in Saudi Arabia.
Saudi
Arabia Broker Risk. There are a
number of different ways of conducting
transactions in equity securities in the Saudi Arabian
market. The Fund (or an Underlying Fund) generally expects to conduct
its transactions in a manner in which the Fund would not be
limited by Saudi Arabian regulations to a single broker. However,
there may be a limited number of brokers who can provide
services to the Fund (or an Underlying Fund), which may have an
adverse impact on the prices, quantity or timing of Fund (or an
Underlying Fund) transactions.
Risk
of Investing in Taiwan. Investments in
Taiwanese issuers involve risks that
are specific to Taiwan, including legal, regulatory,
political, currency and economic risks. Political and economic
developments of Taiwan’s neighbors may have an adverse effect on
Taiwan’s economy. Specifically, Taiwan’s geographic
proximity and history of political contention with China have
resulted in ongoing tensions, which may materially affect the
Taiwanese economy and its securities
market.
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 or the Underlying Funds has exposure.
Securities
Lending Risk. The Fund or
an Underlying Fund may engage in
securities lending. Securities lending involves the risk that the Fund or
the Underlying Funds may lose money because the borrower of
the loaned securities fails to return the securities in a timely manner
or at all. The Fund or the Underlying Funds 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 or an Underlying
Fund.
Small-Capitalization
Companies Risk. Compared to mid-
and large-capitalization
companies, small-capitalization companies may be less stable
and more susceptible to adverse developments. In
addition, the securities of small-capitalization companies may be
more volatile and less liquid than those of mid- and
large-capitalization companies.
Tax
Risk. Because the Fund
is expected to invest in the Underlying Funds,
the Fund’s realized losses on sales of shares of an Underlying Fund
may be indefinitely or permanently deferred as “wash
sales.” Distributions of
short-term capital gains by an Underlying Fund
will be recognized as ordinary income by the Fund and would not
be offset by the Fund’s capital loss carryforwards, if
any. Capital loss carryforwards of an Underlying Fund, if any,
would not offset net capital gains of the
Fund.
Technology
Sector Risk. Technology
companies, including information
technology companies, may have limited
product lines, markets,
financial resources or personnel. Technology companies
typically face intense competition and potentially rapid product
obsolescence. They are also heavily dependent on intellectual
property rights and may be adversely affected by the loss or impairment
of those rights. Companies in the technology
S-65
sector may face
increased government and regulatory scrutiny and may be subject
to adverse government or regulatory
action.
Utilities
Sector Risk. The utilities
sector is subject to significant government
regulation and oversight. Deregulation, however, may subject utility
companies to greater competition and may reduce their
profitability. Companies in the utilities sector may be adversely affected
due to increases in fuel and operating costs, rising costs of
financing capital construction and the cost of complying with
U.S. federal and state regulations, among other factors.
Valuation
Risk. The price the
Fund or an Underlying Fund could receive upon the
sale of a security or other asset may differ from the
Fund's or the Underlying
Fund's valuation of the security or other asset,
particularly for securities or other assets that trade in low volume or
volatile markets, or assets that are impacted by market disruption
events or that are valued using a fair value methodology as a
result of trade suspensions or for other reasons. In
addition, the value of the securities or other assets in
the Fund's or an
Underlying Fund's portfolio may change on days or during time
periods when shareholders will not be able to purchase or sell
the Fund's or an Underlying Fund's shares. Authorized
Participants who purchase or redeem shares of the Fund or an
Underlying Fund on days when the Fund or an Underlying Fund
is holding fair-valued securities or other instruments may
receive fewer or more shares, or lower or higher redemption
proceeds, than they would have received had the securities or
other instruments not been fair valued or been valued using a
different methodology. The ability to value investments may be
impacted by technological issues or errors by pricing services
or other third-party service
providers.
Performance
Information
S-66
Management
Investment
Adviser. BlackRock Fund
Advisors.
Portfolio
Managers. Christopher Chung
and Suzanne Ly (the “Portfolio
Managers”) are primarily
responsible for the day-to-day management of the
Fund. Each Portfolio Manager supervises a portfolio
management team. Mr. Chung and Ms. Ly have been Portfolio Managers
of the Fund since inception (2023).
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 you 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 taxed 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.
S-67
iShares
LifePath® Target Date 2055
ETF
Ticker:
ITDG Stock
Exchange: NYSE Arca
Investment
Objective
The iShares
LifePath Target Date 2055 ETF (the “2055
Fund” or the
“Fund”) seeks to provide
retirement outcomes through exposure to a broad portfolio of
ETFs which adjusts its allocation as it approaches its target
date.
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 iShares Trust (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. Acquired Fund Fees and
Expenses are not included in the calculation of the ratio of
expenses to average
net assets shown in the Financial
Highlights section of the Fund’s
prospectus (the “ Prospectus ” ).
You may pay other
fees, such as brokerage commissions and other fees to financial intermediaries,
which are not reflected in the tables and examples
below.
|
| ||||
|
Management
Fees |
Distribution
and
Service
(12b-1)
Fees |
Other
Expenses2
|
Acquired
Fund Fees
and
Expenses 3
|
Total
Annual
Fund
Operating
Expenses |
|
|
|
|
|
|
1
2
3
|
|
1
Year |
3
Years |
|
|
|
$ |
$ |
|
Principal
Investment Strategies
The 2055 Fund is
actively managed and allocates and reallocates its assets among a
combination of Underlying Funds in proportions based
on its own investment strategy.
The 2055 Fund is
one of a group of funds referred to as the “LifePath
ETFs,” each of which
seeks to provide for retirement outcomes based on
quantitatively measured risk that investors on average may be
willing to accept given a particular time
horizon.
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BFA employs a
multi-dimensional approach to assess risk for the 2055 Fund and to
determine its allocation across asset classes. As part of this
multi-dimensional approach, BFA aims to quantify risk using
proprietary risk measurement tools that, among other things, analyze
historical and forward-looking securities market data, including
risk, asset class correlations, and expected returns. Under
normal circumstances, the 2055 Fund intends to invest primarily
in affiliated exchange-traded funds (“ETFs”).
The 2055 Fund will
invest, under normal circumstances, at least 80% of its assets
in securities or other financial instruments that are components of
or have economic characteristics similar to the securities
included in its custom model benchmark, the 2055 Target Date Custom
Benchmark. BFA will not publish its custom benchmark but will
apply a proprietary model to monitor performance of the
2055 Fund. The 2055 Fund is designed for investors
expecting to retire or to begin withdrawing assets around the year
2055. At inception, BFA expects the 2055 Fund to hold
approximately 99% of its assets in Underlying Funds that seek to track
particular underlying indexes of equity securities, approximately 1%
of its assets in Underlying Funds that seek to track particular
fixed-income indexes and the remainder of its assets in
Underlying Funds that invest primarily in money market instruments.
At inception, the
Fund invests in the iShares 10+ Year Investment Grade Corporate
Bond ETF, iShares Core MSCI Emerging Markets ETF, iShares Core
MSCI International Developed Markets ETF, iShares Russell
1000 ETF, iShares Russell 2000 ETF and BlackRock Cash
Funds. Factors such as fund classifications, historical risk
and performance, and the relationship to other Underlying Funds
in the Fund are considered when selecting Underlying Funds.
The specific Underlying Funds selected for the Fund are
determined at BFA’s discretion and may change as deemed appropriate
to allow the Fund to meet its investment objective. See the
“Information About
the Underlying Funds”
section of the
prospectus for a list of the Underlying Funds, their classification
into equity, fixed-income or money market funds and a brief
description of their investment objectives and primary investment
strategies.
Under normal
circumstances, the Fund’s asset allocation will change over time
according to a predetermined “glide
path” as the Fund
approaches its target date. The glide path below represents the
shifting of asset classes over time. As the glide path shows, as
time elapses prior to retirement, the Fund’s asset allocations become
more conservative. This reflects the need for reduced investment
risk as retirement approaches and the need for lower
volatility of the Fund, which for certain investors may be a primary source
of income after retirement. During the year prior to the Fund’s
maturity date, its allocation of assets is expected to be similar to that
of the Retirement Fund. Further, as retirement approaches, such
Fund and the Retirement Fund is expected to, subject to
approval by the Trust’s Board of Trustees (the “Board”), merge into a
single fund.
The following
chart illustrates the glide path — the target allocation among
asset classes as the LifePath ETFs approach their target
dates:
The following
table lists the target allocation by years until retirement:
|
Years
to
Retirement |
Equity
Allocation
(including
REITs) |
Fixed-Income
Allocation |
|
45 |
99% |
1% |
|
40 |
99% |
1% |
|
35 |
99% |
1% |
|
30 |
98% |
2% |
|
25 |
95% |
5% |
|
20 |
87% |
13% |
|
15 |
77% |
23% |
|
10 |
65% |
35% |
|
5 |
53% |
47% |
|
0 |
40% |
60% |
The asset
allocation targets are established by the Fund’s portfolio
managers. The investment team, including the portfolio managers, meets
regularly to assess market conditions, review the asset
allocation targets of the Fund, and determine whether any changes are
required to enable the Fund to achieve its investment
objective.
Although the asset
allocation targets listed for the glide path are general, long-term
targets, BFA may periodically adjust the proportion of
equity and fixed-income Underlying Funds in the Fund, based on an
assessment of the current market conditions, the potential
contribution of each asset class to the expected risk and return
characteristics of the Fund, reallocations of the Fund’s composition to
reflect intra-year movement along the glide path and other factors.
In general, such adjustments will be limited; however, BFA may
determine that a greater degree of variation is warranted to
protect the Fund or achieve its investment
objective.
BFA’s second step
in the structuring of the Fund is the selection of the Underlying
Funds. Factors such as fund classifications, historical risk
and performance, and the relationship to other Underlying Funds
in the Fund are considered when selecting Underlying Funds.
The specific Underlying Funds selected for the Fund are
determined at BFA’s discretion and may change as
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deemed appropriate
to allow the Fund to meet its investment objective. See the
“Information About
the Underlying Funds”
section of the
prospectus for a list of the Underlying Funds, their classification
into equity, fixed-income or money market funds and a brief
description of their investment objectives and primary investment
strategies.
Within the
prescribed percentage allocations to equity and fixed-income index funds, BFA
seeks to diversify the Fund. The allocation to
Underlying Funds that track equity indexes may be further
diversified by style (including both value and growth), market
capitalization (including emerging growth, large-, mid-, and small-capitalization),
region (i.e., U.S, and
international, including emerging markets)
or other attributes. The allocation to Underlying Funds
that track fixed-income indexes may be further diversified by
sector (including government, corporate, U.S. agency MBS or
debentures, CMBS, and other sectors), duration (a of measurement of
interest rate risk), credit quality (including investment grade
bonds and high yield bonds), geographic location
(including U.S. and non-U.S. securities, including bonds of emerging market
issuers), currency (U.S. dollar-denominated or local currency
bonds) or other attributes. Though BFA seeks to diversify the
Fund, certain Underlying Funds may concentrate their investments
in specific sectors or geographic regions or countries. The
percentage allocation to the various styles of equity and
fixed-income Underlying Funds is determined at the discretion of the
investment team and can be changed to reflect the current market
environment.
Certain Underlying
Funds may invest in real estate investment trusts
(“REITs”), foreign
securities, emerging market securities, high yield bonds
and derivative securities or instruments, such as options and
futures, the value of which is derived from another security, a
currency or commodity, an interest rate or an index, when seeking to
match the performance of a particular market index. The Fund
and certain Underlying Funds may also lend securities with a
value up to one-third of their respective total assets to
financial institutions that provide cash or securities issued or
guaranteed by the U.S. Government as
collateral.
Summary
of Principal Risks
Equity
Securities Risk. Equity securities
are subject to changes in value, and
their values may be more volatile than those of other asset classes.
Certain Underlying Funds invest in common stocks, which generally
subject their holders to
more risks than preferred stocks and debt
securities because common stockholders’ claims
are subordinated
to those of holders of preferred stocks and debt securities upon
the bankruptcy of the issuer.
Allocation
Risk.
The Fund’s ability to achieve its investment objective depends
upon BFA's ability to develop a model that accurately
assesses the Fund’s asset class allocation and selects an appropriate mix
of Underlying Funds and other ETFs. There is a risk that BFA's
evaluations and assumptions regarding asset classes or
Underlying Funds, which are utilized as inputs in the model, may be
incorrect in view of actual market
conditions.
Investment
in Underlying Funds Risk. The Fund invests
substantially all
of its assets in the Underlying
Funds, so the Fund’s investment
performance is directly related to the performance of the
Underlying Funds. The Fund’s NAV will change with changes in
the value of the Underlying Funds and other securities in
which the Fund invests based on their market valuations. An
investment in the Fund will entail more costs and expenses than a
direct investment in the Underlying
Funds.
As the Underlying
Funds, or the Fund’s allocations among the Underlying Funds,
change from time to time, or to the extent that the total annual
fund operating expenses of any Underlying Fund change, the
weighted average operating expenses borne by the Fund may increase
or decrease.
Affiliated
Fund Risk. In managing the
Fund, BFA has the ability to select Underlying
Funds and substitute Underlying Funds with other ETFs that it
believes will achieve the Fund’s objective. BFA may be subject to
potential conflicts of interest in selecting Underlying Funds
and substituting Underlying Funds with other ETFs because the
fees paid to BFA by some Underlying Funds and other ETFs managed
by BFA may be higher than the fees paid by other Underlying
Funds. If an Underlying Fund or other ETF holds interests in an
affiliated fund in excess of a certain amount, the Fund may be
prohibited from purchasing shares of that Underlying Fund or other
ETF.
Retirement
Income Risk. The 2055 Fund does
not provide a guarantee that
sufficient capital appreciation will be achieved to provide adequate
income at and through retirement. The 2055 Fund also does not
ensure that you will have assets in your account sufficient
to cover your retirement expenses; this will depend on the
amount of money you have invested in the 2055 Fund, the length
of time you have held your investment, the returns of the
markets over time, the amount you spend in retirement, and
your other assets and income sources.
Selection
Risk.
Selection risk is the risk that the securities selected by the
2055 Fund management will underperform the markets, the
relevant indices or the securities selected by other funds with similar
investment objectives and investment strategies. This
means you may lose money.
Market
Risk. The
Fund and the Underlying
Funds 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, public
health issues, recessions, the prospect or
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occurrence of a
sovereign default or other financial crisis, or other events could have
a significant impact on the Fund, the Underlying Funds
and their investments and could result in increased premiums
or discounts to the Fund’s or Underlying
Fund's
NAV.
Asset
Class Risk. Securities and
other assets in the Fund's or an Underlying Fund's
portfolio may underperform in comparison to the general
financial markets, a particular financial market or other asset
classes.
Authorized
Participant Concentration Risk. Only an
Authorized Participant (as
defined in the Creations
and Redemptions section
of
this prospectus (the “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 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 or an Underlying 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.
Currency
Risk. Because the
Fund's and the Underlying Funds' NAVs are
determined in U.S. dollars, the Fund's NAV could decline if a currency of a
non-U.S. market in which a Fund or an Underlying
Fund invests depreciates against the U.S. dollar or if there are delays
or limits on repatriation of such currency. Currency exchange
rates can be very volatile and can change quickly and
unpredictably. As a result, the Fund's NAV may change quickly and
without warning.
Cybersecurity
Risk. Failures or
breaches of the electronic systems of the
Fund or the Underlying Funds, the Funds' or the Underlying Funds'
adviser, distributor, the benchmark provider 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 benchmark provider
and other service providers, market makers, Authorized
Participants or issuers of securities in which the Fund invests.
Derivatives
Risk. The Fund or
an Underlying Fund may invest in certain types of
derivatives contracts, including futures, options and swaps, which
can be more sensitive to changes in interest rates or to sudden
fluctuations in market prices than conventional securities, which
can result in greater losses to the
Fund.
Energy
Sector Risk. The market value
of securities in the energy sector may decline
for many reasons, including, among others, changes in energy
prices, energy supply and demand, government regulations, costs
related to exploration and production and energy
conservation efforts. Companies in the energy sector may also be
significantly impacted by natural disasters, social and political unrest,
war and environmental damage and may also be at risk for
increased litigation and negative publicity or public perception. The
energy sector may experience significant market volatility
(e.g., as a result of
Russia’s invasion of Ukraine in February 2022 and
the resulting sanctions on Russia and other responses by the
U.S. and other actors).
Financials
Sector Risk. The performance
of companies in the financials sector
may be adversely impacted by many factors, including, among
others, changes in government regulations, economic
conditions, and interest rates, credit rating downgrades,
adverse public perception, exposure concentration and decreased
liquidity in credit markets. The impact of changes in regulation of
any individual financial company, or of the financials sector
as a whole, cannot be predicted. Cybersecurity incidents and
technology malfunctions and failures have become increasingly
frequent and have caused significant losses to companies in this
sector, which may negatively impact an Underlying
Fund.
Geographic
Risk. A natural
disaster could occur in a geographic region in which
the Fund or an Underlying Fund invests, which could adversely
affect the economy or the business operations of companies in the
specific geographic region, causing an adverse impact on the
Fund's or an Underlying Fund's investments in, or which are exposed
to, the affected region.
Healthcare
Sector Risk. The profitability
of companies in the healthcare sector
may be affected by government regulations and government
healthcare programs, increases or decreases in the cost of medical
products and services, an increased emphasis on outpatient
services, demand for medical products and services and product
liability claims, among other factors. Many healthcare companies are
heavily dependent on patent protection, and the expiration of a
company’s patent may adversely affect that company’s
profitability. Healthcare companies are subject to competitive forces
that may result in price discounting, and may be thinly
capitalized and susceptible to product
obsolescence.
Indexing
Investment Risk. The Underlying
Funds are not actively managed, and BFA
generally does not attempt to take defensive positions in the
Underlying Funds under any market conditions, including
declining markets.
Industrials
Sector Risk. Companies in the
industrials sector may be adversely
affected by changes in the supply of and demand for products and
services, product obsolescence, claims for
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environmental
damage or product liability and changes in general economic
conditions, among other factors.
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 elevated tracking error and 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.
Information
Technology Sector Risk. Information
technology companies face
intense competition and potentially rapid product obsolescence. They
are also heavily dependent on intellectual property rights
and may be adversely affected by the loss or impairment of
those rights. Companies in the information technology sector
are facing increased government and regulatory
scrutiny and may be subject to adverse government or regulatory action.
Companies in the software industry may be adversely affected
by, among other things, the decline or fluctuation of
subscription renewal rates for their products and services and
actual or perceived vulnerabilities in their products or
services.
Infrastructure
Industry Risk. Companies in the
infrastructure industry may be
subject to a variety of factors that could adversely affect
their business or operations, including high interest costs in
connection with capital construction programs, high degrees of
leverage, costs associated with governmental, environmental and
other regulations, the level of government spending on
infrastructure projects, and other
factors.
Issuer
Risk. The performance
of the Fund depends on the performance of
individual securities to which the Fund or an Underlying Fund
has exposure. Changes in the financial condition or credit rating
of an issuer of those securities may cause the value of the
securities to decline.
Large-Capitalization
Companies Risk.
Large-capitalization companies may be
less able than smaller capitalization companies to adapt
to changing market conditions. Large-capitalization companies may be
more mature and subject to more limited
growth potential compared with smaller capitalization
companies. During different market cycles, the performance of
large-capitalization companies has trailed the overall
performance of the broader securities
markets.
Management
Risk. The Fund and the
Underlying Funds are subject to
management risk, which is the risk that the investment process,
techniques and risk analyses applied by BFA will not produce the
desired results, and that securities selected by BFA may underperform
the market or any relevant benchmark. In
addition,
legislative, regulatory, or tax developments may affect the investment
techniques available to BFA in connection with managing the Fund
and the Underlying Funds and may also adversely affect
the ability of the Fund and the Underlying Funds to achieve their
investment objective.
Market
Trading Risk. The Fund and
the Underlying Funds face numerous market
trading risks, including the potential lack of an active market for
their shares, losses from trading in secondary markets, periods
of high volatility and disruptions in the creation/redemption
process. ANY
OF THESE FACTORS, AMONG
OTHERS, MAY LEAD TO THE FUND'S SHARES TRADING
AT A PREMIUM OR DISCOUNT TO NAV.
Mid-Capitalization
Companies Risk. Compared to
large-capitalization companies,
mid-capitalization companies may be less stable and
more susceptible to adverse developments. In addition, the
securities of mid-capitalization companies may be more volatile and
less liquid than those of large-capitalization companies.
National
Closed Market Trading Risk. To the extent
that the underlying
securities or other instruments held by the Fund or the Underlying Funds
trade on foreign exchanges or in foreign markets that may
be closed when the securities exchange on which the Fund’s
or an Underlying Fund's shares trade is open, there are likely
to be deviations between the current price of such an underlying
security and the last quoted price for the underlying security
(i.e., the Fund’s or
an Underlying Fund's quote from the closed foreign
market). The impact of a
closed foreign market on the Fund or an
Underlying Fund is likely to be greater where a large portion of
the Fund’s or an Underlying Fund's underlying securities or
other instruments trade on that closed foreign market or when the
foreign market is closed for unscheduled reasons. These
deviations could result in premiums or discounts to the Fund’s
or an Underlying Fund's NAV that may be greater than those
experienced by other ETFs.
Non-U.S.
Issuers Risk. Securities issued
by non-U.S. issuers carry different
risks from securities issued by U.S. issuers. These risks include
differences in accounting, auditing and financial reporting
standards, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control
regulations, political instability, regulatory and economic differences, and
potential restrictions on the flow of international capital. The Fund
is specifically exposed to Asian Economic
Risk,
European Economic Risk and North
American Economic
Risk.
Non-U.S.
Securities Risk. Investments in
the securities of non-U.S. issuers are
subject to the risks associated with investing in those non-U.S.
markets, such as heightened risks of inflation or nationalization.
The Fund or an Underlying
Fund may
lose money due to political, economic and geographic events affecting issuers
of non-U.S. securities or non-U.S.
markets. In addition, non-U.S.
securities markets may trade a small number of securities and may
be unable to respond effectively to changes in trading volume,
potentially making prompt liquidation of holdings difficult or
impossible at times. The Fund is specifically exposed
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to Asian Economic
Risk, European Economic Risk and North
American
Economic Risk.
Operational
Risk. The
Fund and the Underlying
Funds are 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, the Underlying Funds
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 China.
Investments in
Chinese securities, including certain
Hong Kong-listed and U.S.-listed securities, subject the Fund
or the Underlying Funds to risks specific to China. China may
be subject to considerable degrees of economic,
political and social instability. China is an emerging market and
demonstrates significantly higher volatility from time to time in
comparison to developed markets. Over the last few decades, the
Chinese government has undertaken reform of economic and
market practices and has expanded the sphere of private ownership
of property in China. However, Chinese markets generally continue
to experience inefficiency, volatility and pricing anomalies
resulting from governmental influence, a lack of publicly available
information and/or political and social instability.
Chinese companies
are also subject to the risk that Chinese authorities can
intervene in their operations and structure. Internal social
unrest or confrontations with neighboring countries,
including military conflicts in response to such events, may also disrupt
economic development in China and result in a greater risk of
currency fluctuations, currency non-convertibility, interest rate
fluctuations and higher rates of
inflation.
China has
experienced security concerns, such as terrorism and strained
international relations. Additionally, China is alleged to have participated
in state-sponsored cyberattacks against foreign companies and
foreign governments. Actual and threatened responses to such
activity and strained international relations, including
purchasing restrictions, sanctions, tariffs or cyberattacks on
the Chinese government or Chinese companies, may impact China’s
economy and Chinese issuers of securities in which the Fund
invests. Incidents involving China's or the region's security may cause
uncertainty in Chinese markets and may adversely affect
the Chinese economy and the Fund's investments.
Export growth continues to be a major driver of China's rapid
economic growth. Reduction in spending on Chinese products and
services, institution of additional tariffs or other trade
barriers (including as a result of heightened trade tensions or a trade war
between China and the U.S. or in response to actual or alleged
Chinese cyber activity) or a downturn in any of the economies of
China's key trading partners may have an adverse impact on
the Chinese economy.
Chinese companies,
including Chinese companies that are listed on U.S. exchanges,
are not subject to the same degree of regulatory
requirements, accounting standards or auditor
oversight as
companies in more developed countries. As a result, information about
the Chinese securities in which the Fund invests may be
less reliable or complete. Chinese companies with securities listed
on U.S. exchanges may be delisted if they do not meet U.S.
accounting standards and auditor oversight requirements,
which would significantly decrease the liquidity and value of the
securities. There may be significant obstacles to obtaining
information necessary for investigations into or litigation against
Chinese companies, and shareholders may have limited legal
remedies. The Fund is not actively managed and does not select
investments based on investor protection considerations.
Risk
of Investing in Developed Countries.
The
Fund’s and the Underlying Fund's
investment in developed country issuers may subject the Fund
to legal, regulatory, political, currency, security, economic and
other risks associated with developed countries. Developed
countries tend to represent a significant portion of the global economy and
have generally experienced slower economic growth than some
less developed countries. Certain developed countries have
experienced security concerns, such as war, terrorism and
strained international relations. Incidents involving a country’s or
region’s security may cause uncertainty in its markets and may
adversely affect its economy and the Fund’s or an Underlying
Fund's investments. In addition, developed countries may be
adversely impacted by changes to the economic conditions of
certain key trading partners, regulatory burdens, debt burdens and
the price or availability of certain
commodities.
Risk
of Investing in India. Investments in
Indian issuers involve risks that are
specific to India, including legal, regulatory, political, currency and
economic risks. Political and legal uncertainty, greater government
control over the economy, currency fluctuations or
blockage, and the risk of nationalization or expropriation of
assets may result in higher potential for losses. The securities
markets in India are relatively underdeveloped and may subject the
Fund or an Underlying Fund to higher transaction costs or greater
uncertainty than investments in more developed securities
markets.
Risk
of Investing in Japan. The Japanese
economy may be subject to
considerable degrees of economic, political and social instability, which
could have a negative impact on Japanese securities. Since
2000, Japan’s economic growth rate has generally remained
low relative to other advanced economies, and it may remain low
in the future. In addition, Japan is subject to the risk of natural
disasters, such as earthquakes, volcanic eruptions, typhoons and
tsunamis, which could negatively affect the Fund or an Underlying
Fund. Japan’s relations with its neighbors have at times been
strained, and strained relations may cause uncertainty in the Japanese
markets and adversely affect the overall Japanese economy.
Risk
of Investing in Russia. Investing in
Russian securities involves
significant risks, including legal, regulatory, currency and economic risks
that are specific to Russia. In addition, investing in Russian securities
involves risks associated with the settlement of portfolio
transactions and loss of the Fund’s or an Underlying
Fund's ownership
rights in its portfolio securities as a result of the system of share
registration and custody in Russia. Governments
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in the U.S. and
many other countries have imposed economic sanctions on
certain Russian individuals and Russian corporate and banking
entities. A number of jurisdictions may also institute broader sanctions
on Russia. Russia has issued a number of countersanctions,
some of which restrict the distribution of profits by limited
liability companies (e.g., dividends), and
prohibit Russian persons
from entering into transactions with designated persons from
“unfriendly
states” as well as the
export of raw materials or other
products from Russia to certain sanctioned persons. Russia
launched a large-scale invasion of Ukraine on February 24, 2022.
The extent and duration of the military action, resulting
sanctions and resulting future market disruptions, including declines
in its stock markets and the value of the ruble against the U.S.
dollar, are impossible to predict, but could be significant.
Disruptions caused by Russian military action or other actions (including
cyberattacks and espionage) or resulting actual and threatened
responses to such activity, including purchasing and financing
restrictions, boycotts or changes in consumer or purchaser
preferences, sanctions, import and export restrictions, tariffs or
cyberattacks on the Russian government, Russian companies, or
Russian individuals, including politicians, may impact Russia’s
economy and Russian companies in which the Fund or an Underlying
Fund invests. Actual and threatened responses to
Russian military action may also impact the markets for certain
Russian commodities, such as oil and natural gas, as well as other
sectors of the Russian economy, and are likely to have collateral
impacts on such sectors globally. Russian companies may be
unable to pay dividends and, if they pay dividends, the
Fund or an Underlying
Fund may be unable to receive them. As a
result of sanctions, the Fund is currently restricted from
trading in Russian securities, including those in its portfolio, while
the Underlying Indexes of the Underlying Funds have removed
Russian securities. It is unknown when, or if, sanctions may be
lifted or the Fund’s ability to trade in Russian securities will
resume.
Risk
of Investing in Saudi Arabia. The ability of
foreign investors (such as the
Fund or an Underlying
Fund) to invest in the securities of
Saudi Arabian issuers is relatively new. Such ability could be
restricted by the Saudi Arabian government at any time, and unforeseen
risks could materialize with respect to foreign ownership in such
securities. The economy of Saudi Arabia is dominated by
petroleum exports. A sustained decrease in petroleum prices
could have a negative impact on all aspects of the economy.
Investments in the securities of Saudi Arabian issuers involve
risks not typically associated with investments in securities of
issuers in more developed countries that may negatively affect
the value of the Fund’s or Underlying
Fund's investments. Such
heightened risks may include, among others, expropriation
and/or nationalization of assets, restrictions on and government
intervention in international trade, confiscatory taxation,
political instability, including authoritarian and/or military
involvement in governmental decision making, armed conflict, crime
and instability as a result of religious, ethnic and/or
socioeconomic unrest. There remains the possibility that instability in the
larger Middle East region could adversely impact the economy of
Saudi Arabia, and there is no assurance of political
stability in Saudi Arabia.
Saudi
Arabia Broker Risk. There are a
number of different ways of conducting
transactions in equity securities in the Saudi Arabian
market. The Fund (or an Underlying Fund) generally expects to conduct
its transactions in a manner in which the Fund would not be
limited by Saudi Arabian regulations to a single broker. However,
there may be a limited number of brokers who can provide
services to the Fund (or an Underlying Fund), which may have an
adverse impact on the prices, quantity or timing of Fund (or an
Underlying Fund) transactions.
Risk
of Investing in Taiwan. Investments in
Taiwanese issuers involve risks that
are specific to Taiwan, including legal, regulatory,
political, currency and economic risks. Political and economic
developments of Taiwan’s neighbors may have an adverse effect on
Taiwan’s economy. Specifically, Taiwan’s geographic
proximity and history of political contention with China have
resulted in ongoing tensions, which may materially affect the
Taiwanese economy and its securities
market.
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 or the Underlying Funds has exposure.
Securities
Lending Risk. The Fund or
an Underlying Fund may engage in
securities lending. Securities lending involves the risk that the Fund or
the Underlying Funds may lose money because the borrower of
the loaned securities fails to return the securities in a timely manner
or at all. The Fund or the Underlying Funds 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 or an Underlying
Fund.
Small-Capitalization
Companies Risk. Compared to mid-
and large-capitalization
companies, small-capitalization companies may be less stable
and more susceptible to adverse developments. In
addition, the securities of small-capitalization companies may be
more volatile and less liquid than those of mid- and
large-capitalization companies.
Tax
Risk. Because the Fund
is expected to invest in the Underlying Funds,
the Fund’s realized losses on sales of shares of an Underlying Fund
may be indefinitely or permanently deferred as “wash
sales.” Distributions of
short-term capital gains by an Underlying Fund
will be recognized as ordinary income by the Fund and would not
be offset by the Fund’s capital loss carryforwards, if
any. Capital loss carryforwards of an Underlying Fund, if any,
would not offset net capital gains of the
Fund.
Technology
Sector Risk. Technology
companies, including information
technology companies, may have limited
product lines, markets,
financial resources or personnel. Technology companies
typically face intense competition and potentially rapid product
obsolescence. They are also heavily dependent on intellectual
property rights and may be adversely affected by the loss or impairment
of those rights. Companies in the technology
S-74
sector may face
increased government and regulatory scrutiny and may be subject
to adverse government or regulatory
action.
Utilities
Sector Risk. The utilities
sector is subject to significant government
regulation and oversight. Deregulation, however, may subject utility
companies to greater competition and may reduce their
profitability. Companies in the utilities sector may be adversely affected
due to increases in fuel and operating costs, rising costs of
financing capital construction and the cost of complying with
U.S. federal and state regulations, among other factors.
Valuation
Risk. The price the
Fund or an Underlying Fund could receive upon the
sale of a security or other asset may differ from the
Fund's or the Underlying
Fund's valuation of the security or other asset,
particularly for securities or other assets that trade in low volume or
volatile markets, or assets that are impacted by market disruption
events or that are valued using a fair value methodology as a
result of trade suspensions or for other reasons. In
addition, the value of the securities or other assets in
the Fund's or an
Underlying Fund's portfolio may change on days or during time
periods when shareholders will not be able to purchase or sell
the Fund's or an Underlying Fund's shares. Authorized
Participants who purchase or redeem shares of the Fund or an
Underlying Fund on days when the Fund or an Underlying Fund
is holding fair-valued securities or other instruments may
receive fewer or more shares, or lower or higher redemption
proceeds, than they would have received had the securities or
other instruments not been fair valued or been valued using a
different methodology. The ability to value investments may be
impacted by technological issues or errors by pricing services
or other third-party service
providers.
Performance
Information
As of the date of
the Prospectus, the Fund has not commenced operations and
therefore has no performance information to report.
S-75
Management
Investment
Adviser. BlackRock Fund
Advisors.
Portfolio
Managers. Christopher Chung
and Suzanne Ly (the “Portfolio
Managers”) are primarily
responsible for the day-to-day management of the
Fund. Each Portfolio Manager supervises a portfolio
management team. Mr. Chung and Ms. Ly have been Portfolio Managers
of the Fund since inception (2023).
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 you 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 taxed 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.
S-76
iShares
LifePath® Target Date 2060
ETF
Ticker:
ITDH Stock
Exchange: NYSE Arca
Investment
Objective
The iShares
LifePath Target Date 2060 ETF (the “2060
Fund” or the
“Fund”) seeks to provide
retirement outcomes through exposure to a broad portfolio of
ETFs which adjusts its allocation as it approaches its target
date.
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 iShares Trust (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. Acquired Fund Fees
and Expenses are not included in the calculation of the ratio of
expenses to average
net assets shown in the Financial
Highlights section of the
Fund’s prospectus (the “ Prospectus ” ).
You may pay other
fees, such as brokerage commissions and other fees to financial intermediaries,
which are not reflected in the tables and examples
below.
|
| ||||
|
Management
Fees |
Distribution
and
Service
(12b-1)
Fees |
Other
Expenses2
|
Acquired
Fund Fees
and
Expenses 3
|
Total
Annual
Fund
Operating
Expenses |
|
|
|
|
|
|
1
2
3
|
|
1
Year |
3
Years |
|
|
|
$ |
$ |
|
Principal
Investment Strategies
The 2060 Fund is
actively managed and allocates and reallocates its assets among a
combination of Underlying Funds in proportions based
on its own investment strategy.
The 2060 Fund is
one of a group of funds referred to as the “LifePath
ETFs,” each of which
seeks to provide for retirement outcomes based on
quantitatively measured risk that investors on average may be
willing to accept given a particular time
horizon.
S-77
BFA employs a
multi-dimensional approach to assess risk for the 2060 Fund and to
determine its allocation across asset classes. As part of this
multi-dimensional approach, BFA aims to quantify risk using
proprietary risk measurement tools that, among other things, analyze
historical and forward-looking securities market data, including
risk, asset class correlations, and expected returns. Under
normal circumstances, the 2060 Fund intends to invest primarily
in affiliated exchange-traded funds (“ETFs”).
The 2060 Fund will
invest, under normal circumstances, at least 80% of its assets
in securities or other financial instruments that are components of
or have economic characteristics similar to the securities
included in its custom model benchmark, the 2060 Target Date Custom
Benchmark. BFA will not publish its custom benchmark but will
apply a proprietary model to monitor performance of the
2060 Fund. The 2060 Fund is designed for investors
expecting to retire or to begin withdrawing assets around the year
2060. At inception, BFA expects the 2060 Fund to hold
approximately 99% of its assets in Underlying Funds that seek to track
particular underlying indexes of equity securities, approximately 1%
of its assets in Underlying Funds that seek to track particular
fixed-income indexes and the remainder of its assets in
Underlying Funds that invest primarily in money market instruments.
At inception, the
Fund invests in the iShares 10+ Year Investment Grade Corporate
Bond ETF, iShares Core MSCI Emerging Markets ETF, iShares Core
MSCI International Developed Markets ETF, iShares Russell
1000 ETF, iShares Russell 2000 ETF and BlackRock Cash
Funds. Factors such as fund classifications, historical risk
and performance, and the relationship to other Underlying Funds
in the Fund are considered when selecting Underlying Funds.
The specific Underlying Funds selected for the Fund are
determined at BFA’s discretion and may change as deemed appropriate
to allow the Fund to meet its investment objective. See the
“Information About
the Underlying Funds”
section of the
prospectus for a list of the Underlying Funds, their classification
into equity, fixed-income or money market funds and a brief
description of their investment objectives and primary investment
strategies.
Under normal
circumstances, the Fund’s asset allocation will change over time
according to a predetermined “glide
path” as the Fund
approaches its target date. The glide path below represents the
shifting of asset classes over time. As the glide path shows, as
time elapses prior to retirement, the Fund’s asset allocations become
more conservative. This reflects the need for reduced investment
risk as retirement approaches and the need for lower
volatility of the Fund, which for certain investors may be a primary source
of income after retirement. During the year prior to the Fund’s
maturity date, its allocation of assets is expected to be similar to that
of the Retirement Fund. Further, as retirement approaches, such
Fund and the Retirement Fund is expected to, subject to
approval by the Trust’s Board of Trustees (the “Board”), merge into a
single fund.
The following
chart illustrates the glide path — the target allocation among
asset classes as the LifePath ETFs approach their target
dates:
The following
table lists the target allocation by years until retirement:
|
Years
to
Retirement |
Equity
Allocation
(including
REITs) |
Fixed-Income
Allocation |
|
45 |
99% |
1% |
|
40 |
99% |
1% |
|
35 |
99% |
1% |
|
30 |
98% |
2% |
|
25 |
95% |
5% |
|
20 |
87% |
13% |
|
15 |
77% |
23% |
|
10 |
65% |
35% |
|
5 |
53% |
47% |
|
0 |
40% |
60% |
The asset
allocation targets are established by the Fund’s portfolio
managers. The investment team, including the portfolio managers, meets
regularly to assess market conditions, review the asset
allocation targets of the Fund, and determine whether any changes are
required to enable the Fund to achieve its investment
objective.
Although the asset
allocation targets listed for the glide path are general, long-term
targets, BFA may periodically adjust the proportion of
equity and fixed-income Underlying Funds in the Fund, based on an
assessment of the current market conditions, the potential
contribution of each asset class to the expected risk and return
characteristics of the Fund, reallocations of the Fund’s composition to
reflect intra-year movement along the glide path and other factors.
In general, such adjustments will be limited; however, BFA may
determine that a greater degree of variation is warranted to
protect the Fund or achieve its investment
objective.
BFA’s second step
in the structuring of the Fund is the selection of the Underlying
Funds. Factors such as fund classifications, historical risk
and performance, and the relationship to other Underlying Funds
in the Fund are considered when selecting Underlying Funds.
The specific Underlying Funds selected for the Fund are
determined at BFA’s discretion and may change as
S-78
deemed appropriate
to allow the Fund to meet its investment objective. See the
“Information About
the Underlying Funds”
section of the
prospectus for a list of the Underlying Funds, their classification
into equity, fixed-income or money market funds and a brief
description of their investment objectives and primary investment
strategies.
Within the
prescribed percentage allocations to equity and fixed-income index funds, BFA
seeks to diversify the Fund. The allocation to
Underlying Funds that track equity indexes may be further
diversified by style (including both value and growth), market
capitalization (including emerging growth, large-, mid-, and small-capitalization),
region (i.e., U.S, and
international, including emerging markets)
or other attributes. The allocation to Underlying Funds
that track fixed-income indexes may be further diversified by
sector (including government, corporate, U.S. agency MBS or
debentures, CMBS, and other sectors), duration (a of measurement of
interest rate risk), credit quality (including investment grade
bonds and high yield bonds), geographic location
(including U.S. and non-U.S. securities, including bonds of emerging market
issuers), currency (U.S. dollar-denominated or local currency
bonds) or other attributes. Though BFA seeks to diversify the
Fund, certain Underlying Funds may concentrate their investments
in specific sectors or geographic regions or countries. The
percentage allocation to the various styles of equity and
fixed-income Underlying Funds is determined at the discretion of the
investment team and can be changed to reflect the current market
environment.
Certain Underlying
Funds may invest in real estate investment trusts
(“REITs”), foreign
securities, emerging market securities, high yield bonds
and derivative securities or instruments, such as options and
futures, the value of which is derived from another security, a
currency or commodity, an interest rate or an index, when seeking to
match the performance of a particular market index. The Fund
and certain Underlying Funds may also lend securities with a
value up to one-third of their respective total assets to
financial institutions that provide cash or securities issued or
guaranteed by the U.S. Government as
collateral.
Summary
of Principal Risks
Equity
Securities Risk. Equity securities
are subject to changes in value, and
their values may be more volatile than those of other asset classes.
Certain Underlying Funds invest in common stocks, which generally
subject their holders to
more risks than preferred stocks and debt
securities because common stockholders’ claims
are subordinated
to those of holders of preferred stocks and debt securities upon
the bankruptcy of the issuer.
Allocation
Risk.
The Fund’s ability to achieve its investment objective depends
upon BFA's ability to develop a model that accurately
assesses the Fund’s asset class allocation and selects an appropriate mix
of Underlying Funds and other ETFs. There is a risk that BFA's
evaluations and assumptions regarding asset classes or
Underlying Funds, which are utilized as inputs in the model, may be
incorrect in view of actual market
conditions.
Investment
in Underlying Funds Risk. The Fund invests
substantially all
of its assets in the Underlying
Funds, so the Fund’s investment
performance is directly related to the performance of the
Underlying Funds. The Fund’s NAV will change with changes in
the value of the Underlying Funds and other securities in
which the Fund invests based on their market valuations. An
investment in the Fund will entail more costs and expenses than a
direct investment in the Underlying
Funds.
As the Underlying
Funds, or the Fund’s allocations among the Underlying Funds,
change from time to time, or to the extent that the total annual
fund operating expenses of any Underlying Fund change, the
weighted average operating expenses borne by the Fund may increase
or decrease.
Affiliated
Fund Risk. In managing the
Fund, BFA has the ability to select Underlying
Funds and substitute Underlying Funds with other ETFs that it
believes will achieve the Fund’s objective. BFA may be subject to
potential conflicts of interest in selecting Underlying Funds
and substituting Underlying Funds with other ETFs because the
fees paid to BFA by some Underlying Funds and other ETFs managed
by BFA may be higher than the fees paid by other Underlying
Funds. If an Underlying Fund or other ETF holds interests in an
affiliated fund in excess of a certain amount, the Fund may be
prohibited from purchasing shares of that Underlying Fund or other
ETF.
Retirement
Income Risk. The 2060 Fund does
not provide a guarantee that
sufficient capital appreciation will be achieved to provide adequate
income at and through retirement. The 2060 Fund also does not
ensure that you will have assets in your account sufficient
to cover your retirement expenses; this will depend on the
amount of money you have invested in the 2060 Fund, the length
of time you have held your investment, the returns of the
markets over time, the amount you spend in retirement, and
your other assets and income sources.
Selection
Risk.
Selection risk is the risk that the securities selected by the
2060 Fund management will underperform the markets, the
relevant indices or the securities selected by other funds with similar
investment objectives and investment strategies. This
means you may lose money.
Market
Risk. The
Fund and the Underlying
Funds 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, public
health issues, recessions, the prospect or
S-79
occurrence of a
sovereign default or other financial crisis, or other events could have
a significant impact on the Fund, the Underlying Funds
and their investments and could result in increased premiums
or discounts to the Fund’s or Underlying
Fund's
NAV.
Asset
Class Risk. Securities and
other assets in the Fund's or an Underlying Fund's
portfolio may underperform in comparison to the general
financial markets, a particular financial market or other asset
classes.
Authorized
Participant Concentration Risk. Only an
Authorized Participant (as
defined in the Creations
and Redemptions section
of
this prospectus (the “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 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 or an Underlying 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.
Currency
Risk. Because the
Fund's and the Underlying Funds' NAVs are
determined in U.S. dollars, the Fund's NAV could decline if a currency of a
non-U.S. market in which a Fund or an Underlying
Fund invests depreciates against the U.S. dollar or if there are delays
or limits on repatriation of such currency. Currency exchange
rates can be very volatile and can change quickly and
unpredictably. As a result, the Fund's NAV may change quickly and
without warning.
Cybersecurity
Risk. Failures or
breaches of the electronic systems of the
Fund or the Underlying Funds, the Funds' or the Underlying Funds'
adviser, distributor, the benchmark provider 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 benchmark provider
and other service providers, market makers, Authorized
Participants or issuers of securities in which the Fund invests.
Derivatives
Risk. The Fund or
an Underlying Fund may invest in certain types of
derivatives contracts, including futures, options and swaps, which
can be more sensitive to changes in interest rates or to sudden
fluctuations in market prices than conventional securities, which
can result in greater losses to the
Fund.
Energy
Sector Risk. The market value
of securities in the energy sector may decline
for many reasons, including, among others, changes in energy
prices, energy supply and demand, government regulations, costs
related to exploration and production and energy
conservation efforts. Companies in the energy sector may also be
significantly impacted by natural disasters, social and political unrest,
war and environmental damage and may also be at risk for
increased litigation and negative publicity or public perception. The
energy sector may experience significant market volatility
(e.g., as a result of
Russia’s invasion of Ukraine in February 2022 and
the resulting sanctions on Russia and other responses by the
U.S. and other actors).
Financials
Sector Risk. The performance
of companies in the financials sector
may be adversely impacted by many factors, including, among
others, changes in government regulations, economic
conditions, and interest rates, credit rating downgrades,
adverse public perception, exposure concentration and decreased
liquidity in credit markets. The impact of changes in regulation of
any individual financial company, or of the financials sector
as a whole, cannot be predicted. Cybersecurity incidents and
technology malfunctions and failures have become increasingly
frequent and have caused significant losses to companies in this
sector, which may negatively impact an Underlying
Fund.
Geographic
Risk. A natural
disaster could occur in a geographic region in which
the Fund or an Underlying Fund invests, which could adversely
affect the economy or the business operations of companies in the
specific geographic region, causing an adverse impact on the
Fund's or an Underlying Fund's investments in, or which are exposed
to, the affected region.
Healthcare
Sector Risk. The profitability
of companies in the healthcare sector
may be affected by government regulations and government
healthcare programs, increases or decreases in the cost of medical
products and services, an increased emphasis on outpatient
services, demand for medical products and services and product
liability claims, among other factors. Many healthcare companies are
heavily dependent on patent protection, and the expiration of a
company’s patent may adversely affect that company’s
profitability. Healthcare companies are subject to competitive forces
that may result in price discounting, and may be thinly
capitalized and susceptible to product
obsolescence.
Indexing
Investment Risk. The Underlying
Funds are not actively managed, and BFA
generally does not attempt to take defensive positions in the
Underlying Funds under any market conditions, including
declining markets.
Industrials
Sector Risk. Companies in the
industrials sector may be adversely
affected by changes in the supply of and demand for products and
services, product obsolescence, claims for
S-80
environmental
damage or product liability and changes in general economic
conditions, among other factors.
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 elevated tracking error and 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.
Information
Technology Sector Risk. Information
technology companies face
intense competition and potentially rapid product obsolescence. They
are also heavily dependent on intellectual property rights
and may be adversely affected by the loss or impairment of
those rights. Companies in the information technology sector
are facing increased government and regulatory
scrutiny and may be subject to adverse government or regulatory action.
Companies in the software industry may be adversely affected
by, among other things, the decline or fluctuation of
subscription renewal rates for their products and services and
actual or perceived vulnerabilities in their products or
services.
Infrastructure
Industry Risk. Companies in the
infrastructure industry may be
subject to a variety of factors that could adversely affect
their business or operations, including high interest costs in
connection with capital construction programs, high degrees of
leverage, costs associated with governmental, environmental and
other regulations, the level of government spending on
infrastructure projects, and other
factors.
Issuer
Risk. The performance
of the Fund depends on the performance of
individual securities to which the Fund or an Underlying Fund
has exposure. Changes in the financial condition or credit rating
of an issuer of those securities may cause the value of the
securities to decline.
Large-Capitalization
Companies Risk.
Large-capitalization companies may be
less able than smaller capitalization companies to adapt
to changing market conditions. Large-capitalization companies may be
more mature and subject to more limited
growth potential compared with smaller capitalization
companies. During different market cycles, the performance of
large-capitalization companies has trailed the overall
performance of the broader securities
markets.
Management
Risk. The Fund and the
Underlying Funds are subject to
management risk, which is the risk that the investment process,
techniques and risk analyses applied by BFA will not produce the
desired results, and that securities selected by BFA may underperform
the market or any relevant benchmark. In
addition,
legislative, regulatory, or tax developments may affect the investment
techniques available to BFA in connection with managing the Fund
and the Underlying Funds and may also adversely affect
the ability of the Fund and the Underlying Funds to achieve their
investment objective.
Market
Trading Risk. The Fund and
the Underlying Funds face numerous market
trading risks, including the potential lack of an active market for
their shares, losses from trading in secondary markets, periods
of high volatility and disruptions in the creation/redemption
process. ANY
OF THESE FACTORS, AMONG
OTHERS, MAY LEAD TO THE FUND'S SHARES TRADING
AT A PREMIUM OR DISCOUNT TO NAV.
Mid-Capitalization
Companies Risk. Compared to
large-capitalization companies,
mid-capitalization companies may be less stable and
more susceptible to adverse developments. In addition, the
securities of mid-capitalization companies may be more volatile and
less liquid than those of large-capitalization companies.
National
Closed Market Trading Risk. To the extent
that the underlying
securities or other instruments held by the Fund or the Underlying Funds
trade on foreign exchanges or in foreign markets that may
be closed when the securities exchange on which the Fund’s
or an Underlying Fund's shares trade is open, there are likely
to be deviations between the current price of such an underlying
security and the last quoted price for the underlying security
(i.e., the Fund’s or
an Underlying Fund's quote from the closed foreign
market). The impact of a
closed foreign market on the Fund or an
Underlying Fund is likely to be greater where a large portion of
the Fund’s or an Underlying Fund's underlying securities or
other instruments trade on that closed foreign market or when the
foreign market is closed for unscheduled reasons. These
deviations could result in premiums or discounts to the Fund’s
or an Underlying Fund's NAV that may be greater than those
experienced by other ETFs.
Non-U.S.
Issuers Risk. Securities issued
by non-U.S. issuers carry different
risks from securities issued by U.S. issuers. These risks include
differences in accounting, auditing and financial reporting
standards, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control
regulations, political instability, regulatory and economic differences, and
potential restrictions on the flow of international capital. The Fund
is specifically exposed to Asian Economic
Risk,
European Economic Risk and North
American Economic
Risk.
Non-U.S.
Securities Risk. Investments in
the securities of non-U.S. issuers are
subject to the risks associated with investing in those non-U.S.
markets, such as heightened risks of inflation or nationalization.
The Fund or an Underlying
Fund may
lose money due to political, economic and geographic events affecting issuers
of non-U.S. securities or non-U.S.
markets. In addition, non-U.S.
securities markets may trade a small number of securities and may
be unable to respond effectively to changes in trading volume,
potentially making prompt liquidation of holdings difficult or
impossible at times. The Fund is specifically exposed
S-81
to Asian Economic
Risk, European Economic Risk and North
American
Economic Risk.
Operational
Risk. The
Fund and the Underlying
Funds are 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, the Underlying Funds
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 China.
Investments in
Chinese securities, including certain
Hong Kong-listed and U.S.-listed securities, subject the Fund
or the Underlying Funds to risks specific to China. China may
be subject to considerable degrees of economic,
political and social instability. China is an emerging market and
demonstrates significantly higher volatility from time to time in
comparison to developed markets. Over the last few decades, the
Chinese government has undertaken reform of economic and
market practices and has expanded the sphere of private ownership
of property in China. However, Chinese markets generally continue
to experience inefficiency, volatility and pricing anomalies
resulting from governmental influence, a lack of publicly available
information and/or political and social instability.
Chinese companies
are also subject to the risk that Chinese authorities can
intervene in their operations and structure. Internal social
unrest or confrontations with neighboring countries,
including military conflicts in response to such events, may also disrupt
economic development in China and result in a greater risk of
currency fluctuations, currency non-convertibility, interest rate
fluctuations and higher rates of
inflation.
China has
experienced security concerns, such as terrorism and strained
international relations. Additionally, China is alleged to have participated
in state-sponsored cyberattacks against foreign companies and
foreign governments. Actual and threatened responses to such
activity and strained international relations, including
purchasing restrictions, sanctions, tariffs or cyberattacks on
the Chinese government or Chinese companies, may impact China’s
economy and Chinese issuers of securities in which the Fund
invests. Incidents involving China's or the region's security may cause
uncertainty in Chinese markets and may adversely affect
the Chinese economy and the Fund's investments.
Export growth continues to be a major driver of China's rapid
economic growth. Reduction in spending on Chinese products and
services, institution of additional tariffs or other trade
barriers (including as a result of heightened trade tensions or a trade war
between China and the U.S. or in response to actual or alleged
Chinese cyber activity) or a downturn in any of the economies of
China's key trading partners may have an adverse impact on
the Chinese economy.
Chinese companies,
including Chinese companies that are listed on U.S. exchanges,
are not subject to the same degree of regulatory
requirements, accounting standards or auditor
oversight as
companies in more developed countries. As a result, information about
the Chinese securities in which the Fund invests may be
less reliable or complete. Chinese companies with securities listed
on U.S. exchanges may be delisted if they do not meet U.S.
accounting standards and auditor oversight requirements,
which would significantly decrease the liquidity and value of the
securities. There may be significant obstacles to obtaining
information necessary for investigations into or litigation against
Chinese companies, and shareholders may have limited legal
remedies. The Fund is not actively managed and does not select
investments based on investor protection considerations.
Risk
of Investing in Developed Countries.
The
Fund’s and the Underlying Fund's
investment in developed country issuers may subject the Fund
to legal, regulatory, political, currency, security, economic and
other risks associated with developed countries. Developed
countries tend to represent a significant portion of the global economy and
have generally experienced slower economic growth than some
less developed countries. Certain developed countries have
experienced security concerns, such as war, terrorism and
strained international relations. Incidents involving a country’s or
region’s security may cause uncertainty in its markets and may
adversely affect its economy and the Fund’s or an Underlying
Fund's investments. In addition, developed countries may be
adversely impacted by changes to the economic conditions of
certain key trading partners, regulatory burdens, debt burdens and
the price or availability of certain
commodities.
Risk
of Investing in India. Investments in
Indian issuers involve risks that are
specific to India, including legal, regulatory, political, currency and
economic risks. Political and legal uncertainty, greater government
control over the economy, currency fluctuations or
blockage, and the risk of nationalization or expropriation of
assets may result in higher potential for losses. The securities
markets in India are relatively underdeveloped and may subject the
Fund or an Underlying Fund to higher transaction costs or greater
uncertainty than investments in more developed securities
markets.
Risk
of Investing in Japan. The Japanese
economy may be subject to
considerable degrees of economic, political and social instability, which
could have a negative impact on Japanese securities. Since
2000, Japan’s economic growth rate has generally remained
low relative to other advanced economies, and it may remain low
in the future. In addition, Japan is subject to the risk of natural
disasters, such as earthquakes, volcanic eruptions, typhoons and
tsunamis, which could negatively affect the Fund or an Underlying
Fund. Japan’s relations with its neighbors have at times been
strained, and strained relations may cause uncertainty in the Japanese
markets and adversely affect the overall Japanese economy.
Risk
of Investing in Russia. Investing in
Russian securities involves
significant risks, including legal, regulatory, currency and economic risks
that are specific to Russia. In addition, investing in Russian securities
involves risks associated with the settlement of portfolio
transactions and loss of the Fund’s or an Underlying
Fund's ownership
rights in its portfolio securities as a result of the system of share
registration and custody in Russia. Governments
S-82
in the U.S. and
many other countries have imposed economic sanctions on
certain Russian individuals and Russian corporate and banking
entities. A number of jurisdictions may also institute broader sanctions
on Russia. Russia has issued a number of countersanctions,
some of which restrict the distribution of profits by limited
liability companies (e.g., dividends), and
prohibit Russian persons
from entering into transactions with designated persons from
“unfriendly
states” as well as the
export of raw materials or other
products from Russia to certain sanctioned persons. Russia
launched a large-scale invasion of Ukraine on February 24, 2022.
The extent and duration of the military action, resulting
sanctions and resulting future market disruptions, including declines
in its stock markets and the value of the ruble against the U.S.
dollar, are impossible to predict, but could be significant.
Disruptions caused by Russian military action or other actions (including
cyberattacks and espionage) or resulting actual and threatened
responses to such activity, including purchasing and financing
restrictions, boycotts or changes in consumer or purchaser
preferences, sanctions, import and export restrictions, tariffs or
cyberattacks on the Russian government, Russian companies, or
Russian individuals, including politicians, may impact Russia’s
economy and Russian companies in which the Fund or an Underlying
Fund invests. Actual and threatened responses to
Russian military action may also impact the markets for certain
Russian commodities, such as oil and natural gas, as well as other
sectors of the Russian economy, and are likely to have collateral
impacts on such sectors globally. Russian companies may be
unable to pay dividends and, if they pay dividends, the
Fund or an Underlying
Fund may be unable to receive them. As a
result of sanctions, the Fund is currently restricted from
trading in Russian securities, including those in its portfolio, while
the Underlying Indexes of the Underlying Funds have removed
Russian securities. It is unknown when, or if, sanctions may be
lifted or the Fund’s ability to trade in Russian securities will
resume.
Risk
of Investing in Saudi Arabia. The ability of
foreign investors (such as the
Fund or an Underlying
Fund) to invest in the securities of
Saudi Arabian issuers is relatively new. Such ability could be
restricted by the Saudi Arabian government at any time, and unforeseen
risks could materialize with respect to foreign ownership in such
securities. The economy of Saudi Arabia is dominated by
petroleum exports. A sustained decrease in petroleum prices
could have a negative impact on all aspects of the economy.
Investments in the securities of Saudi Arabian issuers involve
risks not typically associated with investments in securities of
issuers in more developed countries that may negatively affect
the value of the Fund’s or Underlying
Fund's investments. Such
heightened risks may include, among others, expropriation
and/or nationalization of assets, restrictions on and government
intervention in international trade, confiscatory taxation,
political instability, including authoritarian and/or military
involvement in governmental decision making, armed conflict, crime
and instability as a result of religious, ethnic and/or
socioeconomic unrest. There remains the possibility that instability in the
larger Middle East region could adversely impact the economy of
Saudi Arabia, and there is no assurance of political
stability in Saudi Arabia.
Saudi
Arabia Broker Risk. There are a
number of different ways of conducting
transactions in equity securities in the Saudi Arabian
market. The Fund (or an Underlying Fund) generally expects to conduct
its transactions in a manner in which the Fund would not be
limited by Saudi Arabian regulations to a single broker. However,
there may be a limited number of brokers who can provide
services to the Fund (or an Underlying Fund), which may have an
adverse impact on the prices, quantity or timing of Fund (or an
Underlying Fund) transactions.
Risk
of Investing in Taiwan. Investments in
Taiwanese issuers involve risks that
are specific to Taiwan, including legal, regulatory,
political, currency and economic risks. Political and economic
developments of Taiwan’s neighbors may have an adverse effect on
Taiwan’s economy. Specifically, Taiwan’s geographic
proximity and history of political contention with China have
resulted in ongoing tensions, which may materially affect the
Taiwanese economy and its securities
market.
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 or the Underlying Funds has exposure.
Securities
Lending Risk. The Fund or
an Underlying Fund may engage in
securities lending. Securities lending involves the risk that the Fund or
the Underlying Funds may lose money because the borrower of
the loaned securities fails to return the securities in a timely manner
or at all. The Fund or the Underlying Funds 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 or an Underlying
Fund.
Small-Capitalization
Companies Risk. Compared to mid-
and large-capitalization
companies, small-capitalization companies may be less stable
and more susceptible to adverse developments. In
addition, the securities of small-capitalization companies may be
more volatile and less liquid than those of mid- and
large-capitalization companies.
Tax
Risk. Because the Fund
is expected to invest in the Underlying Funds,
the Fund’s realized losses on sales of shares of an Underlying Fund
may be indefinitely or permanently deferred as “wash
sales.” Distributions of
short-term capital gains by an Underlying Fund
will be recognized as ordinary income by the Fund and would not
be offset by the Fund’s capital loss carryforwards, if
any. Capital loss carryforwards of an Underlying Fund, if any,
would not offset net capital gains of the
Fund.
Technology
Sector Risk. Technology
companies, including information
technology companies, may have limited
product lines, markets,
financial resources or personnel. Technology companies
typically face intense competition and potentially rapid product
obsolescence. They are also heavily dependent on intellectual
property rights and may be adversely affected by the loss or impairment
of those rights. Companies in the technology
S-83
sector may face
increased government and regulatory scrutiny and may be subject
to adverse government or regulatory
action.
Utilities
Sector Risk. The utilities
sector is subject to significant government
regulation and oversight. Deregulation, however, may subject utility
companies to greater competition and may reduce their
profitability. Companies in the utilities sector may be adversely affected
due to increases in fuel and operating costs, rising costs of
financing capital construction and the cost of complying with
U.S. federal and state regulations, among other factors.
Valuation
Risk. The price the
Fund or an Underlying Fund could receive upon the
sale of a security or other asset may differ from the
Fund's or the Underlying
Fund's valuation of the security or other asset,
particularly for securities or other assets that trade in low volume or
volatile markets, or assets that are impacted by market disruption
events or that are valued using a fair value methodology as a
result of trade suspensions or for other reasons. In
addition, the value of the securities or other assets in
the Fund's or an
Underlying Fund's portfolio may change on days or during time
periods when shareholders will not be able to purchase or sell
the Fund's or an Underlying Fund's shares. Authorized
Participants who purchase or redeem shares of the Fund or an
Underlying Fund on days when the Fund or an Underlying Fund
is holding fair-valued securities or other instruments may
receive fewer or more shares, or lower or higher redemption
proceeds, than they would have received had the securities or
other instruments not been fair valued or been valued using a
different methodology. The ability to value investments may be
impacted by technological issues or errors by pricing services
or other third-party service
providers.
Performance
Information
As of the date of
the Prospectus, the Fund has not commenced operations and
therefore has no performance information to report.
S-84
Management
Investment
Adviser. BlackRock Fund
Advisors.
Portfolio
Managers. Christopher Chung
and Suzanne Ly (the “Portfolio
Managers”) are primarily
responsible for the day-to-day management of the
Fund. Each Portfolio Manager supervises a portfolio
management team. Mr. Chung and Ms. Ly have been Portfolio Managers
of the Fund since inception (2023).
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 you 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 taxed 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.
S-85
iShares
LifePath® Target Date 2065
ETF
Ticker:
ITDI Stock
Exchange: NYSE Arca
Investment
Objective
The iShares
LifePath Target Date 2065 ETF (the “2065
Fund” or the
“Fund”) seeks to provide
retirement outcomes through exposure to a broad portfolio of
ETFs which adjusts its allocation as it approaches its target
date.
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 iShares Trust (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. Acquired Fund Fees
and Expenses are not included in the calculation of the ratio of
expenses to average
net assets shown in the Financial
Highlights section of the
Fund’s prospectus (the “ Prospectus ” ).
You may pay other
fees, such as brokerage commissions and other fees to financial intermediaries,
which are not reflected in the tables and examples
below.
|
| ||||
|
Management
Fees |
Distribution
and
Service
(12b-1)
Fees |
Other
Expenses2
|
Acquired
Fund Fees
and
Expenses 3
|
Total
Annual
Fund
Operating
Expenses |
|
|
|
|
|
|
1
2
3
|
|
1
Year |
3
Years |
|
|
|
$ |
$ |
|
Principal
Investment Strategies
The 2065 Fund is
actively managed and allocates and reallocates its assets among a
combination of Underlying Funds in proportions based
on its own investment strategy.
The 2065 Fund is
one of a group of funds referred to as the “LifePath
ETFs,” each of which
seeks to provide for retirement outcomes based on
quantitatively measured risk that investors on average may be
willing to accept given a particular time
horizon.
S-86
BFA employs a
multi-dimensional approach to assess risk for the 2065 Fund and to
determine its allocation across asset classes. As part of this
multi-dimensional approach, BFA aims to quantify risk using
proprietary risk measurement tools that, among other things, analyze
historical and forward-looking securities market data, including
risk, asset class correlations, and expected returns. Under
normal circumstances, the 2065 Fund intends to invest primarily
in affiliated exchange-traded funds (“ETFs”).
The 2065 Fund will
invest, under normal circumstances, at least 80% of its assets
in securities or other financial instruments that are components of
or have economic characteristics similar to the securities
included in its custom model benchmark, the 2065 Target Date Custom
Benchmark. BFA will not publish its custom benchmark but will
apply a proprietary model to monitor performance of the
2065 Fund. The 2065 Fund is designed for investors
expecting to retire or to begin withdrawing assets around the year
2065. At inception, BFA expects the 2065 Fund to hold
approximately 99% of its assets in Underlying Funds that seek to track
particular underlying indexes of equity securities, approximately 1%
of its assets in Underlying Funds that seek to track particular
fixed-income indexes and the remainder of its assets in
Underlying Funds that invest primarily in money market instruments.
At inception, the
Fund invests in the iShares 10+ Year Investment Grade Corporate
Bond ETF, iShares Core MSCI Emerging Markets ETF, iShares Core
MSCI International Developed Markets ETF, iShares Russell
1000 ETF, iShares Russell 2000 ETF and BlackRock Cash
Funds. Factors such as fund classifications, historical risk
and performance, and the relationship to other Underlying Funds
in the Fund are considered when selecting Underlying Funds.
The specific Underlying Funds selected for the Fund are
determined at BFA’s discretion and may change as deemed appropriate
to allow the Fund to meet its investment objective. See the
“Information About
the Underlying Funds”
section of the
prospectus for a list of the Underlying Funds, their classification
into equity, fixed-income or money market funds and a brief
description of their investment objectives and primary investment
strategies.
Under normal
circumstances, the Fund’s asset allocation will change over time
according to a predetermined “glide
path” as the Fund
approaches its target date. The glide path below represents the
shifting of asset classes over time. As the glide path shows, as
time elapses prior to retirement, the Fund’s asset allocations become
more conservative. This reflects the need for reduced investment
risk as retirement approaches and the need for lower
volatility of the Fund, which for certain investors may be a primary source
of income after retirement. During the year prior to the Fund’s
maturity date, its allocation of assets is expected to be similar to that
of the Retirement Fund. Further, as retirement approaches, such
Fund and the Retirement Fund is expected to, subject to
approval by the Trust’s Board of Trustees (the “Board”), merge into a
single fund.
The following
chart illustrates the glide path — the target allocation among
asset classes as the LifePath ETFs approach their target
dates:
The following
table lists the target allocation by years until retirement:
|
Years
to
Retirement |
Equity
Allocation
(including
REITs) |
Fixed-Income
Allocation |
|
45 |
99% |
1% |
|
40 |
99% |
1% |
|
35 |
99% |
1% |
|
30 |
98% |
2% |
|
25 |
95% |
5% |
|
20 |
87% |
13% |
|
15 |
77% |
23% |
|
10 |
65% |
35% |
|
5 |
53% |
47% |
|
0 |
40% |
60% |
The asset
allocation targets are established by the Fund’s portfolio
managers. The investment team, including the portfolio managers, meets
regularly to assess market conditions, review the asset
allocation targets of the Fund, and determine whether any changes are
required to enable the Fund to achieve its investment
objective.
Although the asset
allocation targets listed for the glide path are general, long-term
targets, BFA may periodically adjust the proportion of
equity and fixed-income Underlying Funds in the Fund, based on an
assessment of the current market conditions, the potential
contribution of each asset class to the expected risk and return
characteristics of the Fund, reallocations of the Fund’s composition to
reflect intra-year movement along the glide path and other factors.
In general, such adjustments will be limited; however, BFA may
determine that a greater degree of variation is warranted to
protect the Fund or achieve its investment
objective.
BFA’s second step
in the structuring of the Fund is the selection of the Underlying
Funds. Factors such as fund classifications, historical risk
and performance, and the relationship to other Underlying Funds
in the Fund are considered when selecting Underlying Funds.
The specific Underlying Funds selected for the Fund are
determined at BFA’s discretion and may change as
S-87
deemed appropriate
to allow the Fund to meet its investment objective. See the
“Information About
the Underlying Funds”
section of the
prospectus for a list of the Underlying Funds, their classification
into equity, fixed-income or money market funds and a brief
description of their investment objectives and primary investment
strategies.
Within the
prescribed percentage allocations to equity and fixed-income index funds, BFA
seeks to diversify the Fund. The allocation to
Underlying Funds that track equity indexes may be further
diversified by style (including both value and growth), market
capitalization (including emerging growth, large-, mid-, and small-capitalization),
region (i.e., U.S, and
international, including emerging markets)
or other attributes. The allocation to Underlying Funds
that track fixed-income indexes may be further diversified by
sector (including government, corporate, U.S. agency MBS or
debentures, CMBS, and other sectors), duration (a of measurement of
interest rate risk), credit quality (including investment grade
bonds and high yield bonds), geographic location
(including U.S. and non-U.S. securities, including bonds of emerging market
issuers), currency (U.S. dollar-denominated or local currency
bonds) or other attributes. Though BFA seeks to diversify the
Fund, certain Underlying Funds may concentrate their investments
in specific sectors or geographic regions or countries. The
percentage allocation to the various styles of equity and
fixed-income Underlying Funds is determined at the discretion of the
investment team and can be changed to reflect the current market
environment.
Certain Underlying
Funds may invest in real estate investment trusts
(“REITs”), foreign
securities, emerging market securities, high yield bonds
and derivative securities or instruments, such as options and
futures, the value of which is derived from another security, a
currency or commodity, an interest rate or an index, when seeking to
match the performance of a particular market index. The Fund
and certain Underlying Funds may also lend securities with a
value up to one-third of their respective total assets to
financial institutions that provide cash or securities issued or
guaranteed by the U.S. Government as
collateral.
Summary
of Principal Risks
Equity
Securities Risk. Equity securities
are subject to changes in value, and
their values may be more volatile than those of other asset classes.
Certain Underlying Funds invest in common stocks, which generally
subject their holders to
more risks than preferred stocks and debt
securities because common stockholders’ claims
are subordinated
to those of holders of preferred stocks and debt securities upon
the bankruptcy of the issuer.
Allocation
Risk.
The Fund’s ability to achieve its investment objective depends
upon BFA's ability to develop a model that accurately
assesses the Fund’s asset class allocation and selects an appropriate mix
of Underlying Funds and other ETFs. There is a risk that BFA's
evaluations and assumptions regarding asset classes or
Underlying Funds, which are utilized as inputs in the model, may be
incorrect in view of actual market
conditions.
Investment
in Underlying Funds Risk. The Fund invests
substantially all
of its assets in the Underlying
Funds, so the Fund’s investment
performance is directly related to the performance of the
Underlying Funds. The Fund’s NAV will change with changes in
the value of the Underlying Funds and other securities in
which the Fund invests based on their market valuations. An
investment in the Fund will entail more costs and expenses than a
direct investment in the Underlying
Funds.
As the Underlying
Funds, or the Fund’s allocations among the Underlying Funds,
change from time to time, or to the extent that the total annual
fund operating expenses of any Underlying Fund change, the
weighted average operating expenses borne by the Fund may increase
or decrease.
Affiliated
Fund Risk. In managing the
Fund, BFA has the ability to select Underlying
Funds and substitute Underlying Funds with other ETFs that it
believes will achieve the Fund’s objective. BFA may be subject to
potential conflicts of interest in selecting Underlying Funds
and substituting Underlying Funds with other ETFs because the
fees paid to BFA by some Underlying Funds and other ETFs managed
by BFA may be higher than the fees paid by other Underlying
Funds. If an Underlying Fund or other ETF holds interests in an
affiliated fund in excess of a certain amount, the Fund may be
prohibited from purchasing shares of that Underlying Fund or other
ETF.
Retirement
Income Risk. The 2065 Fund does
not provide a guarantee that
sufficient capital appreciation will be achieved to provide adequate
income at and through retirement. The 2065 Fund also does not
ensure that you will have assets in your account sufficient
to cover your retirement expenses; this will depend on the
amount of money you have invested in the 2065 Fund, the length
of time you have held your investment, the returns of the
markets over time, the amount you spend in retirement, and
your other assets and income sources.
Selection
Risk.
Selection risk is the risk that the securities selected by the
2065 Fund management will underperform the markets, the
relevant indices or the securities selected by other funds with similar
investment objectives and investment strategies. This
means you may lose money.
Market
Risk. The
Fund and the Underlying
Funds 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, public
health issues, recessions, the prospect or
S-88
occurrence of a
sovereign default or other financial crisis, or other events could have
a significant impact on the Fund, the Underlying Funds
and their investments and could result in increased premiums
or discounts to the Fund’s or Underlying
Fund's
NAV.
Asset
Class Risk. Securities and
other assets in the Fund's or an Underlying Fund's
portfolio may underperform in comparison to the general
financial markets, a particular financial market or other asset
classes.
Authorized
Participant Concentration Risk. Only an
Authorized Participant (as
defined in the Creations
and Redemptions section
of
this prospectus (the “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 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 or an Underlying 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.
Currency
Risk. Because the
Fund's and the Underlying Funds' NAVs are
determined in U.S. dollars, the Fund's NAV could decline if a currency of a
non-U.S. market in which a Fund or an Underlying
Fund invests depreciates against the U.S. dollar or if there are delays
or limits on repatriation of such currency. Currency exchange
rates can be very volatile and can change quickly and
unpredictably. As a result, the Fund's NAV may change quickly and
without warning.
Cybersecurity
Risk. Failures or
breaches of the electronic systems of the
Fund or the Underlying Funds, the Funds' or the Underlying Funds'
adviser, distributor, the benchmark provider 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 benchmark provider
and other service providers, market makers, Authorized
Participants or issuers of securities in which the Fund invests.
Derivatives
Risk. The Fund or
an Underlying Fund may invest in certain types of
derivatives contracts, including futures, options and swaps, which
can be more sensitive to changes in interest rates or to sudden
fluctuations in market prices than conventional securities, which
can result in greater losses to the
Fund.
Energy
Sector Risk. The market value
of securities in the energy sector may decline
for many reasons, including, among others, changes in energy
prices, energy supply and demand, government regulations, costs
related to exploration and production and energy
conservation efforts. Companies in the energy sector may also be
significantly impacted by natural disasters, social and political unrest,
war and environmental damage and may also be at risk for
increased litigation and negative publicity or public perception. The
energy sector may experience significant market volatility
(e.g., as a result of
Russia’s invasion of Ukraine in February 2022 and
the resulting sanctions on Russia and other responses by the
U.S. and other actors).
Financials
Sector Risk. The performance
of companies in the financials sector
may be adversely impacted by many factors, including, among
others, changes in government regulations, economic
conditions, and interest rates, credit rating downgrades,
adverse public perception, exposure concentration and decreased
liquidity in credit markets. The impact of changes in regulation of
any individual financial company, or of the financials sector
as a whole, cannot be predicted. Cybersecurity incidents and
technology malfunctions and failures have become increasingly
frequent and have caused significant losses to companies in this
sector, which may negatively impact an Underlying
Fund.
Geographic
Risk. A natural
disaster could occur in a geographic region in which
the Fund or an Underlying Fund invests, which could adversely
affect the economy or the business operations of companies in the
specific geographic region, causing an adverse impact on the
Fund's or an Underlying Fund's investments in, or which are exposed
to, the affected region.
Healthcare
Sector Risk. The profitability
of companies in the healthcare sector
may be affected by government regulations and government
healthcare programs, increases or decreases in the cost of medical
products and services, an increased emphasis on outpatient
services, demand for medical products and services and product
liability claims, among other factors. Many healthcare companies are
heavily dependent on patent protection, and the expiration of a
company’s patent may adversely affect that company’s
profitability. Healthcare companies are subject to competitive forces
that may result in price discounting, and may be thinly
capitalized and susceptible to product
obsolescence.
Indexing
Investment Risk. The Underlying
Funds are not actively managed, and BFA
generally does not attempt to take defensive positions in the
Underlying Funds under any market conditions, including
declining markets.
Industrials
Sector Risk. Companies in the
industrials sector may be adversely
affected by changes in the supply of and demand for products and
services, product obsolescence, claims for
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environmental
damage or product liability and changes in general economic
conditions, among other factors.
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 elevated tracking error and 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.
Information
Technology Sector Risk. Information
technology companies face
intense competition and potentially rapid product obsolescence. They
are also heavily dependent on intellectual property rights
and may be adversely affected by the loss or impairment of
those rights. Companies in the information technology sector
are facing increased government and regulatory
scrutiny and may be subject to adverse government or regulatory action.
Companies in the software industry may be adversely affected
by, among other things, the decline or fluctuation of
subscription renewal rates for their products and services and
actual or perceived vulnerabilities in their products or
services.
Infrastructure
Industry Risk. Companies in the
infrastructure industry may be
subject to a variety of factors that could adversely affect
their business or operations, including high interest costs in
connection with capital construction programs, high degrees of
leverage, costs associated with governmental, environmental and
other regulations, the level of government spending on
infrastructure projects, and other
factors.
Issuer
Risk. The performance
of the Fund depends on the performance of
individual securities to which the Fund or an Underlying Fund
has exposure. Changes in the financial condition or credit rating
of an issuer of those securities may cause the value of the
securities to decline.
Large-Capitalization
Companies Risk.
Large-capitalization companies may be
less able than smaller capitalization companies to adapt
to changing market conditions. Large-capitalization companies may be
more mature and subject to more limited
growth potential compared with smaller capitalization
companies. During different market cycles, the performance of
large-capitalization companies has trailed the overall
performance of the broader securities
markets.
Management
Risk. The Fund and the
Underlying Funds are subject to
management risk, which is the risk that the investment process,
techniques and risk analyses applied by BFA will not produce the
desired results, and that securities selected by BFA may underperform
the market or any relevant benchmark. In
addition,
legislative, regulatory, or tax developments may affect the investment
techniques available to BFA in connection with managing the Fund
and the Underlying Funds and may also adversely affect
the ability of the Fund and the Underlying Funds to achieve their
investment objective.
Market
Trading Risk. The Fund and
the Underlying Funds face numerous market
trading risks, including the potential lack of an active market for
their shares, losses from trading in secondary markets, periods
of high volatility and disruptions in the creation/redemption
process. ANY
OF THESE FACTORS, AMONG
OTHERS, MAY LEAD TO THE FUND'S SHARES TRADING
AT A PREMIUM OR DISCOUNT TO NAV.
Mid-Capitalization
Companies Risk. Compared to
large-capitalization companies,
mid-capitalization companies may be less stable and
more susceptible to adverse developments. In addition, the
securities of mid-capitalization companies may be more volatile and
less liquid than those of large-capitalization companies.
National
Closed Market Trading Risk. To the extent
that the underlying
securities or other instruments held by the Fund or the Underlying Funds
trade on foreign exchanges or in foreign markets that may
be closed when the securities exchange on which the Fund’s
or an Underlying Fund's shares trade is open, there are likely
to be deviations between the current price of such an underlying
security and the last quoted price for the underlying security
(i.e., the Fund’s or
an Underlying Fund's quote from the closed foreign
market). The impact of a
closed foreign market on the Fund or an
Underlying Fund is likely to be greater where a large portion of
the Fund’s or an Underlying Fund's underlying securities or
other instruments trade on that closed foreign market or when the
foreign market is closed for unscheduled reasons. These
deviations could result in premiums or discounts to the Fund’s
or an Underlying Fund's NAV that may be greater than those
experienced by other ETFs.
Non-U.S.
Issuers Risk. Securities issued
by non-U.S. issuers carry different
risks from securities issued by U.S. issuers. These risks include
differences in accounting, auditing and financial reporting
standards, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control
regulations, political instability, regulatory and economic differences, and
potential restrictions on the flow of international capital. The Fund
is specifically exposed to Asian Economic
Risk,
European Economic Risk and North
American Economic
Risk.
Non-U.S.
Securities Risk. Investments in
the securities of non-U.S. issuers are
subject to the risks associated with investing in those non-U.S.
markets, such as heightened risks of inflation or nationalization.
The Fund or an Underlying
Fund may
lose money due to political, economic and geographic events affecting issuers
of non-U.S. securities or non-U.S.
markets. In addition, non-U.S.
securities markets may trade a small number of securities and may
be unable to respond effectively to changes in trading volume,
potentially making prompt liquidation of holdings difficult or
impossible at times. The Fund is specifically exposed
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to Asian Economic
Risk, European Economic Risk and North
American
Economic Risk.
Operational
Risk. The
Fund and the Underlying
Funds are 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, the Underlying Funds
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 China.
Investments in
Chinese securities, including certain
Hong Kong-listed and U.S.-listed securities, subject the Fund
or the Underlying Funds to risks specific to China. China may
be subject to considerable degrees of economic,
political and social instability. China is an emerging market and
demonstrates significantly higher volatility from time to time in
comparison to developed markets. Over the last few decades, the
Chinese government has undertaken reform of economic and
market practices and has expanded the sphere of private ownership
of property in China. However, Chinese markets generally continue
to experience inefficiency, volatility and pricing anomalies
resulting from governmental influence, a lack of publicly available
information and/or political and social instability.
Chinese companies
are also subject to the risk that Chinese authorities can
intervene in their operations and structure. Internal social
unrest or confrontations with neighboring countries,
including military conflicts in response to such events, may also disrupt
economic development in China and result in a greater risk of
currency fluctuations, currency non-convertibility, interest rate
fluctuations and higher rates of
inflation.
China has
experienced security concerns, such as terrorism and strained
international relations. Additionally, China is alleged to have participated
in state-sponsored cyberattacks against foreign companies and
foreign governments. Actual and threatened responses to such
activity and strained international relations, including
purchasing restrictions, sanctions, tariffs or cyberattacks on
the Chinese government or Chinese companies, may impact China’s
economy and Chinese issuers of securities in which the Fund
invests. Incidents involving China's or the region's security may cause
uncertainty in Chinese markets and may adversely affect
the Chinese economy and the Fund's investments.
Export growth continues to be a major driver of China's rapid
economic growth. Reduction in spending on Chinese products and
services, institution of additional tariffs or other trade
barriers (including as a result of heightened trade tensions or a trade war
between China and the U.S. or in response to actual or alleged
Chinese cyber activity) or a downturn in any of the economies of
China's key trading partners may have an adverse impact on
the Chinese economy.
Chinese companies,
including Chinese companies that are listed on U.S. exchanges,
are not subject to the same degree of regulatory
requirements, accounting standards or auditor
oversight as
companies in more developed countries. As a result, information about
the Chinese securities in which the Fund invests may be
less reliable or complete. Chinese companies with securities listed
on U.S. exchanges may be delisted if they do not meet U.S.
accounting standards and auditor oversight requirements,
which would significantly decrease the liquidity and value of the
securities. There may be significant obstacles to obtaining
information necessary for investigations into or litigation against
Chinese companies, and shareholders may have limited legal
remedies. The Fund is not actively managed and does not select
investments based on investor protection considerations.
Risk
of Investing in Developed Countries.
The
Fund’s and the Underlying Fund's
investment in developed country issuers may subject the Fund
to legal, regulatory, political, currency, security, economic and
other risks associated with developed countries. Developed
countries tend to represent a significant portion of the global economy and
have generally experienced slower economic growth than some
less developed countries. Certain developed countries have
experienced security concerns, such as war, terrorism and
strained international relations. Incidents involving a country’s or
region’s security may cause uncertainty in its markets and may
adversely affect its economy and the Fund’s or an Underlying
Fund's investments. In addition, developed countries may be
adversely impacted by changes to the economic conditions of
certain key trading partners, regulatory burdens, debt burdens and
the price or availability of certain
commodities.
Risk
of Investing in India. Investments in
Indian issuers involve risks that are
specific to India, including legal, regulatory, political, currency and
economic risks. Political and legal uncertainty, greater government
control over the economy, currency fluctuations or
blockage, and the risk of nationalization or expropriation of
assets may result in higher potential for losses. The securities
markets in India are relatively underdeveloped and may subject the
Fund or an Underlying Fund to higher transaction costs or greater
uncertainty than investments in more developed securities
markets.
Risk
of Investing in Japan. The Japanese
economy may be subject to
considerable degrees of economic, political and social instability, which
could have a negative impact on Japanese securities. Since
2000, Japan’s economic growth rate has generally remained
low relative to other advanced economies, and it may remain low
in the future. In addition, Japan is subject to the risk of natural
disasters, such as earthquakes, volcanic eruptions, typhoons and
tsunamis, which could negatively affect the Fund or an Underlying
Fund. Japan’s relations with its neighbors have at times been
strained, and strained relations may cause uncertainty in the Japanese
markets and adversely affect the overall Japanese economy.
Risk
of Investing in Russia. Investing in
Russian securities involves
significant risks, including legal, regulatory, currency and economic risks
that are specific to Russia. In addition, investing in Russian securities
involves risks associated with the settlement of portfolio
transactions and loss of the Fund’s or an Underlying
Fund's ownership
rights in its portfolio securities as a result of the system of share
registration and custody in Russia. Governments
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in the U.S. and
many other countries have imposed economic sanctions on
certain Russian individuals and Russian corporate and banking
entities. A number of jurisdictions may also institute broader sanctions
on Russia. Russia has issued a number of countersanctions,
some of which restrict the distribution of profits by limited
liability companies (e.g., dividends), and
prohibit Russian persons
from entering into transactions with designated persons from
“unfriendly
states” as well as the
export of raw materials or other
products from Russia to certain sanctioned persons. Russia
launched a large-scale invasion of Ukraine on February 24, 2022.
The extent and duration of the military action, resulting
sanctions and resulting future market disruptions, including declines
in its stock markets and the value of the ruble against the U.S.
dollar, are impossible to predict, but could be significant.
Disruptions caused by Russian military action or other actions (including
cyberattacks and espionage) or resulting actual and threatened
responses to such activity, including purchasing and financing
restrictions, boycotts or changes in consumer or purchaser
preferences, sanctions, import and export restrictions, tariffs or
cyberattacks on the Russian government, Russian companies, or
Russian individuals, including politicians, may impact Russia’s
economy and Russian companies in which the Fund or an Underlying
Fund invests. Actual and threatened responses to
Russian military action may also impact the markets for certain
Russian commodities, such as oil and natural gas, as well as other
sectors of the Russian economy, and are likely to have collateral
impacts on such sectors globally. Russian companies may be
unable to pay dividends and, if they pay dividends, the
Fund or an Underlying
Fund may be unable to receive them. As a
result of sanctions, the Fund is currently restricted from
trading in Russian securities, including those in its portfolio, while
the Underlying Indexes of the Underlying Funds have removed
Russian securities. It is unknown when, or if, sanctions may be
lifted or the Fund’s ability to trade in Russian securities will
resume.
Risk
of Investing in Saudi Arabia. The ability of
foreign investors (such as the
Fund or an Underlying
Fund) to invest in the securities of
Saudi Arabian issuers is relatively new. Such ability could be
restricted by the Saudi Arabian government at any time, and unforeseen
risks could materialize with respect to foreign ownership in such
securities. The economy of Saudi Arabia is dominated by
petroleum exports. A sustained decrease in petroleum prices
could have a negative impact on all aspects of the economy.
Investments in the securities of Saudi Arabian issuers involve
risks not typically associated with investments in securities of
issuers in more developed countries that may negatively affect
the value of the Fund’s or Underlying
Fund's investments. Such
heightened risks may include, among others, expropriation
and/or nationalization of assets, restrictions on and government
intervention in international trade, confiscatory taxation,
political instability, including authoritarian and/or military
involvement in governmental decision making, armed conflict, crime
and instability as a result of religious, ethnic and/or
socioeconomic unrest. There remains the possibility that instability in the
larger Middle East region could adversely impact the economy of
Saudi Arabia, and there is no assurance of political
stability in Saudi Arabia.
Saudi
Arabia Broker Risk. There are a
number of different ways of conducting
transactions in equity securities in the Saudi Arabian
market. The Fund (or an Underlying Fund) generally expects to conduct
its transactions in a manner in which the Fund would not be
limited by Saudi Arabian regulations to a single broker. However,
there may be a limited number of brokers who can provide
services to the Fund (or an Underlying Fund), which may have an
adverse impact on the prices, quantity or timing of Fund (or an
Underlying Fund) transactions.
Risk
of Investing in Taiwan. Investments in
Taiwanese issuers involve risks that
are specific to Taiwan, including legal, regulatory,
political, currency and economic risks. Political and economic
developments of Taiwan’s neighbors may have an adverse effect on
Taiwan’s economy. Specifically, Taiwan’s geographic
proximity and history of political contention with China have
resulted in ongoing tensions, which may materially affect the
Taiwanese economy and its securities
market.
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 or the Underlying Funds has exposure.
Securities
Lending Risk. The Fund or
an Underlying Fund may engage in
securities lending. Securities lending involves the risk that the Fund or
the Underlying Funds may lose money because the borrower of
the loaned securities fails to return the securities in a timely manner
or at all. The Fund or the Underlying Funds 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 or an Underlying
Fund.
Small-Capitalization
Companies Risk. Compared to mid-
and large-capitalization
companies, small-capitalization companies may be less stable
and more susceptible to adverse developments. In
addition, the securities of small-capitalization companies may be
more volatile and less liquid than those of mid- and
large-capitalization companies.
Tax
Risk. Because the Fund
is expected to invest in the Underlying Funds,
the Fund’s realized losses on sales of shares of an Underlying Fund
may be indefinitely or permanently deferred as “wash
sales.” Distributions of
short-term capital gains by an Underlying Fund
will be recognized as ordinary income by the Fund and would not
be offset by the Fund’s capital loss carryforwards, if
any. Capital loss carryforwards of an Underlying Fund, if any,
would not offset net capital gains of the
Fund.
Technology
Sector Risk. Technology
companies, including information
technology companies, may have limited
product lines, markets,
financial resources or personnel. Technology companies
typically face intense competition and potentially rapid product
obsolescence. They are also heavily dependent on intellectual
property rights and may be adversely affected by the loss or impairment
of those rights. Companies in the technology
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sector may face
increased government and regulatory scrutiny and may be subject
to adverse government or regulatory
action.
Utilities
Sector Risk. The utilities
sector is subject to significant government
regulation and oversight. Deregulation, however, may subject utility
companies to greater competition and may reduce their
profitability. Companies in the utilities sector may be adversely affected
due to increases in fuel and operating costs, rising costs of
financing capital construction and the cost of complying with
U.S. federal and state regulations, among other factors.
Valuation
Risk. The price the
Fund or an Underlying Fund could receive upon the
sale of a security or other asset may differ from the
Fund's or the Underlying
Fund's valuation of the security or other asset,
particularly for securities or other assets that trade in low volume or
volatile markets, or assets that are impacted by market disruption
events or that are valued using a fair value methodology as a
result of trade suspensions or for other reasons. In
addition, the value of the securities or other assets in
the Fund's or an
Underlying Fund's portfolio may change on days or during time
periods when shareholders will not be able to purchase or sell
the Fund's or an Underlying Fund's shares. Authorized
Participants who purchase or redeem shares of the Fund or an
Underlying Fund on days when the Fund or an Underlying Fund
is holding fair-valued securities or other instruments may
receive fewer or more shares, or lower or higher redemption
proceeds, than they would have received had the securities or
other instruments not been fair valued or been valued using a
different methodology. The ability to value investments may be
impacted by technological issues or errors by pricing services
or other third-party service
providers.
Performance
Information
As of the date of
the Prospectus, the Fund has not commenced operations and
therefore has no performance information to report.
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Management
Investment
Adviser. BlackRock Fund
Advisors.
Portfolio
Managers. Christopher Chung
and Suzanne Ly (the “Portfolio
Managers”) are primarily
responsible for the day-to-day management of the
Fund. Each Portfolio Manager supervises a portfolio
management team. Mr. Chung and Ms. Ly have been Portfolio Managers
of the Fund since inception (2023).
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 you 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 taxed 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 Funds
This Prospectus
contains important information about investing in the Funds. Please read this
Prospectus carefully before you make any investment
decisions. Additional information regarding the Funds is available at
www.iShares.com.
BFA is the
investment adviser to the Funds. Shares of each Fund are listed for trading on
NYSE Arca, Inc. (“NYSE
Arca”). The market
price for a share of a Fund
may be different from the Fund’s most recent NAV. Each Fund has its own CUSIP
number and exchange trading symbol.
ETFs are funds
that trade like other publicly traded securities and are designed to track an
index. Similar to shares of an index mutual fund, each share of a
Fund represents an ownership interest in an underlying portfolio of securities
and other instruments intended to track a market index.
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 Funds may be purchased or redeemed directly from the Funds 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 each Fund are listed on a national
securities exchange and trade in the secondary market at market prices that
change throughout the day.
Additional
Information on Principal Investment Strategies.
Each Fund is an
actively managed ETF and does not seek to replicate the performance of a
specified index. In selecting investments for each Fund, BFA uses
optimization techniques relative to each Fund's custom model benchmark (or
“Benchmark”) in order to
provide exposure to frontier markets
and select emerging markets while taking into account, among other things,
regulatory requirements, market limitations, and repatriation
restrictions as determined by BFA. As a result of the optimization techniques,
the performance of each Fund may materially differ from that
of their Benchmark.
Each Fund may also
invest in other securities, including but not limited to, cash and cash
equivalents, including shares of money market funds advised by
BFA or its affiliates. In certain situations or market conditions, each Fund may
temporarily depart from its normal investment
process, provided that the alternative, in the opinion of BFA, is consistent
with each Fund’s investment objective and is in the best interest of
each Fund.
Each Fund may lend
securities representing up to one-third of the value of each Fund’s total assets
(including the value of any collateral received).
Each Fund has no
stated minimum holding period for investments and may buy or sell securities
whenever Fund management sees an appropriate
opportunity in accordance with each Fund's investment objective. An investment
in each Fund is not a bank deposit and it is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency, BFA or any of its affiliates.
Investment
Time Horizon
Each Fund seeks to
provide for retirement outcomes based on quantitatively measured risk that
investors on average may be willing to accept given a
particular investment time horizon. An investor’s time horizon marks the point
when the investor plans to start making net withdrawals from
his or her investments, in other words, the time when they will cease making new
contributions to their investments. For many Fund
investors, their time horizon is tied to the date that they plan to retire and
begin gradually utilizing their investment to support themselves in
retirement.
As a general rule,
investors with a longer time horizon have a greater tolerance for risk than
investors with a shorter time horizon. Long-term investors are more
likely to accept a greater risk of loss in exchange for the potential to achieve
higher long-term returns. Each Fund has its own time horizon,
as described in the applicable “Principal
Investment Strategies” section in this
prospectus, which affects the targeted risk level of that Fund
and, in turn, its asset allocation.
The allocations
for the Retirement Fund reflect the expectation that investors in or near
retirement, or otherwise seeking current income, are willing to take
some risk of loss of their investment in hopes of achieving moderate long-term
growth of capital. The Retirement Fund is designed to help
balance three risk factors that investors face during retirement: market risk
(potential declines in market values), longevity risk (living
longer than expected) and inflation risk (loss of purchasing power).
Specifically, the Retirement Fund seeks to enable investors to maintain
consistent spending throughout their retirement while minimizing the risk of
exhausting their investment. There is no guarantee that the performance of
the Retirement Fund will be sufficient to enable this spending or that any one
spending rate is appropriate for all investors.
Investors may consider consulting with a financial advisor, financial planner,
CPA or other qualified professional to determine a sustainable
spending rate for their circumstances, and periodically reassess that spending
rate throughout retirement as the value of the investor’s
portfolio changes.
1
The investment
objective of each Fund follows. Each Fund is a fund of funds and seeks its
investment objective by investing primarily in Underlying Funds
that are iShares funds.
◾
iShares LifePath
Retirement ETF seeks to provide exposure to a conservative, broad portfolio of
ETFs covering global asset classes.
◾
Each of iShares
LifePath Target Date 2025 ETF, iShares LifePath Target Date 2030 ETF, iShares
LifePath Target Date 2035 ETF, iShares LifePath Target
Date 2040 ETF, iShares LifePath Target Date 2045 ETF, iShares LifePath Target
Date 2050 ETF, iShares LifePath Target Date 2055 ETF,
iShares LifePath Target Date 2060 ETF and iShares LifePath Target Date 2065 ETF
seeks to provide retirement outcomes through exposure
to a broad portfolio of ETFs which adjusts its allocation as it approaches its
target date.
The investment
objective of each Fund is a non-fundamental policy and may be changed by the
Board without shareholder approval. You should carefully
consider the asset allocation and risks of each Fund before deciding whether to
invest.
The Funds are
designed to offer individual investors comprehensive asset allocation strategies
tailored to the time when they expect to begin withdrawing
assets. Asset allocation is the distribution of investments among broad types of
asset classes: equity securities, fixed-income and money market
instruments. The equity and fixed-income securities will be accessed by
investment in the appropriate category of Underlying Funds
comprised of investment companies that seek to track the results of various
indexes.
Which
Fund to Consider
The LifePath ETFs
are designed to offer individual investors comprehensive asset allocation
strategies tailored to the time when they expect to retire or begin
withdrawing assets.
The number in the
name of most of the Funds represents a year — a “target
year” when you might
expect to begin withdrawing your money. Selecting the Fund
that may be most appropriate for your investment may be as simple as matching
your target year with the closest Fund target
year.
For example, you
are investing for retirement purposes, and you expect to retire at age 65. If
you are 45 years old, you have 20 years before retirement. By
adding 20 to the current year, you can define your “target
year.” If you expect to
retire in the year 2043, as in this example, you may conclude
that the 2045 Fund is the most appropriate Fund for you.
The investment mix
of the Funds gradually shifts from a greater concentration of higher-risk
investments (namely, equity index funds) to a greater
concentration of lower-risk investments (namely, bond index funds), thereby
making the Funds increasingly conservative.
In making your
investment decision, you should keep in mind:
◾
The Funds’
investment strategies derive from the risk tolerance of average investors with a
particular time horizon.
◾
The Funds’ time
horizons are based on the year in their name, except for the Retirement Fund,
which is designed for investors who are currently
withdrawing, or plan in the near future to begin withdrawing, a substantial
portion of their investment.
If you are willing
to accept a greater risk of loss in exchange for the potential to achieve higher
long-term returns, you may invest some or all of your assets in
a Fund with a longer time horizon. If you desire a more conservative investment
and are willing to forego some potential returns, you may
invest some or all of your assets in a Fund with a shorter time horizon. The
final choice is yours.
A Further
Discussion of Principal Investment Strategies
Overview
Each Fund
allocates and reallocates its assets among the Underlying Funds. The Funds with
longer time horizons invest a greater portion of their assets in
Underlying Funds designed to track particular equity indexes, which provide a
greater opportunity for capital appreciation over the long-term but
have a greater risk of loss. The Funds with shorter time horizons invest a
greater portion of their assets in Underlying Funds designed to track
particular fixed-income indexes, and in money market instruments, which
typically offer reduced risk and price volatility but forego some
potential returns. Accordingly, under normal circumstances, Funds with shorter
time horizons have lower expected returns than Funds with longer
time horizons. In addition to investing in Underlying Funds, each Fund may
borrow, lend its portfolio securities to brokers, dealers and
financial institutions, and invest the collateral in certain short-term
instruments either directly or through one or more joint accounts or money
market funds, as described in greater detail in the Funds’ combined statement of
additional information (“SAI”).
As each Fund
approaches its designated time horizon, it systematically seeks to reduce the
level of risk by allocating assets more conservatively
among the Underlying Funds. This systematic shift toward more conservative
investments is designed to reduce the risk of significant
reductions in the value of an investment in a Fund as it approaches its time
horizon.
2
The Retirement
Fund is in its “retirement
phase” and seeks to
maximize returns consistent with the risk that an average investor in
retirement may be
willing to accept. This does not mean, however, that it invests exclusively, or
primarily, in Underlying Funds that are money market funds.
Rather, because BFA believes that most investors are still willing to take some
risks in pursuing returns even while drawing on their investments,
almost all of the Retirement Fund’s assets will continue to be allocated to
Underlying Funds that track both equity and fixed-income
indexes.
In determining the
allocation of assets to the Underlying Funds, BFA uses a proprietary investment
model that analyzes securities market data, including
risk, asset class correlations, and expected returns, to provide portfolio
allocations among the asset classes represented by the Underlying
Funds. The allocations are periodically monitored and rebalanced in an effort to
maximize expected return for a given level of risk. In managing
the Funds, BFA focuses on long-term targets and objectives. The progression over
time of a Fund’s asset allocation to more conservative asset
classes is a relatively steady process resulting in only gradual changes to the
asset allocation from quarter to quarter. The Underlying Funds
seek to track a mix of equity and fixed-income indexes and may invest in money
market instruments. In order to match the performance of the
applicable benchmark index, certain Underlying Funds invest in REITs, foreign
securities, emerging markets, below investment-grade
bonds and derivatives, which are subject to additional risks, as described in
the “A Further
Discussion of Risk Factors”
section of this
prospectus and/or the “Investment Risks
and Considerations” section of the
SAI. The Funds and certain Underlying Funds may also lend
securities with a value up to one-third of their respective total assets to
financial institutions that provide cash or securities issued or
guaranteed by the U.S. Government as collateral.
The investment
model adjusts each Fund’s risk level by gradually making it more conservative as
the year in the Fund’s name approaches, except for the
Retirement Fund, which is already in its conservative phase. Under normal
circumstances, the Funds intend to invest primarily in affiliated
ETFs.
When a Fund
reaches its stated time horizon and enters its most conservative phase, the
allocation of its assets is expected to be similar to that of the
Retirement Fund. Such Fund and the Retirement Fund is expected to, subject to
approval by the Board, merge into a single fund.
Information About
the Underlying Funds
Six of the
Underlying Funds are Equity Funds – iShares Core MSCI Emerging Markets ETF,
iShares Core MSCI International Developed Markets ETF,
iShares Core U.S. REIT ETF, iShares Global Infrastructure ETF, iShares Russell
1000 ETF and iShares Russell 2000 ETF.
Seven of the
Underlying Funds are Fixed-Income Funds – iShares 0-5 Year TIPS Bond ETF,
iShares 1-5 Year Investment Grade Corporate Bond ETF, iShares
5-10 Year Investment Grade Corporate Bond ETF, iShares 10+ Year Investment Grade
Corporate Bond ETF, iShares 10-20 Year Treasury Bond
ETF, iShares MBS ETF and iShares U.S. Treasury Bond ETF.
Other than
BlackRock Cash Funds: Treasury (the “Underlying Money
Market Funds”), each Underlying
Fund are ETFs that are part of the iShares ETF family
of funds (“Underlying iShares
Funds”). Each of the
Underlying iShares Funds seeks investment results that correspond generally to the
performance, before fees and expenses, of its underlying index. As a result,
adverse performance of a particular security in an Underlying
iShares Fund’s portfolio will ordinarily not result in the elimination of the
security from the Underlying iShares Fund’s portfolio. Each Underlying
iShares Fund offers and issues shares at their net asset value per share only to
certain institutional investors in aggregations of a specified
number of shares, generally in exchange for a basket of securities included in
its underlying index, together with the deposit of a specified cash
payment. The shares for these Underlying iShares Funds are listed and traded on
national securities exchanges and also may be listed on
certain non-U.S. exchanges. BFA purchases shares on behalf of the Funds in the
secondary market.
The relative
weightings for each Fund in the various Underlying Funds will vary over time,
and BFA is not required to invest any Fund’s assets in each of the
Underlying Funds or in any particular percentage in any given Underlying Fund.
BFA may, in its discretion, add, eliminate or replace Underlying
Funds at any time without notice to shareholders.
In managing each
of the Underlying Funds, BFA uses a representative sampling index strategy.
Representative sampling is an indexing strategy that
involves investing in a representative sample of securities that collectively
have an investment profile similar to a specified benchmark index.
Securities selected for the Underlying Funds are expected to have, in the
aggregate, investment characteristics (based on factors such as
market capitalization and industry weightings), fundamental characteristics
(such as return variability and yield) and liquidity measures similar
to those of the applicable underlying index. The Underlying Funds may or may not
hold all of the securities that are included in their
respective underlying indexes and may hold certain securities that are not
included in their respective underlying indexes. Additional information
regarding the Underlying Funds and their principal investment
strategies is provided below.
Each Fund
currently expects to invest in some or all of the Underlying Funds described
below:
3
Equity
Funds
iShares
Core MSCI Emerging Markets ETF
The iShares Core
MSCI Emerging Markets ETF seeks to track the investment results of the MSCI
Emerging Markets Investable Market Index (IMI) (the
“Underlying
Index”), which is
designed to measure large-, mid- and small-capitalization equity market
performance in the global emerging markets.
As of August 31, 2023, the Underlying Index consisted of securities from the
following 24 emerging market countries: Brazil, Chile,
China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia,
Kuwait, Malaysia, Mexico, Peru, the Philippines, Poland, Qatar,
Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey and the United
Arab Emirates. As of August 31, 2023, a significant
portion of the Underlying Index is represented by securities of companies in the
financials and technology industries or sectors. The components of
the Underlying Index are likely to change over time.
“MSCI Emerging
Markets Investable Market Index (IMI)” is a servicemark
of MSCI Inc. and has been licensed for use for certain purposes by BlackRock Fund
Advisors or its affiliates. iShares® and
BlackRock® are registered
trademarks of BlackRock Fund Advisors and its affiliates. The
Fund is not sponsored, endorsed, sold, or promoted by MSCI Inc., nor does MSCI
Inc. make any representation regarding the advisability
of investing in the Fund.
iShares
Core MSCI International Developed Markets ETF
The iShares Core
MSCI International Developed Markets ETF seeks to track the investment results
of the MSCI World ex USA Investable Market Index (the
“Underlying
Index”), which has been
developed by MSCI Inc. (the “Index
Provider” or “MSCI”) as an equity
benchmark for international
stock performance in non-U.S. developed markets. The Underlying Index is free
float-adjusted, market cap-weighted and is designed to
measure large-, mid- and small-capitalization equity market performance. It
includes stocks from North America, Europe, Australasia and
the Far East and, as of August 31, 2023, consisted of securities from the
following 26 developed market countries or regions: Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Guernsey, Hong
Kong, Ireland, Isle of Man, Israel, Italy, Japan, Luxembourg, the
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, United Kingdom (the “U.K.”) and the
U.S.
As of August 31, 2023, a significant portion of the Underlying Index is
represented by securities of companies in the financials and industrials
industries or sectors. The components of the Underlying Index are likely to
change over time.
“MSCI World ex USA
Investable Market Index” is a servicemark
of MSCI Inc. and has been licensed for use for certain purposes by BlackRock Fund
Advisors or its affiliates. iShares® and
BlackRock® are registered
trademarks of BlackRock Fund Advisors and its affiliates. The
Fund is not sponsored, endorsed, sold, or promoted by MSCI Inc., nor does MSCI
Inc. make any representation regarding the advisability
of investing in the Fund.
iShares
Core U.S. REIT ETF
The iShares Core
U.S. REIT ETF seeks to track the investment results of the FTSE Nareit Equity
REITs Index (the “Underlying
Index”), which
measures the
performance of U.S.-listed equity real estate investment trusts (“REITs”), excluding
infrastructure REITs, mortgage REITs, and timber REITs. As
of August 31, 2023, the Underlying Index is represented by the securities of 141
REITs, which invest in U.S. real estate markets and may
invest in non-U.S. real estate markets. The components of the Underlying Index
may change over time.
“FTSE®” is a trademark of
the London Stock Exchange Group companies and “NAREIT®” is a trademark of
the National Association of Real Estate
Investment Trusts (“NAREIT”) and “EPRA®” is a trademark of
the European Public Real Estate Association (“EPRA”) and each is
used
by FTSE International Limited (“FTSE”) under license.
The FTSE Nareit Equity REITs Index is calculated by FTSE. Neither FTSE,
Euronext N.V.,
NAREIT nor EPRA sponsor, endorse or promote this product and are not in any way
connected to it and do not accept any liability. All
intellectual property rights within the index values and constituent list vest
in FTSE, Euronext N.V., NAREIT and EPRA. BlackRock Fund
Advisors and its affiliates have obtained full license from FTSE to use such
intellectual property rights in the creation of this product.
These marks have been licensed for use for certain purposes by BlackRock Fund
Advisors and its affiliates. iShares® and BlackRock® are registered
trademarks of BlackRock Fund Advisors and its affiliates.
iShares
Global Infrastructure ETF
The iShares Global
Infrastructure ETF seeks to track the investment results of the S&P Global
Infrastructure IndexTM (the “Underlying
Index”), which is designed
to track performance of the stocks of large infrastructure companies in
developed or emerging markets (only developed market listings
are eligible for stocks of issuers domiciled in emerging markets). The
Underlying Index includes companies involved in utilities, energy
and transportation infrastructure, such as the management or ownership of oil
and gas storage and transportation; airport services; highways
and rail tracks; marine ports and services; and electric, gas and water
utilities. As of August 31, 2023, the Underlying Index was
comprised of securities of companies in the following countries: Australia,
Belgium, Brazil, Canada, China, Cyprus, Denmark,
4
France, Germany,
Hong Kong, Italy, Japan, Luxembourg, Mexico, New Zealand, Norway, Singapore,
South Korea, Spain, Switzerland, the United Kingdom
(the “U.K.”) and the U.S. As
of August 31, 2023, a significant portion of the Underlying Index is represented
by securities of companies in the
energy, industrials, infrastructure and utilities industries or sectors. The
components of the Underlying Index are likely to change over
time.
The “S&P Global
Infrastructure IndexTM” is a product of
S&P Dow Jones Indices LLC or its affiliates (“SPDJI”), and has been
licensed for use by BlackRock
Fund Advisors (“BFA”) or its
affiliates. Standard & Poor’s® and
S&P® are registered
trademarks of Standard & Poor’s Financial Services
LLC (“S&P”); Dow
Jones® is a registered
trademark of Dow Jones Trademark Holdings LLC (“Dow
Jones”) and these
trademarks have
been licensed for use by SPDJI and sublicensed for certain purposes by iShares
Trust. iShares® and
BlackRock® are registered
trademarks of BFA and its affiliates. The Fund is not sponsored, endorsed, sold
or promoted by SPDJI, Dow Jones, S&P or their respective
affiliates, and none of such parties makes any representation regarding the
advisability of investing in such product(s); nor do they have any
liability for any errors, omissions, or interruptions of the S&P Global
Infrastructure Index.
iShares
Russell 1000 ETF
The iShares
Russell 1000 ETF seeks to track the investment results of the Russell
1000® Index (the
“Underlying
Index”), which measures
the performance of the
large- and mid-capitalization sectors of the U.S. equity market, as defined by
FTSE Russell (the “Index
Provider” or “Russell”). The Underlying
Index is a subset of the Russell 3000 Index, which measures the performance of
the broad U.S. equity market, as defined by
Russell. The Underlying Index is a float-adjusted capitalization-weighted index
of equity securities issued by the approximately 1,016 largest
issuers in the Russell 3000 Index. As of August 31, 2023, the Underlying Index
represented approximately 95% of the total market
capitalization of the Russell 3000 Index. As of August 31, 2023, a significant
portion of the Underlying Index is represented by securities of
companies in the technology industry or sector. The components of the Underlying
Index are likely to change over time.
“Russell” and “Russell
1000® Index” are registered
trademarks of FTSE Russell and have been licensed for use for certain purposes
by BlackRock Fund
Advisors or its affiliates. iShares® and
BlackRock® are registered
trademarks of BlackRock Fund Advisors and its affiliates.
iShares
Russell 2000 ETF
The iShares
Russell 2000 ETF seeks to track the investment results of the Russell
2000® Index (the
“Underlying
Index”), which measures
the performance of the
small-capitalization sector of the U.S. equity market, as defined by FTSE
Russell (the “Index
Provider” or “Russell”). The
Underlying Index
is a subset of the Russell 3000 Index, which measures the performance of the
broad U.S. equity market, as defined by Russell. The
Underlying Index is a float-adjusted capitalization-weighted index of equity
securities issued by the approximately 2,001 smallest issuers in the
Russell 3000 Index. As of August 31, 2023, the Underlying Index represented
approximately 5% of the total market capitalization of
the Russell 3000 Index. As of August 31, 2023, a significant portion of the
Underlying Index is represented by securities of companies in the
financials, healthcare and industrials industries or sectors. The components of
the Underlying Index are likely to change over time.
“Russell” and “Russell
2000® Index” are registered
trademarks of FTSE Russell and have been licensed for use for certain purposes
by BlackRock Fund
Advisors or its affiliates. iShares® and
BlackRock® are registered
trademarks of BlackRock Fund Advisors and its affiliates.
Fixed-Income
Funds
iShares
0-5 Year TIPS Bond ETF
The iShares 0-5
Year TIPS Bond ETF seeks to track the investment results of the ICE U.S.
Treasury 0-5 Year Inflation Linked Bond Index (the “Underlying
Index”), which tracks
the performance of inflation-protected public obligations of the U.S. Treasury,
commonly known as “TIPS,”
that
have a remaining maturity of less than or equal to five years. TIPS are
securities issued by the U.S. Treasury that are designed to provide inflation
protection to investors. TIPS are income-generating instruments whose interest
and principal payments are adjusted for inflation—a sustained increase
in prices that erodes the purchasing power of money. The inflation adjustment,
which is typically applied monthly to the principal of the
bond, follows a designated inflation index, the non-seasonally adjusted Consumer
Price Index for All Urban Consumers (“CPI”), and TIPS'
principal payments are adjusted according to changes in the CPI. A fixed coupon
rate is applied to the inflation-adjusted principal so that,
as inflation rises, both the principal value and the interest payments increase.
This can provide investors with a hedge against inflation,
as it helps preserve the purchasing power of an investment. Because of this
inflation adjustment feature, inflation-protected bonds typically
have lower yields than conventional fixed-rate bonds.
Qualifying
securities must have less than or equal to five years remaining to final
maturity as of the rebalancing date and at least $300 million of outstanding
face value, excluding amounts held by the Federal Reserve System Open Market
Account (“SOMA”). In addition,
the securities
5
in the Underlying
Index must have a fixed coupon schedule and must be denominated in U.S. dollars.
Excluded from the Underlying Index are government agency
debt with or without a government guarantee, securities issued or marketed
primarily to retail investors, floating rate notes, cash
management and Treasury bills, original issue zero coupon securities and
Separate Trading of Registered Interest and Principal Securities (or
“STRIPs”). However, the
amounts outstanding of qualifying securities in the Underlying Index are not
reduced by any portions of such securities
that have been stripped after inclusion in the Underlying Index. Index
constituents are market capitalization weighted based on amounts
outstanding reduced by amounts held by the Federal Reserve SOMA. The Underlying
Index is rebalanced on the last calendar day of
each month.
ICE® is a registered
trademark of Intercontinental Exchange, Inc. or its affiliates, and is used by
ICE Data Indices, LLC (“IDI”) with
permission under
license. This trademark, together with the ICE U.S. Treasury 0-5 Year Inflation
Linked Bond Index, has been licensed from IDI for use
for certain purposes by BlackRock Fund Advisors or its affiliates in connection
with the Fund. iShares® and
BlackRock®
are
registered trademarks of BlackRock Fund Advisors and its
affiliates.
iShares
1-5 Year Investment Grade Corporate Bond ETF
The iShares 1-5
Year Investment Grade Corporate Bond ETF seeks to track the investment results
of the ICE® BofA® 1-5 Year US
Corporate Index (the
“Underlying
Index”), which measures
the performance of investment-grade corporate bonds of both U.S. and non-U.S.
issuers that are U.S.
dollar-denominated and publicly issued in the U.S. domestic market and have a
remaining maturity of greater than or equal to one year and less than
five years. As of August 31, 2023, a significant portion of the Underlying Index
is represented by securities of companies in the financials
industry or sector. The components of the Underlying Index are likely to change
over time.
The Underlying
Index consists of investment-grade corporate bonds of both U.S. and non-U.S.
issuers that have a remaining maturity of greater than or
equal to one year and less than five years, have been publicly issued in the
U.S. domestic market, and have $250 million or more of
outstanding face value. The Index Provider deems securities as “investment
grade” based on the
average rating of Fitch Ratings, Inc. (BBB or better),
Moody’s Investors Service, Inc. (Baa or better) and/or Standard &
Poor's® Financial
Services LLC, a subsidiary of S&P Global (BBB or better).
In addition, the securities in the Underlying Index must be denominated in U.S.
dollars and must be fixed-rate. Excluded from the Underlying
Index are equity-linked securities, securities in legal default, hybrid
securitized corporate bonds, Eurodollar bonds (U.S.
dollar-denominated securities not
issued in the U.S. domestic market), taxable and tax-exempt U.S. municipal
securities and dividends-received-deduction-eligible securities. The
Underlying Index is market capitalization-weighted, and the securities in the
Underlying Index are updated on the last
calendar day of each month. Under normal circumstances, the Fund will seek to
maintain a weighted average maturity that is less than or equal to
three years. Weighted average maturity is a U.S. dollar-weighted average of the
remaining term to maturity of the underlying securities in the
Fund’s portfolio.
ICE® is a trademark of
ICE Data Indices, LLC or its affiliates and has been licensed for use for
certain purposes by BlackRock Fund Advisors or its
affiliates. BofA® is a registered
trademark of Bank of America Corporation licensed by Bank of America Corporation
and its affiliates
(“BofA”), and may not be
used without BofA’s prior written approval. iShares® and
BlackRock® are registered
trademarks of BlackRock Fund
Advisors and its affiliates.
iShares
5-10 Year Investment Grade Corporate Bond ETF
The Fund seeks to
track the investment results of the ICE® BofA® 5-10 Year US
Corporate Index (the “Underlying
Index”), which measures
the
performance of investment-grade corporate bonds of both U.S. and non-U.S.
issuers that are U.S. dollar-denominated and publicly issued in the U.S.
domestic market and have a remaining maturity of greater than or equal to five
years and less than ten years. As of August 31, 2023, a
significant portion of the Underlying Index is represented by securities of
companies in the financials industry or sector. The components of the
Underlying Index are likely to change over time.
The Underlying
Index consists of investment-grade corporate bonds of both U.S. and non-U.S.
issuers that have a remaining maturity of greater than or
equal to five years and less than ten years, have been publicly issued in the
U.S. domestic market, and have $250 million or more of
outstanding face value. The Index Provider deems securities as “investment
grade” based on the
average rating of Fitch Ratings, Inc. (BBB or better),
Moody’s Investors Service, Inc. (Baa or better) and/or Standard &
Poor's® Financial
Services LLC, a subsidiary of S&P Global (BBB or better).
In addition, the securities in the Underlying Index must be denominated in U.S.
dollars and must be fixed-rate. Excluded from the Underlying
Index are equity-linked securities, securities in legal default, hybrid
securitized corporate bonds, Eurodollar bonds (U.S.
dollar-denominated securities not
issued in the U.S. domestic market), taxable and tax-exempt U.S. municipal
securities and dividends-received-deduction-eligible securities. The
Underlying Index is market capitalization-weighted, and the securities in the
Underlying Index are updated on the last
calendar day of each month. Under normal circumstances, the Fund will seek to
maintain a weighted average maturity that is greater than three
years and lower than 10 years. Weighted average maturity is a U.S.
dollar-weighted average of the remaining term to maturity of the
underlying securities in the Fund’s portfolio.
6
ICE® is a trademark of
ICE Data Indices, LLC or its affiliates and has been licensed for use for
certain purposes by BlackRock Fund Advisors or its
affiliates. BofA® is a registered
trademark of Bank of America Corporation licensed by Bank of America Corporation
and its affiliates
(“BofA”), and may not be
used without BofA’s prior written approval. iShares® and
BlackRock® are registered
trademarks of BlackRock Fund
Advisors and its affiliates.
iShares
10+ Year Investment Grade Corporate Bond ETF
The iShares 10+
Year Investment Grade Corporate Bond ETF seeks to track the investment results
of the ICE® BofA® 10+ Year US
Corporate Index (the
“Underlying
Index”), which measures
the performance of investment-grade corporate bonds of both U.S. and non-U.S.
issuers that are U.S.
dollar-denominated and publicly issued in the U.S. domestic market and have a
remaining maturity of greater than or equal to ten years. As of
August 31, 2023, a significant portion of the Underlying Index is represented by
securities of companies in the financials industry or sector. The
components of the Underlying Index are likely to change over time.
The Underlying
Index consists of investment-grade corporate bonds of both U.S. and non-U.S.
issuers that have a remaining maturity of greater than or
equal to ten years, have been publicly issued in the U.S. domestic market, and
have $250 million or more of outstanding face value. The Index
Provider deems securities as “investment
grade” based on the
average rating of Fitch Ratings, Inc. (BBB or better), Moody’s Investors Service,
Inc. (Baa or better) and/or Standard & Poor's® Financial
Services LLC, a subsidiary of S&P Global (BBB or better). In addition, the
securities in the Underlying Index must be denominated in U.S. dollars and must
be fixed-rate. Excluded from the Underlying Index are
equity-linked securities, securities in legal default, hybrid securitized
corporate bonds, Eurodollar bonds (U.S. dollar-denominated securities not
issued in the U.S. domestic market), taxable and tax-exempt U.S. municipal
securities and dividends-received-deduction-eligible securities. The
Underlying Index is market capitalization-weighted, and the securities in the
Underlying Index are updated on the last calendar day of
each month. Under normal circumstances, the Fund will seek to maintain a
weighted average maturity that is greater than ten years.
Weighted average maturity is a U.S. dollar-weighted average of the remaining
term to maturity of the underlying securities in the Fund's
portfolio.
ICE® is a trademark of
ICE Data Indices, LLC or its affiliates and has been licensed for use for
certain purposes by BlackRock Fund Advisors or its
affiliates. BofA® is a registered
trademark of Bank of America Corporation licensed by Bank of America Corporation
and its affiliates
(“BofA”), and may not be
used without BofA’s prior written approval. iShares® and
BlackRock® are registered
trademarks of BlackRock Fund
Advisors and its affiliates.
iShares
10-20 Year Treasury Bond ETF
The iShares 10-20
Year Treasury Bond ETF seeks to track the investment results of the
ICE® U.S. Treasury
10-20 Year Bond Index (the “Underlying
Index”), which measures
the performance of public obligations of the U.S. Treasury that have a remaining
maturity of greater than or equal to
ten years and less than twenty years.
The Underlying
Index consists of publicly-issued U.S. Treasury securities that have a remaining
maturity of greater than or equal to ten years and less than
twenty years and have $300 million or more of outstanding face value, excluding
amounts held by the Federal Reserve System (the “Fed”). In addition,
the securities in the Underlying Index must be fixed-rate and denominated in
U.S. dollars. Excluded from the Underlying Index
are inflation-linked securities, Treasury bills, cash management bills, any
government agency debt issued with or without a government
guarantee and zero-coupon issues that have been stripped from coupon-paying
bonds. The Underlying Index is market value weighted, and the
securities in the Underlying Index are updated on the last business day of each
month.
ICE® is a trademark of
ICE Data Indices, LLC or its affiliates and has been licensed for use for
certain purposes by BlackRock Fund Advisors or its
affiliates. iShares® and
BlackRock® are registered
trademarks of BlackRock Fund Advisors and its affiliates.
iShares
MBS ETF
The Fund seeks to
track the investment results of the Bloomberg U.S. MBS Index (the “Underlying
Index”), which measures
the performance of
investment-grade (as determined by Bloomberg Index Services Limited (the
“Index
Provider” or “Bloomberg”)) mortgage-backed
pass-through securities
(“MBS”) issued or
guaranteed by U.S. government agencies or sponsored entities. The Underlying
Index includes fixed-rate MBS issued by the
Government National Mortgage Association (“GNMA” or “Ginnie
Mae”), Federal
National Mortgage Association (“Fannie
Mae”) and Federal Home
Loan Mortgage Corporation (“Freddie
Mac”) that have 30-,
20-, or 15-year maturities. All securities in the Underlying Index
must have a remaining weighted average maturity of at least one year. In
addition, the securities in the Underlying Index must be
denominated in U.S. dollars and must be non-convertible. The Underlying Index is
market capitalization-weighted and the securities in the Underlying
Index are updated on the last business day of each month.
As of August 31,
2023, approximately 100% of the bonds represented in the Underlying Index were
U.S. agency MBS. Most transactions in MBS occur through
standardized contracts for future delivery in which the exact mortgage pools to
be delivered are not specified until a few
7
days prior to
settlement (to-be-announced (“TBA”) transactions).
The Fund may enter into such contracts for fixed-rate pass-through securities on a
regular basis. The Fund, pending settlement of such contracts, will invest its
assets in liquid, short-term instruments, including shares of money
market funds advised by BFA or its affiliates. The Fund will assume its pro rata
share of the fees and expenses of any money market fund that
it may invest in, in addition to the Fund's own fees and expenses. The Fund may
also acquire interests in mortgage pools through means
other than such standardized contracts for future delivery.
Bloomberg® is a trademark of
Bloomberg Finance L.P. and its affiliates (collectively, “Bloomberg”). “Bloomberg U.S. MBS
Index” is a trademark of
Bloomberg and its licensors and has been licensed for use for certain purposes
by BlackRock Fund Advisors or its affiliates. iShares® and
BlackRock® are registered
trademarks of BlackRock Fund Advisors and its affiliates.
iShares
U.S. Treasury Bond ETF
The iShares U.S.
Treasury Bond ETF seeks to track the investment results of the ICE U.S. Treasury
Core Bond Index (the “Underlying
Index”), which measures the
performance of public obligations of the U.S. Treasury.
The Underlying
Index includes publicly-issued U.S. Treasury securities that have a remaining
maturity greater than one year and less than or equal to thirty
years and have $300 million or more of outstanding face value, excluding amounts
held by the Federal Reserve System (the “Fed”) Open Market
Account or bought at issuance by the Fed. As of August 31, 2023, the
dollar-weighted average maturity of the Underlying Index was 7.8
years. In addition, the securities in the Underlying Index must be fixed-rate
and denominated in U.S. dollars. Excluded from the Underlying Index
are inflation-linked securities, cash management bills, Treasury bills, any
government agency debt issued with or without a government
guarantee and zero coupon issues that have been stripped from coupon-paying
bonds. The Underlying Index is weighted by market
capitalization excluding amounts held by the Fed Open Market Account or bought
at issuance by the Fed, and the securities in the Underlying Index
are updated on the last business day of each month.
ICE® is a registered
trademark of Intercontinental Exchange, Inc. or its affiliates, and is used by
ICE Data Indices, LLC (“IDI”) with
permission under
license. This trademark, together with the ICE U.S. Treasury Core Bond Index,
has been licensed from IDI for use for certain purposes
by BlackRock Fund Advisors or its affiliates in connection with the Fund.
iShares® and
BlackRock® are registered
trademarks of
BlackRock Fund Advisors and its affiliates.
Money Market
Fund
BlackRock
Cash Funds: Treasury
BlackRock Cash
Funds: Treasury seeks current income as is consistent with liquidity and
stability of principal. The fund seeks to achieve its investment
objective by investing at least 99.5% of its total assets in cash, U.S. Treasury
bills, notes and other direct obligations of the U.S. Treasury, and
repurchase agreements secured by such obligations or cash. The fund invests in
securities maturing in 397 days or less (with certain
exceptions) and the portfolio will have a dollar-weighted average maturity of 60
days or less and a dollar-weighted average life of 120 days or less. In
addition, the fund may invest in variable and floating rate instruments and
transact in securities on a when-issued, delayed delivery or
forward commitment basis.
A Further
Discussion of Principal Risks
Each 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. Each Fund may be
exposed to these risks directly or indirectly through the Fund's
investments in the Underlying Funds. You could lose all or part of your
investment in the Funds, and the Funds could underperform other investments.
Certain key risks are prioritized below (with others following in alphabetical
order), but the relative significance of any risk is difficult to
predict and may change over time. You should review each risk factor carefully.
Each Fund discloses its portfolio holdings daily at
www.iShares.com.
Equity
Securities Risk. Certain
Underlying Funds invest in equity securities, which are subject to changes in
value that may be attributable to market
perception of a particular issuer or to general stock market fluctuations that
affect all issuers. Investments in equity securities may be more volatile
than investments in other asset classes. Certain Underlying Funds invest
in common stocks, which generally subject their holders to more
risks than preferred stocks and debt securities because common stockholders'
claims are subordinated to those of holders of preferred
stocks and debt securities upon the bankruptcy of the issuer.
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 a Fund’s or an
8
Underlying 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 such Fund’s or an Underlying Fund's income
level or share price, which may adversely affect the value of each Fund or
an Underlying Fund.
Interest
Rate Risk. If interest rates
rise, the value of fixed-income securities or other instruments held by the
Funds or an Underlying Fund 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 Funds or an
Underlying Fund invests a substantial portion of its assets in
fixed-income securities with longer duration, rising interest rates may cause
the value of the Funds' or an Underlying Fund's investments to
decline significantly, which may adversely affect the value of each Fund or
an Underlying 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 Funds or an
Underlying 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, a 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 that fall below zero, may have
unpredictable effects on markets, result in heightened market volatility and
detract from a 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 Funds or an Underlying Fund may have a
very low or even negative yield. A low or negative yield
would cause the Funds or an Underlying Fund to lose money in certain conditions
and over certain time periods. Central banks may increase their
short-term policy rates or begin phasing out, or “tapering,” accommodative
monetary policy facilities in the future. 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 a Fund’s investments.
U.S.
Treasury Obligations Risk. U.S. Treasury
obligations may differ from other securities in their interest rates,
maturities, times of issuance and other
characteristics. Similar to other issuers, changes to the financial condition or
credit rating of a government may cause the value of a Fund's
or an Underlying Fund's U.S. Treasury obligations to decline. U.S. Treasury
securities are rated AA+ by S&P Global Ratings. A downgrade of the
rating of U.S. Treasury securities may cause the value of a Fund's or an
Underlying Fund's U.S. Treasury obligations to decline. Because
U.S. government debt obligations are often used as a benchmark for other
borrowing arrangements, a downgrade could also result in
higher interest rates for a range of borrowers, cause disruptions in the
international bond markets and have a substantial adverse effect on
the U.S. and global economy.
A high national
debt level may increase market pressures to meet government funding needs, which
may drive debt cost higher and lead the government to
issue additional debt, thereby increasing refinancing risk. A high national debt
also raises concerns that the U.S. government will not be able
to make principal or interest payments when they are due. If market participants
determine that U.S. sovereign debt levels have become
unsustainable, the value of the U.S. dollar could decline, thus increasing
inflationary pressures, particularly with respect to services
outsourced to non-U.S. providers and imported goods and constrain or prevent the
U.S. government from implementing effective countercyclical
fiscal policy in economic downturns. Direct obligations of the U.S. Treasury
have historically involved little risk of loss of principal if held
to maturity. However, due to fluctuations in interest rates, the market value of
such securities may vary during the period that shareholders own
shares of a Fund. Notwithstanding that U.S. Treasury obligations are backed by
the full faith and credit of the United States,
circumstances could arise that could prevent the timely payment of interest or
principal, such as reaching the legislative “debt ceiling.” Such non-payment
would result in losses to a Fund and substantial negative consequences for the
U.S. economy and the global financial
system.
Allocation
Risk.
Each Underlying Fund’s ability to achieve its investment objective depends upon
BFA’s ability to develop a model that accurately
assesses each Fund’s asset class allocation and selects the best mix of
Underlying Funds and other ETFs. There is a risk that an index provider’s
evaluations and assumptions regarding asset classes or Underlying Funds, which
are utilized as inputs in the model, may be incorrect in view
of actual market conditions. Each Underlying Fund’s underlying index may
overweight certain asset classes relative to market
capitalization-weighted benchmarks. Each Underlying Fund will underperform such
benchmarks when asset classes that are overweighted in
each Underlying Fund’s underlying index underperform other asset
classes.
Investment
in Underlying Funds Risk. Each Fund invests
substantially all of its assets in the Underlying
Funds, so each Fund’s investment performance is
directly related to the performance of the Underlying Funds. Each Fund may also
invest in other funds, including money market funds. Each
Fund’s NAV will change with changes in the value of the Underlying Funds and
other securities in which each Fund invests
9
based on their
market valuations. An investment in a Fund will entail more direct and indirect
costs and expenses than a direct investment in the Underlying
Funds. For example, in addition to the expenses of a Fund, a Fund indirectly
pays a portion of the expenses (including operating expenses
and management fees) incurred by the Underlying Funds, although some of such
fees will be offset by the fee waiver by BFA.
One Underlying
Fund may buy the same securities that another Underlying Fund sells. Also, an
investor in a Fund may receive taxable gains from portfolio
transactions by the Underlying Funds, as well as taxable gains from transactions
in shares of the Underlying Funds held by the Fund.
As the Underlying
Funds, or a Fund's allocations among the Underlying Funds, change from time to
time, or to the extent that the total annual fund operating
expenses of the Underlying Funds change, the weighted average operating expenses
borne by a Fund may increase or decrease.
Affiliated
Fund Risk. In managing the
Funds, BFA has the ability to select Underlying Funds and substitute Underlying
Funds with other ETFs that it believes
will achieve each Fund’s objective. BFA may be subject to potential conflicts of
interest in selecting Underlying Funds and substituting
Underlying Funds with other ETFs because the fees paid to BFA by some Underlying
Funds and other ETFs managed by BFA may be higher than the
fees paid by other Underlying Funds. If an Underlying Fund or other ETF holds
interests in an affiliated fund, the Funds may be prohibited from
purchasing shares of that Underlying Fund or other ETF.
Retirement
Income Risk. The Funds do not
provide a guarantee that sufficient capital appreciation will be achieved to
provide adequate income at and
through retirement. The Funds also do not ensure that you will have assets in
your account sufficient to cover your retirement expenses; this
will depend on the amount of money you have invested in the Funds, the length of
time you have held your investment, the returns of the
markets over time, the amount you spend in retirement, and your other assets and
income sources.
Selection
Risk.
Selection risk is the risk that the securities selected by the Funds’ management
will underperform the markets, the relevant indices or the
securities selected by other funds with similar investment objectives and
investment strategies. This means you may lose money.
Market
Risk.
Each Fund and the Underlying
Funds could lose money over short periods due to short-term market movements and
over longer periods
during more prolonged market downturns. The value of a financial instrument or
other asset may decline due to changes in general market
conditions, economic trends or events that are not specifically related to the
particular instrument or asset, or factors that affect one or more
issuers, counterparties, exchanges, countries, regions, markets, industries,
sectors or asset classes, as applicable. Local, regional or global
events such as war, acts of terrorism, public health issues, recessions, the
prospect or occurrence of a sovereign default or other financial
crisis, or other events could have a significant impact on the Funds, the
Underlying Funds and their investments and could result in
increased premiums or discounts to a Fund’s or Underlying
Fund's NAV. Changes in market and economic conditions generally do not have the same
impact on all types of instruments and assets.
Asian
Economic Risk. Certain Asian
economies have experienced rapid growth and industrialization in recent years,
but there is no assurance that
this growth rate will be maintained. Other Asian economies, however, have
experienced high inflation, high unemployment, currency
devaluations and restrictions, and over-extension of credit. Geopolitical
hostility, political instability, and economic or environmental
events in any one Asian country may have a significant economic effect on the
entire Asian region, as well as on major trading partners outside
Asia. Any adverse event in the Asian markets may have a significant adverse
effect on some or all of the economies of the countries in which
a Fund or an Underlying Fund invests. In particular, China is a key trading
partner of many Asian countries and any changes in trading
relationships between China and other Asian countries may affect the region as a
whole. Many Asian countries are subject to political risk,
including political instability, corruption and regional conflict with
neighboring countries. North Korea and South Korea each have substantial
military capabilities, and historical tensions between the two countries present
the risk of war. Escalated tensions involving the two countries
and any outbreak of hostilities between the two countries, or even the threat of
an outbreak of hostilities, could have a severe adverse
effect on the entire Asian region. Certain Asian countries have developed
increasingly strained relationships with the U.S. or with China, and if
these relations were to worsen, they could adversely affect Asian issuers that
rely on the U.S. or China for trade. In addition, many
Asian countries are subject to social and labor risks associated with demands
for improved political, economic and social conditions. These
risks, among others, may adversely affect the value of a Fund's or an Underlying
Fund's investments.
Asset
Class Risk. The
securities and other assets
in a Fund’s or an Underlying 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 a Fund to
underperform other investment vehicles that invest in different asset
classes.
10
Authorized
Participant Concentration Risk. Only an Authorized
Participant may engage in creation or redemption transactions directly
with
a Fund, and none of those Authorized Participants is obligated to engage in
creation and/or redemption transactions. Each 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 a 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.
Call
Risk.
During periods of falling interest rates, an issuer of a callable bond held by a
Fund and an Underlying Fund may “call” or repay the
security before
its stated maturity, and a Fund and an Underlying Fund may have to reinvest the
proceeds in securities with lower yields, which would result
in a decline in a Fund’s income, or in securities with greater risks or with
other less favorable features.
Concentration
Risk.
Each 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 a Fund's or an Underlying
Fund's investments are concentrated in the securities
and/or other assets a particular issuer or issuers, country, group of countries,
region, market, industry, group of industries, project types,
group of project types, sector, market segment or asset class. Each 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.
Currency
Risk.
Because the Funds' and the Underlying Funds' NAVs are determined on the
basis of the U.S. dollar, investors may lose money if a
currency of a non-U.S. market in which a Fund or an Underlying
Fund invests depreciates against the U.S. dollar or if there are
delays or limits
on repatriation of such currency, even if such currency value of the
Fund's holdings in that market increases. Currency exchange rates can
be very volatile and can change quickly and unpredictably. As a result, a Fund’s
NAV may change quickly and without warning.
Cybersecurity
Risk.
Each 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 each Fund or the Underlying Funds invest, which
could result in material adverse consequences for such issuers and
may cause a Fund’s or an Underlying 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). Geopolitical tensions may
increase 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 Funds' or an Underlying 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 each Fund or the Underlying
Funds invest have the ability to cause disruptions and
impact business operations, potentially resulting in: financial losses,
interference with a Fund’s or an Underlying 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 each Fund or each Underlying Fund or
their 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 each Fund or Underlying Fund
inaccessible, inaccurate or incomplete. Substantial costs
may be incurred by each Fund or Underlying Fund in order to resolve or prevent
cyber incidents. While each Fund and the Underlying Funds
have 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, each Fund cannot control the cybersecurity
plans and systems put in place by service providers to each Fund, issuers in
which each Fund invests, the Index Provider, market makers or
Authorized Participants. Each Fund and its shareholders could be negatively
impacted as a result.
Derivatives
Risk. A derivative is a
financial contract, the value of which depends on or is derived from, the value
of an underlying asset such as a security or
an index. Each Fund and Underlying
Fund may invest in certain types of derivatives contracts, including futures,
options and swaps. Compared to
conventional securities, derivatives can be more sensitive to changes in
interest rates or to sudden fluctuations in market prices and
thus a Fund’s or an Underlying Fund's losses may be greater if it invests in
derivatives than if it invests only in conventional securities.
11
Energy
Sector Risk. The market value
of securities issued by companies in the energy sector may decline for the
following reasons, among others: changes in
and volatility of global energy prices, energy supply and demand, and spending
on exploration and production of energy sources; exchange
rates, interest rates, economic conditions, and tax treatment; changes in the
actual or perceived availability of oil or other resource deposits;
the enactment or cessation of trade sanctions or import controls; war or other
geopolitical conflicts; negative perception; increased
litigation; energy conservation efforts; energy infrastructure developments or
service failures; and increased competition and technological
advances. Companies in this sector may be subject to substantial government
regulation and contractual fixed pricing, which may increase the
cost of doing business and limit the earnings of these companies. A significant
portion of the revenues of these companies may depend on a
relatively small number of customers, including governmental entities and
utilities. As a result, governmental budget constraints may
have a material adverse effect on the stock prices of companies in this
sector.
Energy companies
may also operate in, or engage in transactions involving, countries that have
less developed regulatory regimes or a history of
expropriation, confiscation of assets, foreign investment restrictions,
nationalization or other adverse policies or that are at greater risk of political
and social unrest, coups or labor disruptions. Energy companies also face a
significant risk of liability from accidents resulting in injury or loss
of life or property, pollution or other environmental problems, equipment
malfunctions or mishandling of materials and a risk of loss from
terrorism, cyber incident, political strife or natural disasters. Any such event
could have serious consequences for the general population of the
affected area and could have an adverse impact on a Fund’s or an Underlying
Fund's portfolio and the performance of the Fund. Energy
companies may have relatively high levels of debt and may be more likely than
other companies to restructure their businesses if there are
downturns in energy markets or in the global economy. Energy production
companies, especially those for oil and gas, may also have to contend
with service disruptions, pipeline and equipment leaks and ruptures, explosions,
fires, unscheduled downtime, transportation
interruptions, discharges or releases of toxic or hazardous gases and other
environmental risks.
The energy sector
may experience significant market volatility. For example, Russia’s large-scale
invasion of Ukraine on February 24, 2022 led to disruptions
and increased volatility in the energy and commodity futures markets due to
actual and potential disruptions in the supply and demand for
certain commodities, including oil and natural gas. The U.S. and other actors
have, in response, enacted various sanctions and restrictions
on business dealings with Russia, which include restrictions on imports of oil,
natural gas and coal. The effect of the current sanctions and
restrictions, as well as the extent and duration of the Russian military action,
additional sanctions and associated market disruptions on the
energy sector, are impossible to predict and depend on a number of factors. The
effect of these events or any related developments could
be significant and may have a severe adverse effect on the performance of a
Fund.
European
Economic Risk. The Economic and
Monetary Union (the “eurozone”) of the EU
requires compliance by member states that are members of the
eurozone with restrictions on inflation rates, deficits, interest rates and debt
levels, as well as fiscal and monetary controls, each of which may
significantly affect every country in Europe, including those countries that are
not members of the eurozone. Additionally, European countries
outside of the eurozone may present economic risks that are independent of the
indirect effects that eurozone policies have on them. In
particular, the United Kingdom's (the “U.K.”) economy may be
affected by global economic, industrial and financial shifts. Changes in imports
or exports, changes in governmental or EU regulations on trade, changes in the
exchange rate of the euro (the common currency of
eurozone countries), the default or threat of default by an EU member state on
its sovereign debt and/or an economic recession in an EU member
state may have a significant adverse effect on the economies of other EU member
states and their trading partners. The European financial
markets have historically experienced volatility and adverse trends due to
concerns about economic downturns or government debt
levels in several European countries, including, but not limited to, Austria,
Belgium, Cyprus, France, Greece, Ireland, Italy, Portugal, Spain
and Ukraine. These events have affected and may in the future adversely affect
the exchange rate of the euro and may significantly
affect European countries.
Responses to
financial problems by European governments, central banks and others, including
austerity measures and reforms, may not produce the
desired results, may result in social unrest, may limit future growth and
economic recovery or may have other unintended consequences.
Further defaults or restructurings by governments and other entities of their
debt could have additional adverse effects on economies,
financial markets and asset valuations around the world. In addition, one or
more countries may abandon the euro and/or withdraw from the
EU. The U.K. left the EU (“Brexit”) on January 31,
2020. Brexit could adversely affect European or worldwide political,
regulatory,
economic or market conditions and could contribute to instability in global
political institutions, regulatory agencies and financial markets.
The national
politics of countries in Europe have been unpredictable and subject to influence
by disruptive political groups and ideologies, including, for
example, secessionist movements. The governments of European countries may be
subject to change and such countries may experience social
and political unrest. Unanticipated or sudden political or social developments
may result in sudden and significant investment losses.
The occurrence of terrorist incidents throughout Europe or war in the region
could also impact financial markets. The impact of these
events is not clear but could be significant and far-reaching and could
adversely affect the value and liquidity of a Fund's investments.
Russian
Invasion of Ukraine. Russia launched
a large-scale invasion of Ukraine on February 24, 2022. The extent and duration
of the military action, resulting
sanctions and resulting future market disruptions, including declines in its
stock markets and the value of the ruble against the U.S. dollar,
are impossible to predict, but could be significant. Disruptions caused by
Russian military action or other actions (including
12
cyberattacks and
espionage) or resulting actual and threatened responses to such activity,
including purchasing and financing restrictions, boycotts or
changes in consumer or purchaser preferences, sanctions, import and export
restrictions, tariffs or cyberattacks on the Russian government,
Russian companies or Russian individuals, including politicians, may impact
Russia's economy, Russian issuers of securities in which an
Underlying Fund invests, or the economies of Europe as a whole. Actual and
threatened responses to Russian military action may also impact the
markets for certain Russian commodities, such as oil and natural gas, as well as
other sectors of the Russian economy, and are likely to have
collateral impacts on such sectors across Europe and globally.
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 a
Fund’s or an Underlying Fund's income and potentially in the value of a
Fund’s or an Underlying Fund's investments.
Financials
Sector Risk. Companies in the
financials sector are subject to extensive governmental regulation and
intervention, which may adversely affect
the scope of their activities, the prices they can charge, the amount of capital
and liquid assets they must maintain and, potentially, their
size. Governmental regulation may change frequently and may have significant
adverse consequences for companies in the financials sector,
including effects not intended by such regulation. Increased risk taking by
financial companies may also result in greater overall risk in
the U.S. and global financials sector. The impact of changes in capital
requirements, or recent or future regulation in various countries, on any
individual financial company or on the financials sector as a whole cannot be
predicted.
Certain risks may
impact the value of investments in the financials sector more severely than
those of investments outside this sector, including the
risks associated with companies that operate with substantial financial
leverage. Companies in the financials sector are exposed directly
to the credit risk of their borrowers and counterparties, who may be leveraged
to an unknown degree, including through swaps and other
derivatives products. Financial services companies may have significant exposure
to the same borrowers and counterparties,
with the result that a borrower’s or counterparty’s inability to meet its
obligations to one company may affect other companies with
exposure to the same borrower or counterparty. This interconnectedness of risk
may result in significant negative impacts to companies with
direct exposure to the defaulting counterparty as well as adverse cascading
effects in the markets and the financials sector generally.
Companies in the financials sector may also be adversely affected by increases
in interest rates and loan losses, decreases in the availability of
money or asset valuations, credit rating downgrades, adverse public perception
and adverse conditions in other related markets. Insurance
companies, in particular, may be subject to severe price competition and/or rate
regulation, which may have an adverse impact on their
profitability. The financials sector is particularly sensitive to fluctuations
in interest rates. The financials sector is also a target for cyberattacks.
Cybersecurity incidents and technology malfunctions and failures have become
increasingly frequent and have caused significant losses
to companies in this sector, which may negatively impact a Fund. The extent to
which the Fund may invest in a company that engages in
securities-related activities or banking is limited by applicable
law.
Geographic
Risk.
Some of the companies in which the Underlying Funds invest are located in parts
of the world that have historically been prone to natural
disasters such as earthquakes, tornadoes, volcanic eruptions, droughts, floods,
hurricanes or tsunamis and are economically sensitive to
environmental events. Any such event may adversely impact the
economies of these geographic areas or business operations of companies in these
geographic areas, causing an adverse impact on the value of a Fund.
Healthcare
Sector Risk. The profitability
of companies in the healthcare sector may be adversely affected by the following
factors, among others: extensive
government regulations, restrictions on government reimbursement for medical
expenses, rising costs of medical products and services,
pricing pressure, an increased emphasis on outpatient services, changes in the
demand for medical products and services, a limited number of
products, industry innovation, changes in technologies and other market
developments. Many healthcare companies are heavily dependent
on patent protection. The expiration of a company’s patents may adversely affect
that company’s profitability. Many healthcare
companies are subject to extensive litigation based on product liability and
similar claims. Healthcare companies are subject to competitive forces
that may make it difficult to raise prices and, in fact, may result in price
discounting. The U.S. Inflation Reduction Act of 2022 allows for
the negotiation of prescription drug prices on behalf of Medicare recipients,
which may result in reduced prescription prices. This could reduce
some healthcare companies’ overall profitability. Many new products in the
healthcare sector may be subject to regulatory approvals. The
process of obtaining such approvals may be long and costly, and such efforts
ultimately may be unsuccessful. Companies in the healthcare
sector may be thinly capitalized and may be susceptible to product obsolescence.
In addition, a number of legislative proposals
concerning healthcare have been considered by the U.S. Congress in recent years.
It is unclear what proposals will ultimately be enacted, if any,
and what effect they may have on companies in the healthcare
sector.
Income
Risk.
A Fund's income may decline if interest rates fall. This decline in income can
occur because an Underlying Fund may subsequently
invest in lower-yielding securities as securities in an Underlying Fund's
portfolio mature, are near maturity or are called, securities are
substituted, or an Underlying Fund otherwise needs to purchase additional
bonds.
Indexing
Investment Risk. The Underlying
Funds are not actively managed and may be affected by a general decline in
market segments related to their
Underlying Indexes. Each Underlying Fund invest in securities included in, or
representative of, their respective underlying index, regardless
of their investment merits. BFA generally does not attempt to invest the
Underlying Funds' assets in defensive positions under any market
conditions, including declining markets.
13
Industrials
Sector Risk. The value of
securities issued by companies in the industrials sector may be adversely
affected by supply and demand changes
related to their specific products or services and industrials sector products
in general. The products of manufacturing companies may face
obsolescence due to rapid technological developments and frequent new product
introduction. Global events, trade disputes and
changes in government regulations, economic conditions and exchange rates may
adversely affect the performance of companies in the
industrials sector. Companies in the industrials sector may be adversely
affected by liability for environmental damage and product liability
claims. The industrials sector may also be adversely affected by changes or
trends in commodity prices, which may be influenced by
unpredictable factors. Companies in the industrials sector, particularly
aerospace and defense companies, may also be adversely affected
by government spending policies because companies in this sector tend to rely to
a significant extent on government demand for their
products and services.
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 a 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 Funds or an Underlying Fund invests will have an impact on
the Funds or an Underlying
Fund and their investments and will impact the Fund’s or an Underlying
Fund's ability to purchase or sell
securities in such markets. Market or economic
disruptions could result in elevated tracking error and 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 a Fund’s or an Underlying
Fund's investments.
An outbreak may
exacerbate other pre-existing political, social and economic risks in certain
countries or globally, which could adversely affect a Fund and
its investments and could result in increased premiums or discounts to the
Funds' NAV.
Despite the
development of vaccines, the duration of the COVID-19 pandemic and its effects
cannot be predicted with certainty.
Information
Technology Sector Risk. Information
technology companies face intense competition, both domestically and
internationally, which may have an
adverse effect on their profit margins. Like other technology companies,
information technology companies may have limited product
lines, markets, financial resources or personnel. The products of information
technology companies may face obsolescence due to rapid
technological developments, frequent new product introduction, unpredictable
changes in growth rates and competition for the services of
qualified personnel. Companies in the information technology sector are heavily
dependent on patent and intellectual property rights. The loss
or impairment of these rights may adversely affect the profitability of these
companies. Companies in the information technology sector
are facing increased government and regulatory scrutiny and may be subject to
adverse government or regulatory action. Companies in the
application software industry, in particular, may also be negatively affected by
the decline or fluctuation of subscription renewal rates for
their products and services, which may have an adverse effect on profit margins.
Companies in the systems software industry may be
adversely affected by, among other things, actual or perceived security
vulnerabilities in their products and services, which may result in
individual or class action lawsuits, state or federal enforcement actions and
other remediation costs.
Infrastructure
Industry Risk. Companies in the
infrastructure industry may be subject to a variety of factors that could
adversely affect their business or
operations, including high interest costs in connection with capital
construction programs, high degrees of leverage, costs associated with
governmental, environmental and other regulations, the effects of economic
slowdowns, increased competition from other providers of
services, uncertainties concerning costs, the level of government spending on
infrastructure projects, and other factors. Infrastructure
companies may be adversely affected by commodity price volatility, changes in
exchange rates, import controls, depletion of resources,
technological developments, and labor relations. There is also the risk that
corruption may negatively affect publicly funded infrastructure
projects, especially in emerging markets, resulting in delays and cost overruns.
Infrastructure issuers can be significantly affected by
government spending policies because companies involved in this industry rely to
a significant extent on U.S. and other government demand
for their products.
14
Infrastructure
companies in the oil and gas industry may be adversely affected by government
regulation or world events in the regions that the companies
operate (e.g., expropriation,
nationalization, confiscation of assets and property or the imposition of
restrictions on foreign investments and
repatriation of capital, military coups, social unrest, violence or labor
unrest). Infrastructure companies may have significant capital
investments in, or engage in transactions involving, emerging market countries,
which may heighten these risks.
Customer
Risk.
Infrastructure companies can be dependent upon a narrow customer base.
Additionally, if these customers fail to pay their obligations,
significant revenues could be lost and may not be replaceable.
Inflation
Risk.
Many infrastructure companies may have fixed income streams. Consequently, their
market values may decline in times of higher inflation.
Additionally, the prices that an infrastructure company is able to charge users
of its assets may be linked to inflation, whether by
government regulation, contractual arrangement or other factors. In this case,
changes in the rate of inflation may affect the company's
profitability.
Interest
Rate Risk. Rising interest
rates could result in higher costs of capital for infrastructure companies,
which could negatively impact their ability to
meet payment obligations.
Leverage
Risk.
Infrastructure companies can be highly leveraged, which increases investment
risk and other risks normally associated with debt financing,
and could adversely affect an infrastructure company's operations and market
value in periods of rising interest rates.
Oil
and Gas Risk. The profitability
of oil and gas companies is related to worldwide energy prices, exploration, and
production spending.
Operations
Risk.
The failure of an infrastructure company to carry adequate insurance or to
operate its assets appropriately could lead to significant
losses. Infrastructure may be adversely affected by environmental clean-up costs
and catastrophic events such as earthquakes, hurricanes and
terrorist acts.
Regulatory
Risk.
Infrastructure companies may be subject to significant regulation by various
governmental authorities and also may be affected by
regulation of rates charged to customers, service interruption due to
environmental, operational or other events, the imposition of special tariffs
and changes in tax laws, regulatory policies and accounting
standards.
Strategic
Asset Risk. Infrastructure
companies may control significant strategic assets (e.g., major pipelines
or highways), which are assets that have a
national or regional profile, and may have monopolistic characteristics. Given
their national or regional profile or irreplaceable nature, strategic
assets could generate additional risk not common in other industry sectors and
they may be targeted for terrorist acts or adverse political
actions.
Transportation
Risk. The stock prices
of companies in the transportation industry group are affected by both
supply and demand for their specific
product. Government regulation, world events and economic conditions may
affect the performance of companies in the transportation
sector.
Issuer
Risk. The performance
of a Fund depends on the performance of individual securities to which
a Fund or an Underlying Fund has exposure. A Fund
may be adversely affected if an issuer of underlying securities held by the Fund
or an Underlying 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. Issuers
may, in times of distress or at their own discretion, decide to reduce or
eliminate dividends, which may also cause their stock prices 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-Capitalization
Companies Risk.
Large-capitalization companies may be less able than smaller capitalization
companies to adapt to changing market
conditions. Large-capitalization companies may be more mature and subject to
more limited growth potential compared with smaller
capitalization companies. During different market cycles, the performance of
large-capitalization companies has trailed the overall
performance of the broader securities markets.
Management
Risk. The Fund and the
Underlying Funds are subject to management risk because they do not seek to
replicate the performance of a
specified index. BFA and the portfolio managers will utilize a proprietary
investment process, techniques and risk analyses in making
investment decisions for the Fund and the Underlying Funds, but there can be no
guarantee that these decisions will produce the desired results.
In addition, legislative, regulatory, or tax developments may affect the
investment techniques available to BFA in connection with managing the
Fund and the Underlying Funds and may also adversely affect the ability of the
Fund and the Underlying Funds to achieve their investment
objective.
15
Market
Trading Risk.
Absence
of Active Market. Although shares
of the Funds and the Underlying Funds 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 Funds' shares
may be listed or traded on U.S. and non-U.S. stock exchanges other than the U.S.
stock exchange where the
Funds' 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 a Fund’s shares will continue to trade on any such stock
exchange or in any market or that a Fund’s shares will continue to meet the
requirements for listing or trading on any exchange or in any market. The
Funds' 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 a
Fund or an Underlying
Fund may trade in the secondary market at times when the Fund or the
Underlying Funds
do not accept orders to purchase or redeem shares. At such times, shares may
trade in the secondary market with more significant
premiums or discounts than might be experienced at times when the Funds
or the Underlying Funds accept purchase and redemption orders.
If a Fund purchases shares of an Underlying Fund at a time when the market
price of Underlying Fund shares is at a premium to their
NAV or sells Underlying Fund shares when their market price is at a discount to
their NAV, the Fund may incur losses.
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 each
Fund or an Underlying 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
a Fund or an Underlying Fund may lead to increased trading volume and
volatility in the secondary market for the shares of a Fund or an
Underlying Fund.
Shares
of each Fund and the Underlying Funds May Trade at Prices Other Than
NAV.
Shares of a Fund and an Underlying Fund each trade on stock exchanges at
prices at, above or below the Fund’s and the Underlying Fund's most recent
respective NAV. The NAV of each Fund and each Underlying
Fund are calculated at the end of each business day and fluctuate with changes
in the market value of such Fund’s or an Underlying Fund's
holdings. The trading price of each of the Funds' and Underlying Funds' shares
fluctuates continuously throughout trading hours based on both
market supply of and demand for their shares and the underlying value of
their portfolio holdings or NAV. As a result, the trading prices of
a Fund’s shares may deviate significantly from NAV during periods of market
volatility. ANY
OF THESE FACTORS, AMONG OTHERS,
MAY LEAD TO THE FUND'S OR THE UNDERLYING FUNDS' 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 a Fund or the
Underlying Funds, as applicable, 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 a Fund’s or an Underlying
Fund's shares normally will trade on stock exchanges at prices close to the
Fund’s or an
Underlying Fund's next calculated NAV, exchange prices are not expected to
correlate exactly with their respective 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 a Fund or an Underlying Fund that differ significantly from
their respective 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
a 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 a 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 a 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 charges 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.
16
Mid-Capitalization
Companies Risk. Stock prices of
mid-capitalization companies may be more volatile than those of
large-capitalization companies and,
therefore, a Fund’s or an Underlying Fund's respective share price may be more
volatile than those of funds that invest a larger percentage
of their assets in stocks issued by large-capitalization companies. Stock prices
of mid-capitalization companies are also more vulnerable
than those of large-capitalization companies to adverse business or economic
developments, and the stocks of mid-capitalization companies may be
less liquid than those of large-capitalization companies, making it difficult
for the Underlying Funds or an Underlying Fund to
buy and sell shares of mid-capitalization companies. In addition,
mid-capitalization companies generally have less diverse product lines than
large-capitalization companies and are more susceptible to adverse developments
related to their products.
National
Closed Market Trading Risk. To the extent
that the underlying securities or other instruments held by a Fund or an Underlying
Fund
trade on foreign exchanges or in foreign markets that may be closed when the
securities exchange on which the Fund’s or an Underlying Fund's
shares trade is open, there are likely to be deviations between the current
price of an underlying security and the last quoted price for
the underlying security (i.e., the
Fund’s or an Underlying
Fund's quote from the closed foreign market). The impact of a
closed foreign
market on the Fund or an Underlying Fund is likely to be greater where a large
portion of the Fund’s or an Underlying Fund's underlying
securities or other instruments trade on that closed foreign market or when the
foreign market is closed for unscheduled reasons. These deviations
could result in premiums or discounts to a Fund’s or an Underlying
Fund's NAV that may be greater than those experienced by other
ETFs.
Non-U.S.
Issuers Risk. Securities
issued by non-U.S. issuers have different risks from securities issued by U.S.
issuers. These risks include differences in
accounting, auditing and financial reporting standards, the possibility of
expropriation or confiscatory taxation, adverse changes in
investment or exchange control regulations, political instability which could
affect U.S. investments in non-U.S. countries, uncertainties of
transnational litigation, and potential restrictions on the flow of
international capital, including the possible seizure or nationalization of
the securities issued by non-U.S. issuers held by the Fund or an Underlying
Fund. Non-U.S. issuers may be subject to less governmental
regulation than U.S. issuers. Moreover, individual non-U.S. economies may differ
favorably or unfavorably from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payment
positions. Unfavorable political, economic or governmental developments in
non-U.S. countries could affect the payment of a security’s
principal and interest. Securities issued by non-U.S. issuers may also be less
liquid than, and more difficult to value than, securities of U.S. issuers.
In addition, the value of these securities may fluctuate due to changes in the
exchange rate of the issuer’s local currency against the U.S.
dollar.
Non-U.S.
Securities Risk. Investments in
the securities of non-U.S. issuers are subject to the risks of investing in the
markets where such issuers are
located, including heightened risks of inflation, nationalization and market
fluctuations caused by economic and political developments. The
Underlying Funds that invest in non-U.S. securities may be subject to
increased risk of loss caused by any of the factors listed
below:
◾
Government
intervention in issuers' operations or structure;
◾
A lack of market
liquidity and market efficiency;
◾
Greater securities
price volatility;
◾
Exchange rate
fluctuations and exchange controls;
◾
Less availability
of public information about issuers;
◾
Limitations on
foreign ownership of securities;
◾
Imposition of
withholding or other taxes;
◾
Imposition of
restrictions on the expatriation of the funds or other assets of an Underlying
Fund;
◾
Higher transaction
and custody costs and delays in settlement procedures;
◾
Difficulties in
enforcing contractual obligations;
◾
Lower levels of
regulation of the securities markets;
◾
Weaker accounting,
disclosure and reporting requirements and the risk of being delisted from U.S.
exchanges; and
◾
Legal principles
relating to corporate governance, directors’ fiduciary duties and liabilities
and stockholders’ rights in markets in which the Underlying Funds
may invest may differ from or may not be as extensive or protective as
those that apply in the U.S.
Withholding
Tax Reclaims Risk. The Funds or an
Underlying Fund may file claims to recover withholding tax on dividend and
interest income (if any) received from
issuers in certain countries where such withholding tax reclaim is possible.
Whether or when the Funds or an Underlying Fund will receive
a withholding tax refund in the future is within the control of the tax
authorities in such countries. Where the Funds or an Underlying Fund
expects to recover withholding tax based on a continuous assessment of
probability of recovery, the NAV of the Funds or an Underlying Fund
generally includes accruals for such tax refunds. The Fund continues to evaluate
tax developments for potential impact to the probability of
recovery. If the likelihood of receiving refunds materially decreases, for
example due to a change in tax regulation or approach, accruals
in the Fund’s or an Underlying Fund's NAV for such refunds may need to be
written down partially or in full, which will adversely affect
that Fund’s or an Underlying Fund's NAV. Investors in the Funds or an Underlying
Fund at the time an accrual is written down will bear the
impact of any resulting reduction in NAV regardless of whether they were
investors during the accrual period. Conversely, if a
17
Fund or an
Underlying Fund receives a tax refund that has not been previously accrued,
investors in the Funds or an Underlying Fund at the time the claim is
successful will benefit from any resulting increase in the Fund’s NAV. Investors
who sold their shares prior to such time will not benefit from
such NAV or an Underlying Fund's increase.
Operational
Risk.
The Funds and the Underlying
Funds are exposed to operational risks arising from a number of factors,
including, but not limited to, human
error, processing and communication errors, errors of the Funds' or an
Underlying Fund's service providers, counterparties or other third
parties, failed or inadequate processes and technology or systems failures. The
Funds, the Underlying Funds 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.
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 a Fund or an Underlying
Fund to have to reinvest in securities with lower yields or higher risk of
default, resulting in a decline in a
Fund’s or an Underlying 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.
Real
Estate Investment Risk. Companies that
invest in real estate (“Real Estate
Companies”), such as real
estate investment trusts (“REITs”), real estate
holding and operating companies, and real estate management or development
companies, expose investors to the risks of owning
real estate directly, as well as to risks that relate specifically to the way in
which Real Estate Companies are organized and operated. Real
estate is highly sensitive to general and local economic conditions and
developments and is characterized by intense competition and
periodic overbuilding. Many Real Estate Companies, including REITs, utilize leverage
(and some may be highly leveraged), which increases
investment risk and the risk normally associated with debt financing, and could
potentially increase the Underlying Fund’s losses. Rising
interest rates could result in higher costs of capital for Real Estate
Companies, which could negatively affect a Real Estate Company's ability
to meet its payment obligations or its financing activity and could
decrease the market prices for REITs and for properties held by such
REITs. The U.S. residential and commercial real estate markets may, in the
future, experience and have, in the past, experienced a decline in
value, with certain regions experiencing significant losses in property values.
Exposure to such real estate may adversely affect an
Underlying Fund's performance. In addition, to the extent a Real Estate Company
has its own expenses, the Underlying Fund (and indirectly, the
Fund) will bear its proportionate share of such expenses.
Concentration
Risk.
Real Estate Companies may own a limited number of properties and concentrate
their investments in a particular geographic region,
industry or property type. Economic downturns affecting a particular region,
industry or property type may lead to a high volume of defaults
within a short period.
Equity
REITs Risk. Certain REITs may
make direct investments in real estate. These REITs are often referred to as
“Equity
REITs.” Equity REITs
invest primarily
in real properties and may earn rental income from leasing those properties.
Equity REITs may also realize gains or losses from the sale of
properties. Equity REITs will be affected by conditions in the real estate
rental market and by changes in the value of the properties they
own. A decline in rental income may occur because of extended vacancies,
limitations on rents, the failure to collect rents, increased
competition from other properties or poor management. Equity REITs also can be
affected by rising interest rates. Rising interest rates may cause
investors to demand a high annual yield from future distributions that, in turn,
could decrease the market prices for such REITs and for the
properties held by such REITs. In addition, rising interest rates also increase
the costs of obtaining financing for real estate projects. Because
many real estate projects are dependent upon receiving financing, this could
cause the value of the Equity REITs in which an Underlying Fund
invests to decline.
Illiquidity
Risk.
Investing in Real Estate Companies may involve risks similar to those associated
with investing in small-capitalization companies. Real
Estate Company securities may be volatile. There may be less trading in Real
Estate Company shares, which means that purchase and sale
transactions in those shares could have a magnified impact on share price,
resulting in abrupt or erratic price fluctuations. In addition, real
estate is relatively illiquid and, therefore, a Real Estate Company may have a
limited ability to vary or liquidate its investments in
properties in response to changes in economic or other conditions.
Interest
Rate Risk. Rising interest
rates could result in higher costs of capital for Real Estate Companies, which
could negatively affect a Real Estate Company’s
ability to meet its payment obligations. Declining interest rates could result
in increased prepayment on loans and require redeployment of
capital in less desirable investments.
Leverage
Risk.
Real Estate Companies may use leverage (and some may be highly leveraged), which
increases investment risk and the risks normally
associated with debt financing and could adversely affect a Real Estate
Company’s operations and market value in periods of rising interest rates.
Financial covenants related to a Real Estate Company’s leveraging may affect the
ability of the Real Estate Company to operate
effectively. In addition, investments may be subject to defaults by borrowers
and tenants. Leveraging may also increase repayment risk.
18
Loan
Foreclosure Risk. Real Estate
Companies may foreclose on loans that the Real Estate Company originated and/or
acquired. Foreclosure may generate
negative publicity for the underlying property that affects its market value. In
addition to the length and expense of such proceedings, the
validity of the terms of the applicable loan may not be recognized in
foreclosure proceedings.
Operational
Risk.
Real Estate Companies are dependent upon management skills and may have limited
financial resources. Real Estate Companies are
generally not diversified and may be subject to heavy cash flow dependency,
default by borrowers and self-liquidation. In addition,
transactions between Real Estate Companies and their affiliates may be subject
to conflicts of interest, which may adversely affect a Real Estate
Company’s shareholders. A Real Estate Company may also have joint ventures in
certain of its properties and, consequently, its ability to control
decisions relating to such properties may be limited.
Property
Risk.
Real Estate Companies may be subject to risks relating to functional
obsolescence or reduced desirability of properties; extended vacancies
due to economic conditions and tenant bankruptcies; property damage due to
events such as earthquakes, hurricanes, tornadoes, rodent,
insect or disease infestations and terrorist acts; eminent domain seizures; and
casualty or condemnation losses. Real estate income and
values also may be greatly affected by demographic trends, such as population
shifts, changes in consumer preferences and values,
increasing vacancies or declining rents resulting from legal, cultural,
technological, global or local economic developments and changes in tax
law.
Regulatory
Risk.
Real estate income and values may be adversely affected by applicable domestic
and foreign laws (including tax laws). Government
actions, such as tax increases, zoning law changes, mandated closures or other
commercial restrictions, reduced funding for schools, parks,
garbage collection and other public services or environmental regulations also
may have a major impact on real estate income and
values.
Repayment
Risk.
The prices of Real Estate Company securities may drop because of the failure of
borrowers to repay their loans, poor management, or the
inability to obtain financing either on favorable terms or at all. If the
properties in which Real Estate Companies invest do not generate
sufficient income to meet operating expenses, including, where applicable, debt
service, ground lease payments, tenant improvements,
third-party leasing commissions and other capital expenditures, the income and
ability of the Real Estate Companies to make payments of
interest and principal on their loans will be adversely affected.
Reinvestment
Risk.
A Fund or an Underlying Fund may invest a portion of its assets in
short-term fixed-income instruments and as a result, may be adversely
affected when interest rates fall because they may have to invest in lower
yielding bonds as bonds mature.
This may cause a Fund's or an
Underlying Fund's income to decline, which may adversely affect the value of the
Fund. This risk is typically greater with respect to
short-term bond funds and lower for long-term bond funds.
Risk
of Investing in China. Investments in
Chinese securities, including certain Hong Kong-listed and U.S.-listed
securities, subject certain Underlying Funds
to risks specific to China. The Chinese economy is subject to a considerable
degree of economic, political and social instability.
Political
and Social Risk. The Chinese
government is authoritarian and has periodically used force to suppress civil
dissent. Disparities of wealth and the
pace of economic liberalization may lead to social turmoil, violence and labor
unrest. In addition, China continues to experience
disagreements related to integration with Hong Kong and religious and
nationalist disputes in Tibet and Xinjiang. There is also a greater risk in
China than in many other countries of currency fluctuations, currency
non-convertibility, interest rate fluctuations and higher rates of inflation
as a result of internal social unrest or conflicts with other countries.
Unanticipated political or social developments may result in sudden
and significant investment losses. China's growing income inequality, rapidly
aging population and significant environmental issues also are
factors that may affect the Chinese economy.
Government
Control and Regulations. The Chinese
government has implemented significant economic reforms in order to liberalize
trade policy, promote
foreign investment in the economy, reduce government control of the economy and
develop market mechanisms. There can be no assurance
that these reforms will continue or that they will be effective. Despite recent
reform and privatizations, government control over certain
sectors or enterprises and significant regulation of investment and industry is
still pervasive, including restrictions on investment in companies or
industries deemed to be sensitive to particular national interests, trading of
securities of Chinese issuers, foreign ownership of Chinese
corporations and/or the repatriation of assets by foreign investors. Limitations
or restrictions on foreign ownership of securities may have adverse
effects on the liquidity and performance of an Underlying Fund and could lead to
higher tracking error. Chinese government
intervention in the market may have a negative impact on market sentiment, which
may in turn affect the performance of the Chinese economy
and the Fund’s investments. Chinese markets generally continue to experience
inefficiency, volatility and pricing anomalies that may
be connected to governmental influence, lack of publicly available information,
and political and social instability. Chinese companies,
such as those in the financial services or technology sectors, and potentially
other sectors are also subject to the risk that Chinese
authorities can intervene in their operations and structure, which may
negatively affect the value of a Fund's or an Underlying
Fund's
investments.
19
Economic
Risk.
The Chinese economy has grown rapidly in the recent past, and there is no
assurance that this growth rate will be maintained. In fact, the
Chinese economy may experience a significant slowdown as a result of, among
other things, a deterioration in global demand for Chinese exports,
as well as a contraction in spending on domestic goods by Chinese consumers. In
addition, China may experience substantial rates
of inflation or economic recessions, which would have a negative effect on its
economy and securities market. Delays in enterprise
restructuring, slow development of well-functioning financial markets and
widespread corruption have also hindered the performance of the
Chinese economy. China continues to receive substantial pressure from trading
partners to liberalize official currency exchange rates.
Reduction in spending on Chinese products and services, institution of
additional tariffs or other trade barriers (including as a result of
heightened trade tensions between China and the U.S. or in response to actual or
alleged Chinese cyber activity) or a downturn in any of the
economies of China’s key trading partners may have an adverse impact on the
Chinese economy and the Chinese issuers of securities in
which an Underlying Fund invests. For example, the U.S. has added certain
foreign technology companies to the U.S. Department of
Commerce’s Bureau of Industry and Security’s “Entity
List,” which is a list
of companies believed to pose a national security risk to the U.S.
Actions like these may have unanticipated and disruptive effects on the Chinese
economy. Any such response that targets Chinese financial
markets or securities exchanges could interfere with orderly trading, delay
settlement or cause market disruptions.
Expropriation
Risk.
The Chinese government maintains a major role in economic policymaking, and
investing in China involves risk of loss due to expropriation,
nationalization, confiscation of assets and property or the imposition of
restrictions on foreign investments and on repatriation of
capital invested.
Security
Risk. China has strained
international relations with Taiwan, Japan, India, Russia and other neighbors
due to territorial disputes, historical
animosities, defense concerns and other security concerns. China has a complex
territorial dispute regarding the sovereignty of Taiwan and has
pledged to take control of Taiwan, including by force if necessary. The Chinese
military (i.e., the People’s
Liberation Army) has conducted military
drills around Taiwan in connection with China’s claim to Taiwan. Taiwan-based
companies and individuals are significant investors in
China. These tensions between Taiwan and China may adversely affect the Chinese
economy. Additionally, China is alleged to have participated
in state-sponsored cyberattacks against foreign companies and foreign
governments. Actual and threatened responses to such activity and
strained international relations, including purchasing restrictions, sanctions,
tariffs or cyberattacks on the Chinese government or
Chinese companies, may impact China’s economy and Chinese issuers of securities
in which the Fund invests. Relations between
China's Han ethnic majority and other ethnic groups in China, including
Tibetans and Uighurs, are also strained and have been marked by protests
and violence. These situations may cause uncertainty in the Chinese market and
may adversely affect the Chinese economy. In
addition, conflict on the Korean Peninsula could adversely affect the
Chinese economy. Such risks, among others, may adversely affect the value
of a Fund’s investments.
Chinese
Equity Markets. Certain of the
Underlying Funds invest in Chinese securities, including H-shares, A-shares,
B-shares, Red-Chips and/or
P-Chips. The issuance of B-shares and H-shares by Chinese companies and the
ability to obtain a “back-door
listing” through
Red-Chips or P-Chips is
still regarded by the Chinese authorities as an experiment in economic reform.
“Back-door
listing” is a means by
which a mainland Chinese
company issues Red-Chips or P-Chips to obtain quick access to international
listing and international capital. These share mechanisms are
subject to the political and economic policies in China. The Underlying Funds
may also invest in Chinese companies listed on U.S. exchanges,
such as American Depositary Receipts (“ADRs”) or variable
interest entities (“VIEs”), which are
subject to the investment risks of an
associated China-based operating company. Instead of directly owning
the equity securities of a Chinese company, a VIE enters into service
contracts and other contracts with the Chinese company, which provide the VIE
with exposure to the company. Intervention by the Chinese
government with respect to VIEs could significantly affect the Chinese operating
company's performance and the enforceability of the VIE's
contractual arrangements with the Chinese company.
Hong
Kong Political Risk. Hong Kong
reverted to Chinese sovereignty on July 1, 1997 as a Special Administrative
Region of the People's Republic of China
(“PRC”) under the
principle of “one country, two
systems.” Although
China is obligated to maintain the current capitalist economic and
social system of Hong Kong through June 30, 2047, the continuation of economic
and social freedoms enjoyed in Hong Kong is dependent on
the government of China. Since 1997, there have been tensions between the
Chinese government and many people in Hong Kong who perceive
China as tightening control over Hong Kong’s semi-autonomous liberal political,
economic, legal and social framework. Recent protests
and unrest have increased tensions even further. Due to the interconnected
nature of the Hong Kong and Chinese economies, this
instability in Hong Kong may cause uncertainty in the Hong Kong and Chinese
markets. In addition, the Hong Kong dollar trades at a fixed
exchange rate in relation to (or is “pegged” to) the U.S.
dollar, which has contributed to the growth and stability of the Hong
Kong
economy. However, it is uncertain how long the currency peg will continue or
what effect the establishment of an alternative exchange rate system would
have on the Hong Kong economy. Because the Fund's NAV is denominated in
U.S. dollars, the establishment of an alternative
exchange rate system could result in a decline in the Fund's NAV.
Limited
Information and Legal Remedies. Chinese
companies, including Chinese companies that are listed on U.S. exchanges, are
not subject to the same degree
of regulatory requirements, accounting standards or auditor oversight as
companies in more developed countries. As a result,
information about the Chinese securities in which the Funds or the Underlying
Funds invest may be less reliable or complete. Chinese companies with
securities listed on U.S. exchanges may be delisted if they do not meet U.S.
accounting standards and auditor oversight requirements,
which would significantly decrease the liquidity and value of the securities.
There may be significant obstacles to obtaining
20
information
necessary for investigations into or litigation against Chinese companies, and
shareholders may have limited legal remedies. The Underlying
Funds are not actively managed and do not select investments based on investor
protection considerations.
Risk
of Investing in Developed Countries. Investment in
developed country issuers may subject the Fund or an Underlying Fund to
regulatory,
political, currency, security, economic and other
risks associated with developed countries. Developed countries generally
tend to rely on services
sectors (e.g., the financial
services sector) as the primary means of economic growth. A prolonged slowdown
in one or more services sectors
is likely to have a negative impact on economies of certain developed countries,
although economies of individual developed countries can be
impacted by slowdowns in other sectors. In the past, certain developed countries
have been targets of terrorism, and some geographic areas
in which the Fund or an Underlying
Fund invests have experienced strained international relations due to
territorial disputes,
historical animosities, defense concerns and other security concerns. These
situations may cause uncertainty in the financial markets in these
countries or geographic areas and may adversely affect the performance of the
issuers to which the Fund or the Underlying Fund has exposure.
Heavy regulation of certain markets, including labor and product markets, may
have an adverse effect on certain issuers. Such regulations
may negatively affect economic growth or cause prolonged periods of recession.
Many developed countries are heavily indebted and face
rising healthcare and retirement expenses. In addition, price fluctuations of
certain commodities and regulations impacting the import of
commodities may negatively affect developed country economies.
Risk
of Investing in India. India is an
emerging market country and exhibits significantly greater market volatility
from time to time in comparison to more
developed markets. Political and legal uncertainty, greater government control
over the economy, currency fluctuations or blockage, and
the risk of nationalization or expropriation of assets may result in higher
potential for losses.
Moreover,
governmental actions can have a significant effect on the economic conditions in
India, which could adversely affect the value and liquidity of an
Underlying Fund's investments. In November 2016, the Indian government
eliminated certain large denomination cash notes as legal tender,
causing uncertainty in certain financial markets. The securities markets in
India are comparatively underdeveloped, and stockbrokers and
other intermediaries may not perform as well as their counterparts in the U.S.
and other more developed securities markets. The
limited liquidity of the Indian securities markets may also affect an
Underlying Fund’s ability to acquire or dispose of securities at the price and
time that it desires.
Global factors and
foreign actions may inhibit the flow of foreign capital on which India is
dependent to sustain its growth. In addition, the Reserve Bank of
India (“RBI”) has imposed
limits on foreign ownership of Indian securities, which may decrease the
liquidity of an Underlying Fund’s portfolio
and result in extreme volatility in the prices of Indian securities. These
factors, coupled with the lack of extensive accounting, auditing and
financial reporting standards and practices, as compared to the U.S., may
increase an Underlying Fund's risk of loss.
Further, certain
Indian regulatory approvals, including approvals from the SEBI, the RBI, the
central government and the tax authorities (to the extent that
tax benefits need to be utilized), may be required before an Underlying Fund can
make investments in the securities of Indian companies. Capital
gains from Indian securities may be subject to local taxation.
Risk
of Investing in Japan. Japan may be
subject to political, economic, nuclear, and labor risks, among others. Any of
these risks, individually or in
the aggregate, can impact an investment made in Japan.
Currency
Risk.
The Japanese yen has fluctuated widely at times, and any increase in its value
may cause a decline in exports that could weaken the
Japanese economy. The Japanese government has, in the past, intervened in the
currency markets to attempt to maintain or reduce the value
of the yen. Japanese intervention in the currency markets could cause the value
of the yen to fluctuate sharply and unpredictably and
could cause losses to investors.
Economic
Risk.
The growth of Japan's economy has recently lagged that of its Asian neighbors
and other major developed economies. Since 2000, Japan’s
economic growth rate has generally remained low relative to other advanced
economies, and it may remain low in the future. The Japanese
economy is heavily dependent on international trade and has been adversely
affected in the past by trade tariffs, other protectionist
measures, competition from emerging economies and the economic conditions of its
trading partners. Japan is also heavily dependent on oil
and other commodity imports, and higher commodity prices could therefore have a
negative impact on the Japanese economy.
Geographic
Risk. Natural disasters,
such as earthquakes, volcanic eruptions, typhoons and tsunamis, could occur in
Japan or surrounding areas and could
negatively affect the Japanese economy, and, in turn, could negatively affect
the value of an Underlying Fund.
Labor
Risk.
Japan has an aging workforce and has experienced a significant population
decline in recent years. Japan’s labor market appears to be undergoing
fundamental structural changes, as a labor market traditionally accustomed to
lifetime employment adjusts to meet the need for increased
labor mobility, which may adversely affect Japan’s economic
competitiveness.
21
Large
Government and Corporate Debt Risk. The Japanese
economy faces several concerns, including a financial system with large levels
of nonperforming
loans, over-leveraged corporate balance sheets, extensive cross-ownership by
major corporations, a changing corporate governance
structure, and large government deficits. These issues may cause a slowdown of
the Japanese economy.
Political
Risk.
Historically, Japan has had unpredictable national politics and may experience
frequent political turnover. Future political developments may
lead to changes in policy that might adversely affect an Underlying Fund’s
investments. In addition, China has become an important trading
partner with Japan. Japan's political relationship with China, however, is
strained and delicate. Should political tension increase, it could
adversely affect the Japanese economy and destabilize the region as a whole.
Security
Risk. Japan's
relations with its neighbors, particularly China, North Korea, South Korea and
Russia, have at times been strained due to territorial
disputes, historical animosities and defense concerns. Most recently, the
Japanese government has shown concern over the increased nuclear
and military activity by North Korea and China. Strained relations may cause
uncertainty in the Japanese markets and adversely affect
the overall Japanese economy, particularly in times of crisis.
Risk
of Investing in Russia. Investing in
Russian securities involves significant risks, in addition to those described
under “Risk of Investing
in
Emerging Markets” and “Non-U.S.
Securities Risk,” that are not
typically associated with investing in U.S. securities, including:
◾
The risk of delays
in settling portfolio transactions and the risk of loss arising out of the
system of share registration and custody used in Russia;
◾
Risks in
connection with the maintenance of an Underlying Fund’s portfolio securities and
cash with foreign sub-custodians and securities depositories,
including the risk that appropriate sub-custody arrangements will not be
available to an Underlying Fund;
◾
The risk that an
Underlying Fund’s ownership rights in portfolio securities could be lost through
fraud or negligence because ownership in shares of Russian
companies is recorded by the companies themselves and by registrars, rather than
by a central registration system;
◾
The risk that an
Underlying Fund may not be able to pursue claims on behalf of its shareholders
because of the system of share registration and
custody, and because Russian banking institutions and registrars are not
guaranteed by the Russian government; and
◾
The risk that
various responses by other nation-states to alleged Russian cyber activity will
impact Russia’s economy and Russian issuers of securities in
which an Underlying Fund invests.
Russian
invasion of Ukraine. Russia launched
a large-scale invasion of Ukraine on February 24, 2022. The extent and duration
of the military action, resulting
sanctions and resulting future market disruptions, including declines in its
stock markets and the value of the ruble against the U.S. dollar,
are impossible to predict, but could be significant. Disruptions caused by
Russian military action or other actions (including cyberattacks and
espionage) or resulting actual and threatened responses to such activity,
including purchasing and financing restrictions, boycotts or
changes in consumer or purchaser preferences, sanctions, import and export
restrictions, tariffs or cyberattacks on the Russian government,
Russian companies or Russian individuals, including politicians, may impact
Russia’s economy, Russian issuers of securities in which the Funds
or Underlying
Funds invest, or the economies of Europe as a whole. Actual and threatened
responses to Russian military action may also
impact the markets for certain Russian commodities, such as oil and natural gas,
as well as other sectors of the Russian economy, and are
likely to have collateral impacts on such sectors across Europe and
globally.
Russia
Sanctions. Governments
in the U.S. and many other countries (collectively, the “Sanctioning
Bodies”) have imposed
economic sanctions on
certain Russian individuals, including politicians, and Russian corporate and
banking entities, including banning Russia from global payments
systems that facilitate cross-border payments. The Sanctioning Bodies, or
others, could also institute broader sanctions on Russia. These
sanctions, or even the threat of further sanctions, may result in the decline of
the value and liquidity of Russian securities, a weakening of the
ruble or other adverse consequences to the Russian economy. These sanctions
could also result in the immediate freeze of Russian securities
and/or funds invested in prohibited assets, impairing the ability of a Fund or
Underlying Fund to buy, sell, receive or deliver those
securities and/or assets.
The sanctions
against certain Russian issuers include prohibitions on transacting in or
dealing in issuances of debt or equity of such issuers. Compliance with
each of these sanctions has and may continue to impair the ability of an
Underlying Fund to buy, sell, hold, receive or deliver the affected
securities or other securities of such issuers. If it becomes impracticable or
unlawful for an Underlying Fund to hold securities subject to, or
otherwise affected by, sanctions (collectively, “affected
securities”), or if deemed
appropriate by BFA, an Underlying Fund may prohibit in-kind
deposits of the affected securities in connection with creation transactions and
instead require a cash deposit, which may also increase an
Underlying Fund's transaction costs. An Underlying Fund may also be legally
required to freeze assets in a blocked account.
Sanctions have
resulted in Russia taking counter measures or retaliatory actions, which has
impaired the value and liquidity of Russian securities.
These retaliatory measures include the immediate freeze of Russian assets
held by an Underlying Fund. Due to the freeze of any Underlying Fund
assets, including depositary receipts, an Underlying Fund may need to liquidate
non-restricted assets in order to satisfy any Fund redemption
orders. The liquidation of Underlying Fund assets during this time may also
result in an Underlying Fund receiving substantially
lower prices for its securities. Russia may implement additional retaliatory
measures, which may further impair the value and liquidity of
Russian securities and the ability of an Underlying Fund to receive dividend
payments. Recently, Russia has issued a number of
22
countersanctions,
some of which restrict the distribution of profits by limited liability
companies (e.g., dividends), and
prohibits Russian persons from
entering into transactions with designated persons from “unfriendly
states” as well as the
export of raw materials or other products from
Russia to certain sanctioned persons. Russian companies may be unable to pay
dividends and, if they pay dividends, the Fund may be unable to
receive them.
These sanctions,
the decision by Russia to suspend trading on the Moscow Exchange (MOEX) and
prohibit non-resident investors from executing security
sales, and other events have led to changes in certain of the underlying indexes
of the Underlying Funds. The Underlying Fund’s index
providers have removed Russian securities where present in an underlying index
of an Underlying Fund. To the extent that an Underlying Fund
rebalances its portfolio and trades in non-Russian securities to seek to track
the investment results of its underlying index, this may result in
transaction costs and increased tracking error. The Underlying Funds are
currently restricted from trading in Russian securities,
including those in their portfolios, while an Underlying Fund's underlying index
has removed Russian securities. For Underlying Funds with Russian
securities, this disparity will also lead to increased tracking error. The
inability of the Underlying Fund to trade in Russian securities may
adversely affect the Underlying Fund’s ability to meet its investment objective.
It is unknown when, or if, sanctions may be lifted or the
Underlying Fund’s ability to trade in Russian securities will
resume.
Also, if an
affected security is included in an Underlying Fund's underlying index, the
Underlying Fund may, where practicable, seek to eliminate its
holdings of the affected security by employing or augmenting its representative
sampling strategy to seek to track the investment results
of its underlying index. The use of (or increased use of) a representative
sampling strategy may increase the Underlying Fund’s tracking
error risk. If the affected securities constitute a significant percentage of an
Underlying Fund's underlying index, the Underlying Fund
may not be able to effectively implement a representative sampling strategy,
which may result in significant tracking error between the
Underlying Fund’s performance and the performance of its underlying
index.
Risk
of Investing in Saudi Arabia. The ability of
foreign investors (such as a Fund and Underlying
Fund) to invest in the securities of Saudi Arabian issuers is
relatively new. Such ability could be restricted by the Saudi Arabian government
at any time, and unforeseen risks could materialize with
respect to foreign ownership in such securities. In addition, the Saudi Arabian
government places investment limitations on the ownership of
Saudi Arabian issuers by foreign investors, including a limitation on a Fund’s
or an Underlying Fund's ownership of any single issuer
listed on the Saudi Arabian Stock Exchange, which may prevent an Underlying Fund
from investing in accordance with its strategy and
contribute to tracking error against its underlying index. Saudi Arabia is
highly reliant on income from the sale of petroleum and trade with other
countries involved in the sale of petroleum, and its economy is therefore
vulnerable to changes in foreign currency values and the market for
petroleum. As global demand for petroleum fluctuates, Saudi Arabia may be
significantly impacted. Like most Middle Eastern
governments, the government of Saudi Arabia exercises substantial influence over
many aspects of the private sector. Although liberalization in
the wider economy is underway, in many areas it has lagged significantly:
restrictions on foreign ownership persist, and the government has an
ownership stake in many key industries. The situation is exacerbated by the fact
that Saudi Arabia is governed by an absolute monarchy.
Saudi Arabia has historically experienced strained relations with economic
partners worldwide, including other countries in the Middle
East, due to geopolitical events. Governmental actions in the future could have
a significant effect on economic conditions in Saudi Arabia,
which could affect private sector companies and a Fund (or an Underlying
Fund), as well as the value of securities in a Fund’s or Underlying Fund's
portfolio. Any economic sanctions on Saudi Arabian individuals or Saudi Arabian
corporate entities, or even the threat of sanctions, may
result in the decline of the value and liquidity of Saudi Arabian securities, a
weakening of the Saudi riyal or other adverse consequences to
the Saudi Arabian economy. In addition, Saudi Arabia’s economy relies heavily on
cheap, foreign labor, and changes in the availability of
this labor supply could have an adverse effect on the economy.
Investments in the
securities of Saudi Arabian issuers involve risks not typically associated with
investments in securities of issuers in more developed
countries that may negatively affect the value of a Fund’s or Underlying
Fund's investments. Such heightened risks may include, among others,
expropriation and/or nationalization of assets, restrictions on and government
intervention in international trade, confiscatory taxation,
political instability, including authoritarian and/or military involvement in
governmental decision making, armed conflict, crime and instability as a
result of religious, ethnic and/or socioeconomic unrest. Although the political
situation in Saudi Arabia is largely stable, Saudi Arabia has
historically experienced political instability, and there remains the
possibility that instability in the larger Middle East region could adversely impact
the economy of Saudi Arabia. Political instability in the larger Middle East
region has caused significant disruptions to many industries.
Continued political and social unrest in these areas may negatively affect the
value of securities in a Fund’s or Underlying
Fund's portfolio.
Saudi
Arabia Broker Risk. There are a
number of different ways of conducting transactions in equity securities in the
Saudi Arabian market. A
Fund (or an Underlying Fund) generally expects to conduct its transactions in a
manner in which a Fund (or an Underlying Fund) would not be
limited by Saudi Arabian regulations to a single broker. However, there may be a
limited number of brokers who can provide services to a
Fund, which may have an adverse impact on the prices, quantity or timing of Fund
transactions. The limited number of brokers may impact a
Fund’s or an Underlying Fund’s ability to achieve best execution on securities
transactions. In addition, the limited number of brokers available
to a Fund (or an Underlying Fund) may make a Fund (or an Underlying
Fund) more susceptible to credit loss or trading disruptions in the
event of a default or business disruption by one or more of the available
brokers. Should a Fund’s or an Underlying Fund’s ability to use one
or more brokers be affected for any reason, this could disrupt the operations of
a Fund and affect the ability of a Fund to
23
track its
underlying index and/or cause a Fund’s shares to trade at a premium or discount
to NAV. A Fund may also incur losses due to the acts or omissions
of its brokers in the execution or settlement of any transaction or in the
transfer of any funds or securities.
Risk
of Investing in Taiwan. Investments in
Taiwanese issuers may subject the Fund to legal, regulatory, political, currency
and economic risks that are
specific to Taiwan. Specifically, Taiwan’s geographic proximity and history of
political contention with China have resulted in ongoing tensions
between the two countries. These tensions may materially affect the Taiwanese
economy and its securities market. Taiwan's economy
is export-oriented, so it depends on an open world trade regime and remains
vulnerable to fluctuations in the world economy. Rising
labor costs and increasing environmental consciousness have led some
labor-intensive industries to relocate to countries with cheaper work
forces, and continued labor outsourcing may adversely affect the Taiwanese
economy.
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. Circumstances could arise that could prevent the
timely payment of interest or principal on U.S. government debt, such as
reaching the legislative “debt
ceiling.” Such
non-payment would result in
substantial negative consequences for the U.S. economy and the global financial
system.
If U.S. 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. If these trends were
to continue, it may have an adverse impact on the U.S.
economy and the issuers in which a Fund or an Underlying
Fund invests.
Securities
Lending Risk. The Funds or an
Underlying Fund may engage in securities lending. Securities lending involves
the risk that the Funds or an Underlying
Fund may lose money because the borrower of the loaned securities fails to
return the securities in a timely manner or at all. A
Fund or an Underlying
Fund could also lose money in the event of a decline in the value of collateral
provided for loaned securities or a decline in
the value of any investments made with cash collateral. These events could also
trigger adverse tax consequences for a Fund or an Underlying
Fund. BlackRock Institutional Trust Company, N.A. (“BTC”), the securities
lending agent for the Funds and
the Underlying Funds,
will take into account the tax impact to shareholders of substitute payments for
dividends when managing the securities lending
program for the Funds and
the Underlying Funds.
Small-Capitalization
Companies Risk. Stock prices of
small-capitalization companies may be more volatile than those of larger
companies and, therefore,
the share price of an Underlying Fund that invests mostly in
small-capitalization companies may be more volatile than those of funds that
invest a larger percentage of their assets in stocks issued by mid- or
large-capitalization companies. Stock prices of small-capitalization companies are
generally more vulnerable than those of mid- or large-capitalization companies
to adverse business and economic
developments. Securities of small-capitalization companies may be thinly traded,
making it difficult for the Underlying Funds to buy and sell them. In
addition, small-capitalization companies are typically less financially stable
than larger, more established companies and may depend on a
small number of essential personnel, making these companies more vulnerable to
experiencing adverse effects due to the loss of personnel.
Small-capitalization companies also normally have less diverse product lines
than those of mid- or large-capitalization companies and are
more susceptible to adverse developments concerning their products.
Tax
Risk.
Because the Funds are expected to invest in the Underlying Funds, a Fund’s
realized losses on sales of shares of an Underlying Fund may be
indefinitely or permanently deferred as “wash
sales.” Distributions of
short-term capital gains by an Underlying Fund will be recognized as
ordinary income by a Fund and would not be offset by the Fund’s capital loss
carryforwards, if any. Capital loss carryforwards of an Underlying
Fund, if any, would not offset net capital gains of the Fund.
Technology
Sector Risk. Technology
companies, including information technology companies, face intense
competition, both domestically and
internationally, which may have an adverse effect on a company’s profit margins.
Technology companies may have limited product lines, markets, financial
resources or personnel. The products of technology companies may face
obsolescence due to rapid technological developments,
frequent new product introduction, unpredictable changes in growth rates and
competition for the services of qualified personnel.
Companies in the technology sector are heavily dependent on patent and other
intellectual property rights. A technology company’s loss or
impairment of these rights may adversely affect the company’s profitability.
Companies in the technology sector may face increased
government and regulatory scrutiny and may be subject to adverse government or
regulatory action. The technology sector may also be adversely
affected by changes or trends in commodity prices, which may be influenced or
characterized by unpredictable factors.
U.S.
Economic Risk. The U.S. is a
significant, and in some cases the most significant, trading partner of, or
foreign investor in, certain countries in which
an Underlying Fund invests. As a result, economic conditions of such
countries may be particularly affected by changes in the U.S. economy.
A decrease in U.S. imports or exports, new trade and financial regulations
or tariffs, changes in the U.S. dollar exchange rate or an
economic slowdown in the U.S. may have a material adverse effect on the
economic conditions of such countries and, as a result,
24
securities to
which an Underlying Fund has exposure. Circumstances could arise that could
prevent the timely payment of interest or principal on U.S.
government debt, such as reaching the legislative “debt
ceiling.” Such non-payment
would result in substantial negative consequences for
the U.S. economy and the global financial system.
Utilities
Sector Risk. Companies in the
utilities sector may be adversely affected by changes in exchange rates,
domestic and international competition, and
governmental limitations on rates charged to consumers. The value of regulated
utility debt securities (and, to a lesser extent, equity
securities) tends to have an inverse relationship to the movement of interest
rates. Deregulation may subject utility companies to greater
competition and may adversely affect their profitability. Federal legislation
may facilitate the construction of electric transmission lines not only by
public utilities but also by independent transmission developers, which could
increase competition in the wholesale electricity
markets. As deregulation allows utility companies to diversify outside of their
original geographic regions and their traditional lines of business,
utility companies may engage in riskier ventures. In addition, deregulation may
eliminate restrictions on the profits of certain utility companies,
but may also subject these companies to greater risk of loss. Companies in the
utilities industry may have difficulty obtaining an
adequate return on invested capital, raising capital, or financing large
construction projects during periods of inflation or unsettled capital
markets; face restrictions on operations and increased cost and delays
attributable to environmental considerations and regulation; find
that existing plants, equipment or products have been rendered obsolete by
technological innovations; or be subject to increased costs
because of the scarcity of certain fuels or the effects of man-made or natural
disasters. Existing and future regulations or legislation may
make it difficult for utility companies to operate profitably. Government
regulators monitor and control utility revenues and costs, and
therefore may limit utility profits. In certain countries, regulatory
authorities may also restrict utility companies’ access to new markets, thereby
diminishing these companies’ long-term prospects.
There is no assurance that regulatory authorities will grant rate increases in the future or that such increases will be adequate to permit the payment of dividends on stocks issued by a utility company. Energy conservation and changes in climate policy may also have a significant adverse impact on the revenues and expenses of utility companies.
There is no assurance that regulatory authorities will grant rate increases in the future or that such increases will be adequate to permit the payment of dividends on stocks issued by a utility company. Energy conservation and changes in climate policy may also have a significant adverse impact on the revenues and expenses of utility companies.
Valuation
Risk.
The price a Fund or an Underlying Fund could receive upon the sale of a
security or other asset may
differ from the Fund's or the Underlying
Fund's valuation of the security or other asset, particularly for
securities or other assets that trade in low volume or volatile markets, or assets
that are impacted by market disruption events 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 a Fund or an
Underlying Fund does not price its shares, the value
of the securities or other assets in the Fund's or the Underlying Fund's
portfolio may change on days or during time periods when the Fund or
the Underlying Fund will not be able to purchase or sell the Fund’s or the
Underlying Fund's shares. Authorized Participants who purchase or
redeem shares of a Fund or an
Underlying Fund on days when the Fund or the Underlying
Fund is holding fair-valued securities or
other instruments may receive fewer or more shares, or lower or higher
redemption proceeds, than they would have received had the
Fund or the Underlying
Fund not fair-valued securities or other instruments or used a different
valuation methodology. The Fund’s or the
Underlying Fund's ability to value investments may be impacted by technological
issues or errors by pricing services or other third-party
service providers.
A Further
Discussion of Other Risks
Each Fund may also
be subject to certain other risks associated with its investments and investment
strategies. The order of the below risk factors does not
indicate the significance of any particular risk factor.
Australasian
Economic Risk. The economies of
Australasia, which include Australia and New Zealand, are dependent on exports
from the energy,
agricultural and mining sectors. This makes Australasian economies susceptible
to fluctuations in the commodity markets. Australasian
economies are also increasingly dependent on their growing service industries.
Because the economies of Australasia are dependent on the
economies of their key trading partners, which include the U.S., China, Japan,
South Korea, as well as other Asian countries and certain
European countries, reduction in spending by any of these trading partners on
Australasian products and services, or negative changes in any of
these economies, may cause an adverse impact on some or all of the Australasian
economies. Economic events in key trading countries
can have a significant economic effect on the Australasian
economies.
Central
and South American Economic Risk. Certain Central
and South American countries have experienced high interest rates, economic
volatility, high levels of inflation, currency devaluations, regime changes,
government defaults and high unemployment rates. Additionally,
commodities such as oil and gas, minerals and metals represent a significant
percentage of the region’s exports, and the economies of
countries in the region are particularly sensitive to fluctuations in commodity
prices as a result. The impact of any of the foregoing events
in one country could have a significant effect on the entire
region.
Close-Out
Risk for Qualified Financial Contracts. Regulations
adopted by global prudential regulators require counterparties that are part
of
U.S. or foreign global systemically important banking organizations to include
contractual restrictions on close-out and cross-default in agreements
relating to qualified financial contracts. Qualified financial contracts include
agreements relating to swaps, currency forwards and other
derivatives as well as repurchase agreements and securities lending agreements.
The restrictions prevent the Funds from closing out a qualified
financial contract during a specified time period if the counterparty is subject
to resolution proceedings and also prohibit the
25
Funds from
exercising default rights due to a receivership or similar proceeding of an
affiliate of the counterparty. These requirements may increase credit
risk and other risks to the Funds.
Commodity
Risk. The energy,
materials, and agriculture sectors account for a large portion of the
exports of certain countries in which an Underlying Fund
invests. Any changes in these sectors or fluctuations in the commodity markets
could have an adverse impact on a country's economy.
Commodity prices may be influenced or characterized by unpredictable factors,
including, where applicable, high volatility,
changes in supply and demand relationships, weather, agriculture, trade,
pestilence, political instability, war, catastrophic events, changes in
interest rates and monetary and other governmental policies, action and
inaction, including price changes due to trade relations. Securities of
companies held by an Underlying Fund that are dependent on a single
commodity, or are concentrated in a single commodity sector, may
typically exhibit even higher volatility attributable to commodity
prices.
Communication
Services Sector Risk. The communication
services sector consists of both companies in the telecommunication services
industry as well
as those in the media and entertainment industry. Examples of companies in the
telecommunication services industry group include providers
of fiber-optic, fixed-line, cellular and wireless telecommunications networks.
Companies in the media and entertainment industry group
encompass a variety of services and products including television broadcasting,
gaming products, social media, networking platforms, online
classifieds, online review websites, and Internet search engines. Companies in
the communication services sector may be affected by
industry competition, substantial capital requirements, government regulation,
and obsolescence of communications products and services due
to technological advancement. Fluctuating domestic and international demand,
shifting demographics and often unpredictable
changes in consumer tastes can drastically affect a communication services
company's profitability. In addition, while all companies may be
susceptible to network security breaches, certain companies in the communication
services sector may be particular targets of hacking
and potential theft of proprietary or consumer information or disruptions in
service, which could have a material adverse effect on their
businesses.
The communication
services sector of a country’s economy is often subject to extensive government
regulation. The costs of complying with governmental
regulations, delays or failure to receive required regulatory approvals, or the
enactment of new regulatory requirements may negatively affect
the business of communications companies. Government actions around the world,
specifically in the area of pre-marketing clearance of
products and prices, can be arbitrary and unpredictable. The communications
services industry can also be significantly affected by
intense competition for market share, including competition with alternative
technologies such as wireless communications, product
compatibility and standardization, consumer preferences, rapid product
obsolescence, research and development of new products, lack of
standardization or compatibility with existing technologies, and a dependency on
patent and copyright protections. Companies in the communication
services sector may encounter distressed cash flows due to the need to commit
substantial capital to meet increasing competition,
particularly in developing new products and services using new technology.
Technological innovations may make the products and services of
certain communications companies obsolete.
Telecommunications
providers with exposure to the U.S. are generally required to obtain franchises
or licenses in order to provide services in a given location.
Licensing and franchise rights in the telecommunications sector are limited,
which may provide an advantage to certain participants.
Limited availability of such rights, high barriers to market entry and
regulatory oversight, among other factors, have led to consolidation of
companies within the sector, which could lead to further regulation or other
negative effects in the future. Telecommunication
providers investing in non-U.S. countries may be subject to similar risks.
Additional risks include those related to competitive
challenges in the U.S. from non-U.S. competitors engaged in strategic joint
ventures with U.S. companies and in non-U.S. markets from both
U.S. and non-U.S. competitors.
Companies in the
media and entertainment industries can be significantly affected by several
factors, including competition, particularly in formulation of
products and services using new technologies, cyclicality of revenues and
earnings, a potential decrease in the discretionary income of targeted
individuals, changing consumer tastes and interests, and the potential increase
in government regulation. Companies in the media and
entertainment industries may become obsolete quickly. Advertising spending can
be an important revenue source for media and entertainment
companies. During economic downturns advertising spending typically decreases
and, as a result, media and entertainment
companies tend to generate less revenue.
Consumer
Discretionary Sector Risk. The success of
consumer product manufacturers and retailers is tied closely to the performance
of domestic and
international economies, interest rates, exchange rates, supply chains,
competition, consumer confidence, changes in demographics and
consumer preferences. Companies in the consumer discretionary sector depend
heavily on disposable household income and consumer
spending, and may be strongly affected by social trends and marketing campaigns.
These companies may be subject to severe competition, which
may have an adverse impact on their profitability.
Consumer
Staples Sector Risk. Companies in the
consumer staples sector may be affected by the regulation of various product
components and
production methods, marketing campaigns and changes in the global economy,
consumer spending and consumer demand. Tobacco and
tobacco-related companies, in particular, may be adversely affected by new
laws, regulations and litigation. Companies in the consumer staples
sector may also be adversely affected by changes or trends in commodity prices,
which may be influenced by unpredictable
factors. These companies may be subject to severe competition, which may have an
adverse impact on their profitability.
26
Custody
Risk.
Custody risk refers to the risks inherent in the process of clearing and
settling trades, as well as the holding of securities by local banks,
agents and depositories. Low trading volumes and volatile prices in less
developed markets may make trades harder to complete and settle, and
governments or trade groups may compel local agents to hold securities in
designated depositories that may not be subject to independent
evaluation. Local agents are held only to the standards of care of their local
markets. In general, the less developed a country’s
securities markets are, the higher the degree of custody risk.
Illiquid
Investments Risk. A Fund may not
acquire any illiquid investment if, immediately after the acquisition, a Fund
would have invested more than 15% of
its net assets in illiquid investments. An illiquid investment is any investment
that a 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 a Fund, particularly during
periods of market turmoil. There can be no assurance 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 a Fund, and any
security or instrument held by a Fund may be deemed an illiquid investment
pursuant to a Fund’s liquidity risk management program. To the
extent a Fund holds illiquid investments, the illiquid investments may reduce
the returns of a Fund because a 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,
the lack of an active market for such securities or instruments,
capital controls, delays or limits on repatriation of local currency, or
insolvency of local governments. To the extent that a Fund invests in
securities or instruments with substantial market and/or credit risk, a 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. Although each Fund primarily seeks to
redeem shares of a Fund on an in-kind basis, if a Fund is forced to sell
underlying investments at reduced prices or under unfavorable
conditions to meet redemption requests or for other cash needs, a Fund may
suffer a loss. This may be magnified in a rising interest rate
environment or other circumstances where redemptions from a Fund may be greater
than normal. Other market participants may be attempting
to liquidate holdings at the same time as a Fund, causing increased supply of a
Fund’s underlying investments in the market and
contributing to illiquid investments risk and downward pricing pressure. In
addition, if a Fund is limited in its ability to sell illiquid investments during
periods when shareholders are redeeming their shares, a Fund will need to sell
liquid securities to meet redemption requests and
illiquid securities will become a larger portion of a Fund’s holdings. During
periods of market volatility, liquidity in the market for a Fund’s shares
may be impacted by the liquidity in the market for the underlying securities or
instruments held by a Fund, which could lead to a Fund’s shares
trading at a premium or discount to the Fund's NAV.
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. 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. To the
extent the Fund permits redemptions in 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.
Materials
Sector Risk. Companies in the
materials sector may be adversely affected by commodity price volatility,
exchange rate fluctuations,
social and political unrest, war, import or export controls, increased
competition, depletion of resources, technical advances, labor relations,
over-production, decreases in the demand for materials, litigation and
government regulations, among other factors. Companies in the
materials sector are also at risk of liability for environmental damage and
product liability claims and may incur significant environmental
remediation costs in complying with environmental laws. Production of materials
may exceed demand as a result of market imbalances or
economic downturns, leading to poor investment returns.
Middle
Eastern Economic Risk. Many Middle
Eastern countries have little or no democratic tradition, and the political and
legal systems in such countries may
adversely impact the companies in which the Fund or Underlying Fund
invests and, as a result, the value of the Fund or Underlying Fund.
Middle Eastern governments have exercised and continue to exercise substantial
influence over many aspects of the private sector.
Many economies in the Middle East are highly reliant on income from the sale of
oil and natural gas or trade with countries involved in the
sale of oil and natural gas, and their economies are therefore vulnerable to
changes in the market for oil and natural gas and foreign currency
values. As global demand for oil and natural gas fluctuates, many Middle Eastern
economies may be significantly impacted. A sustained
decrease in commodity prices could have a significant negative impact on all
aspects of the economy in the region. Middle
27
Eastern economies
may be subject to acts of terrorism, political strife, religious, ethnic or
socioeconomic unrest and sudden outbreaks of hostilities with
neighboring countries.
Certain Middle
Eastern countries have strained relations with other Middle Eastern countries
due to territorial disputes, historical animosities,
international alliances, religious tensions or defense concerns, which may
adversely affect the economies of these countries. Certain Middle
Eastern countries experience significant unemployment, as well as widespread
underemployment.
Many Middle
Eastern countries periodically have experienced political, economic and social
unrest as protestors have called for widespread reform. Some of
these protests have resulted in a governmental regime change, internal conflict
or civil war. If further regime changes were to occur, internal
conflict were to intensify, or a civil war were to continue in any of these
countries, such instability could adversely affect the economies of
Middle Eastern countries in which the Fund or Underlying Fund
invests and could decrease the value of the Fund’s or Underlying Fund's
investments.
Privatization
Risk. Some
countries in which the Underlying Funds have exposure have privatized, or
have begun the process of privatizing, certain entities
and industries. Newly privatized companies may face strong competition from
government-sponsored competitors that have not been
privatized. In some instances, investors in newly privatized entities have
suffered losses due to the inability of the newly privatized entities to adjust
quickly to a competitive environment or changing regulatory and legal standards
or, in some cases, due to re-nationalization of such privatized
entities. There is no assurance that similar losses will not recur.
Reliance
on Trading Partners Risk. The economies of
many countries or regions in which certain of the Underlying Funds
invest are highly dependent on
trading with certain key trading partners. Reduction in spending on products and
services by these key trading partners, institution of
tariffs or other trade barriers or a slowdown in the economies of key trading
partners may adversely affect the performance of any company in
which the Underlying Funds invest and have a material adverse effect on the
Underlying Funds' performance.
Risk
of Investing in Emerging Markets. Investments in
emerging market issuers are subject to a greater risk of loss than investments
in issuers located or
operating in more developed markets. This is due to, among other things, the
potential for greater market volatility, currency
devaluations, lower trading volume, higher levels of inflation, social,
political or economic instability, greater risk of a market shutdown and more
governmental limitations on foreign investments in emerging market countries
than are typically found in more developed markets.
Certain emerging
markets countries have experienced economic recessions causing a negative effect
on the economies and securities
markets of such emerging countries.
Some countries in
which the Fund may invest may experience economic instability, including
instability resulting from substantial rates of inflation or
significant devaluations of their currency, or economic recessions, which would
have a negative effect on the economies and securities markets
of their economies. Some of these countries may also impose restrictions on the
exchange or export of currency or adverse currency
exchange rates and may be characterized by a lack of available currency hedging
instruments.
Disparities of
wealth, the pace and success of democratization and ethnic, religious and racial
disaffection, among other factors, may exacerbate social
unrest, violence and labor unrest in some of the countries in which the Fund may
invest. Unanticipated or sudden political or social
developments may result in sudden and significant investment
losses.
Companies in many
emerging markets are not subject to the same degree of regulatory requirements,
accounting standards or auditor oversight as
companies in more developed countries, and as a result, information about the
securities in which the Funds invest may be less reliable or
complete. Moreover, emerging markets often have less reliable securities
valuations and greater risks associated with custody of securities than
developed markets. There may be significant obstacles to obtaining information
necessary for investigations into or litigation against companies
and shareholders may have limited legal remedies.
In addition,
emerging markets often have greater risk of capital controls through such
measures as taxes or interest rate control than developed markets.
Certain emerging market countries may also lack the infrastructure necessary to
attract large amounts of foreign trade and investment.
Chronic structural public sector deficits in some countries in which the Fund
may invest may adversely impact securities held by the
Fund.
Local securities
markets in emerging market countries may trade a small number of securities and
may be unable to respond effectively to changes in trading
volume, potentially making prompt liquidation of holdings difficult or
impossible at times. Settlement procedures in emerging market
countries are frequently less developed and reliable than those in the U.S. (and
other developed countries). In addition, significant delays
may occur in certain markets in registering the transfer of securities.
Settlement or registration problems may make it more difficult for
an Underlying Fund to value its portfolio securities and could have an adverse
effect on an Underlying Fund in seeking to achieve its
investment objective.
28
Investing in
emerging market countries involves a higher risk of loss due to expropriation,
nationalization, confiscation of assets and property or the imposition
of restrictions on foreign investments and on repatriation of capital invested
in certain emerging market countries. As a result,
investments in certain countries in which the Fund may invest may be subject to
loss due to expropriation or nationalization of assets and property or
the imposition of restrictions on foreign investments and repatriation of
capital.
Security
Risk. Some geographic
areas in which the Underlying Funds invest have experienced acts of
terrorism and strained international relations due to
territorial disputes, historical animosities, defense concerns and other
security concerns. These situations may cause uncertainty in the
markets of these geographic areas and may affect the performance of their
economies.
Subsidiary
Risk. By investing in a
Subsidiary, certain of the Underlying Funds are indirectly exposed to the risks
associated with the Subsidiary’s
investments. The commodity-related instruments that may be held by the
Subsidiaries are generally similar to those that are permitted to be
held by an Underlying Fund and are subject to the same risks that
apply to similar investments if held directly by each Underlying Fund.
There can be no assurance that the investment objective of the Subsidiaries will
be achieved. The Subsidiaries are not registered under
the 1940 Act, and, unless otherwise noted in the Prospectus, are not subject to
the investor protections of the 1940 Act. The Trust’s Board
of Trustees (the “Board”) has oversight
responsibility for the investment activities of each Underlying Fund, including
its investment in the
Subsidiaries, and each Underlying Fund’s role as sole shareholder of the
Subsidiaries. The Subsidiaries will be subject to the same
investment restrictions and limitations, and will follow the same compliance
policies and procedures, as each Underlying Fund.
To qualify as a
regulated investment company (“RIC”), at least 90% of
each Fund’s gross income for the taxable year must be “qualifying
income.” Each Fund
anticipates treating the income and gain generated from investments in
controlled foreign subsidiaries that invest in physical
commodities and/or commodity-linked derivative instruments as “qualifying
income” for RIC
qualification purposes. However, in the future, if the
U.S. Internal Revenue Service (“IRS”) issues
regulations or other guidance, or Congress enacts legislation, limiting the
circumstances in
which an Underlying Fund's income with respect to the Subsidiary will be
considered “qualifying
income,” the Underlying
Fund
might be required to make changes to its operations, which may reduce an
Underlying Fund's ability to gain investment exposure to commodities and
track the performance of its underlying index.
Threshold/Underinvestment
Risk.
If certain aggregate and/or fund-level ownership thresholds are reached through
transactions undertaken by BFA,
its affiliates or an Underlying Fund, or as a result of third-party transactions
or actions by an issuer or regulator, the ability of BFA and
its affiliates on behalf of clients (including an Underlying Fund) to purchase
or dispose of investments, or exercise rights or undertake business
transactions, may be restricted by regulation or otherwise impaired. The
capacity of an Underlying Fund to make investments in
certain securities may be affected by the relevant threshold limits, and such
limitations may have adverse effects on the liquidity and
performance of an Underlying Fund’s portfolio holdings.
For example, in
certain circumstances where an Underlying Fund invests in securities issued by
companies that operate in certain regulated industries or in
certain emerging or international markets, is subject to corporate or regulatory
ownership restrictions, or invests in certain futures or other
derivative transactions, there may be limits on the aggregate and/or fund-level
amount invested or voted by BFA and its affiliates for
their proprietary accounts and for client accounts (including an Underlying
Fund) that may not be exceeded without the grant of a license or other
regulatory or corporate consent or, if exceeded, may cause BFA and its
affiliates, the Fund or other client accounts to suffer
disadvantages or business restrictions.
Portfolio Holdings
Information
A description of
the Trust's policies and procedures with respect to the disclosure of each
Fund’s portfolio securities is available in the Funds' combined SAI. Each
Fund discloses its portfolio holdings daily at www.iShares.com. Fund fact sheets
providing information regarding each Fund's top
holdings are posted on www.iShares.com when available and may be requested by
calling 1-800-iShares (1-800-474-2737).
Management
Investment
Adviser. As investment
adviser, BFA has overall responsibility for the general management and
administration of the Funds. BFA provides an
investment program for each Fund and manages the investment of each Fund’s
assets. In managing the Funds, BFA may draw upon the research
and expertise of its asset management affiliates with respect to certain
portfolio securities. In seeking to achieve a Fund's investment
objective, BFA uses teams of portfolio managers, investment strategists and
other investment specialists. This team approach brings together
many disciplines and leverages BFA’s extensive resources.
Pursuant to the
Investment Advisory Agreement between BFA and the Trust (entered into on behalf
of the Funds), BFA is responsible for substantially all
expenses of the Funds, 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
29
fees or expenses,
and litigation expenses and any extraordinary expenses (as determined by a
majority of the Trustees who are not “interested
persons” of the Trust).
Operating expenses paid by BFA under the Investment Advisory Agreement exclude
Acquired Fund Fees and Expenses, if
any.
For its investment
advisory services to each Fund, BFA is paid a management fee from each Fund
based on a percentage of each Fund's average daily net
assets, at the annual rate of 0.00%.
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 June 30, 2023,
BFA and its affiliates provided investment advisory services for assets of
approximately $9.4 trillion. BFA and its affiliates trade and invest
for their own accounts in the actual securities and types of securities in which
the Funds 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 each Fund's Semi-Annual
Report for the period ending January 31, 2024.
Portfolio
Managers. Christopher Chung
and Suzanne Ly are primarily responsible for the day-to-day management of
the Funds. The Portfolio Managers
are responsible for various functions related to portfolio management,
including, but not limited to, investing cash inflows,
coordinating with members of their respective portfolio management team to focus
on certain asset classes, implementing investment
strategy, researching and reviewing investment strategy and overseeing members
of their respective portfolio management teams who have
more limited responsibilities.
Christopher Chung
has been with BlackRock since 2008, including his years with Barclays Global
Investors. Mr. Chung has been employed by BFA or its
affiliates as a portfolio manager since 2008 and has been a Portfolio Manager of
the Funds since inception (2023).
Suzanne Ly, CFA,
FRM has been with BlackRock since 2019. Ms. Ly has been employed by BFA or its
affiliates as a portfolio manager since 2019 and has been
a Portfolio Manager of the Funds since inception (2023).
The Funds' 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 Funds.
Administrator,
Custodian and Transfer Agent. Citibank, N.A.
(“Citibank”) is the
administrator, custodian and transfer agent for each Fund. JPMorgan Chase
Bank, N.A. serves as custodian for the Funds in connection with certain
securities lending activities.
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 Funds and
their 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
Funds. 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
Funds. BFA or one or more Affiliates act, or may act, as an investor, research
provider, 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 Funds may directly or indirectly
invests. The Funds 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 Funds 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 Funds 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 Funds or who engage in transactions with
or for the Funds, 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 Funds and/or that engage in and compete for
transactions in the same types of securities, currencies and
other instruments as the Funds. 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
Funds and BFA, to the extent permitted under the Investment
Company Act of 1940, as amended (the “1940
Act”)). The trading
activities of BFA and these Affiliates are carried out without reference to
positions held directly or indirectly by the Funds 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 Funds.
30
Neither BlackRock
nor any Affiliate is under any obligation to share any investment opportunity,
idea or strategy with the Funds. As a result, an Affiliate may
compete with the Funds for appropriate investment opportunities. The results of
the Funds' 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 Funds 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
Funds may, from time to time, enter into transactions in which BFA or an
Affiliate or its or their
directors, officers, employees or clients have an
adverse interest. Furthermore, transactions undertaken by clients advised or
managed by BFA or its Affiliates may adversely impact
the Funds. 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 Funds.
The Funds'
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, each Fund has retained BTC, 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.
Under an ETF
Services Agreement, the Funds have retained BlackRock Investments, LLC (the
“Distributor” or “BRIL”), an Affiliate of
BFA, to perform certain
order processing, Authorized Participant communications, and related services in
connection with the issuance and redemption of
Creation Units of the Funds (“ETF
Services”). BRIL will
retain a portion of the standard transaction fee received from Authorized
Participants on each creation or redemption order from the Authorized
Participant for the ETF Services provided. BlackRock collaborated with,
and received payment from, Citibank, on the design and development of the ETF
Services platform. Citibank may have, or from time to time
may develop, additional relationships with BlackRock or funds managed by BFA and
its affiliates.
It is also
possible that, from time to time, BlackRock 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 Funds. The
price, availability, liquidity, and (in some cases) expense ratio of
the Funds may be impacted by purchases and sales of the Funds by BlackRock
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 Funds and their 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 Funds, is
available free of charge by calling toll-free: 1-800-iShares
(1-800-474-2737) or visiting our website at www.iShares.com.
Buying
and Selling Shares. Shares of the
Funds may be acquired or redeemed directly from a Fund only in Creation Units or
multiples thereof, as
discussed in the Creations
and Redemptions section of this
Prospectus. Only an Authorized Participant may engage in creation or
redemption
transactions directly with a Fund. Once created, shares of the Funds generally
trade in the secondary market in amounts less than a Creation
Unit.
Shares of each
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 a Fund purchased
on an exchange or otherwise in the secondary market. The Funds' shares trade
under the ticker symbols listed on the front cover page of this
Prospectus.
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 Funds 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 each 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.
31
Each Fund does not
impose restrictions on the frequency of purchases and redemptions of Fund shares
directly with the Fund. The Board determined not to
adopt policies and procedures designed to prevent or monitor for frequent
purchases and redemptions of Fund shares because each Fund
generally sells and redeems its shares directly through transactions that are
in-kind and/or for cash, with a deadline for placing
cash-related transactions no later than the close of the primary markets for the
Fund’s portfolio securities. However, each Fund has taken certain
measures (e.g., imposing
transaction fees on purchases and redemptions of Creation Units and reserving
the right to reject purchases of
Creation Units under certain circumstances) to minimize the potential
consequences of frequent cash purchases and redemptions by
Authorized Participants, such as increased tracking error, disruption of
portfolio management, dilution to the Fund, and/or increased
transaction costs. Further, the vast majority of trading in Fund shares occurs
on the secondary market, which does not involve each Fund
directly, and such trading is unlikely to cause many of the harmful effects of
frequent cash purchases or redemptions of Fund shares.
The national
securities exchange on which each 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. Each Fund’s primary listing exchange is NYSE
Arca.
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. Although SEC rules may permit
registered investment companies and unit investment trusts
(“Investing
Funds”) that enter into
an investment agreement with the Trust to invest in iShares funds beyond the
limits set forth in Section
12(d)(1) of the 1940 Act subject to certain terms and conditions, the Fund does
not permit such investments. Accordingly, Investing Funds
must adhere to the limits set forth in Section 12(d)(1) of the 1940 Act when
investing in the Fund. In addition, 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
Funds 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 each
Fund.
Investors owning
shares of the Funds are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for
shares of the Funds. 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.
Share
Prices. The trading
prices of a 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 shares of underlying securities
held by the Funds, economic conditions and other
factors.
Determination
of Net Asset Value. The NAV
of each 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 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. The NAV
of each Fund is calculated by dividing the value of the net assets of a Fund
(i.e., the value of its
total assets, which includes the
values of the Underlying Fund shares in which the Fund invests, 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 each Fund is 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 1940 Act.
Equity securities
and other equity instruments for which market quotations are readily available
are valued at market value, which is generally determined using
the last reported official closing price or, if a reported closing price is not
available, the last traded price on the exchange or market on which
the security or instrument is primarily traded at the time of valuation. Shares
of underlying open-end funds (including money market funds) are
valued at net asset value. Shares of underlying exchange-traded closed-end funds
or other ETFs are valued at their most recent closing
price.
32
Generally, trading
in non-U.S. securities and money market instruments is substantially completed
each day at various times prior to the close of regular
trading hours of the NYSE. The values of such securities used in computing the
NAV of the Funds 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 a 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 a 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, a 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 a 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 a 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 at least once a
year by each Fund. Each Fund generally
distributes its net capital gains, if any, to shareholders annually.
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
each 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 RIC or to avoid imposition of
income or excise taxes on undistributed income or realized gains.
Dividends and
other distributions on shares of each 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 a Fund.
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 a 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 a Fund purchased
in the secondary market.
Note
on Tax Information.
The following sections summarize 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.
Certain states and localities may exempt from tax distributions attributable to
interest from U.S. federal government obligations. Consult
your personal tax advisor about the potential tax consequences of an investment
in shares of the Fund under all applicable tax laws.
Taxes. As with any
investment, you should consider how your investment in shares of the Funds will
be taxed. The tax information in this Prospectus is
provided as general information, based on current law. You should consult your
own tax professional about the tax consequences of an
investment in shares of the Funds.
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 a Fund makes distributions or
you sell Fund shares.
Taxes
on Distributions. Distributions
from a Fund’s net investment income (other than qualified dividend income),
including distributions of
income from
securities lending and distributions out of a Fund’s net short-term capital
gains, if any, are taxable to you as ordinary income. Distributions by a
Fund of net long-term capital gains, if any, in excess of net short-term capital
losses (capital gain dividends) are taxable to you as long-term
capital gains, regardless of how long you have held a Fund’s shares.
Distributions by a Fund that qualify as qualified dividend income
are taxable to you at long-term capital gain rates. Long-term capital gains and
qualified dividend income are generally eligible for
taxation at a maximum rate of 15% or 20% for non-corporate shareholders,
depending on whether their income exceeds certain threshold amounts.
In addition, a 3.8% U.S. federal Medicare contribution tax is imposed on
“net investment
income,” including, but
not limited to,
interest, dividends, and net gain, of U.S. individuals with income exceeding
$200,000 (or $250,000 if married and filing jointly) and of estates and
trusts.
33
Dividends will be
qualified dividend income to you if they are attributable to qualified dividend
income received by a Fund. Generally, qualified dividend income
includes dividend income from taxable U.S. corporations and qualified non-U.S.
corporations, provided that a Fund satisfies certain holding
period requirements in respect of the stock of such corporations and has not
hedged its position in the stock in certain ways. Substitute
dividends received by a Fund with respect to dividends paid on
securities lent out will not be qualified dividend income. For this purpose, a
qualified non-U.S. corporation means any non-U.S. corporation that is eligible
for benefits under a comprehensive income tax treaty with the
U.S., which includes an exchange of information program, or if the stock with
respect to which the dividend was paid is readily tradable on an
established U.S. securities market. The term excludes a corporation that is a
passive foreign investment company.
Dividends received
by a Fund from a RIC generally are qualified dividend income only to the extent
such dividend distributions are made out of qualified
dividend income received by such RIC. Additionally, it is expected that
dividends received by a Fund from a REIT and distributed to a shareholder
generally will be taxable to the shareholder as ordinary income. However, for
tax years beginning after December 31, 2017 and before January
1, 2026, the Fund may report dividends eligible for a 20% “qualified business
income” deduction for
non-corporate U.S. shareholders to
the extent the Fund’s income is derived from ordinary REIT dividends, reduced by
allocable Fund expenses.
For a dividend to
be treated as qualified dividend income, the dividend must be received with
respect to a share of stock held without being hedged by a Fund,
and with respect to a share of a Fund held without being hedged by you, for 61
days during the 121-day period beginning at the date which
is 60 days before the date on which such share becomes ex-dividend with respect
to such dividend or, in the case of certain preferred
stock, 91 days during the 181-day period beginning 90 days before such
date.
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.
Short term capital
gains earned by an Underlying Fund will be ordinary income when distributed to
the Fund and will not be offset by the Fund's capital
losses. Because each Fund is expected to invest in its
respective Underlying Funds, each Fund’s realized losses on sales of
shares of an
Underlying Fund may be indefinitely or permanently deferred as “wash
sales”. Capital
loss carryforwards of an Underlying Fund, if any, would not
offset net capital gains of the Fund.
If a 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 a Fund’s minimum distribution requirements, but not in excess of a
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 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 a Fund as capital
assets.
Dividends,
interest and capital gains earned by an Underlying Fund with respect to
securities issued by non-U.S. issuers may give rise to withholding 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 an Underlying 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.”) (and 50% of the
total
assets of a Fund at the close of the year consists of foreign securities,
or, at the close of each quarter, shares of Underlying Funds), a
Fund
may “pass
through” to you certain
non-U.S. income taxes (including withholding taxes) paid by the Fund or an
Underlying Fund.
For purposes of
foreign tax credits for U.S. shareholders of each Fund, foreign capital gains
taxes may not produce associated foreign source income, thereby
limiting a U.S. person’s ability to use such credits.
If you are neither
a resident nor a citizen of the U.S. or if you are a non-U.S.
corporation (other than a pass-through entity to the extent owned by U.S.
persons), a 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 long-term capital
gains or upon the sale or other disposition of shares of a
Fund.
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
34
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 your Fund
shares are loaned out pursuant to a securities lending arrangement, you may lose
the ability to treat Fund dividends paid while the shares are
held by the borrower as qualified dividend income. In addition, 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 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.
Creations
and Redemptions. Prior to trading
in the secondary market, shares of each 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 Funds’ Distributor, an affiliate of BFA. 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.
A creation
transaction, which is subject to acceptance by the Distributor and a Fund,
generally takes place when an Authorized Participant deposits into a
Fund a designated portfolio of securities, assets or other positions (a
“creation
basket”), and an amount
of cash (including any cash representing
the value of substituted securities, assets or other positions), if any, which
together approximate the holdings of a Fund in exchange for a
specified number of Creation Units. Similarly, shares can be redeemed only in
Creation Units, generally for a designated portfolio of
securities, assets or other positions (a “redemption
basket”) held by a Fund
and an amount of cash (including any portion of such securities for
which cash may be substituted). The Funds may, in certain circumstances, offer
Creation Units partially or solely for cash. Except when
aggregated in Creation Units, shares are not redeemable by a Fund. Creation and
redemption baskets may differ and a Fund may accept
“custom
baskets.” More information
regarding custom baskets is contained in the Funds’ 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 a Fund. Authorized
Participants may create or redeem Creation Units for their
own accounts or for customers, including, without limitation, affiliates of a
Fund.
In the event of a
system failure or other interruption, including disruptions at market makers or
Authorized Participants, orders to purchase or redeem Creation
Units either may not be executed according to the Fund’s instructions or may not
be executed at all, or each Fund may not be able to place
or change orders.
Each Fund intends
to comply with the U.S. federal securities laws in accepting securities for
deposits and satisfying redemptions with redemption
securities by, among other means, assuring that any securities accepted for
deposits 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
Fund
Securities that are restricted securities eligible for resale under Rule
144A.
Creations and
redemptions must be made through a firm that is either a member of the
Continuous Net Settlement System of the National Securities
Clearing Corporation or a DTC participant and has executed an agreement with the
Distributor with respect to creations and redemptions of
Creation Unit aggregations. Information about the procedures regarding creation
and redemption of Creation Units (including the cut-off times
for receipt of creation and redemption orders) is included in the Funds’
SAI.
Because new shares
may be created and issued on an ongoing basis, at any point during the life of a
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 and 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.
35
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.
36
Distribution
The Distributor or
its agent distributes Creation Units for each Fund on an agency basis. The
Distributor does not maintain a secondary market in shares
of the Funds. The Distributor has no role in determining the policies of any
Fund or the securities that are purchased or sold by any Fund. The
Distributor’s principal address is 50 Hudson Yards, New York, NY
10001.
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 Funds and certain other iShares funds available to their
customers generally and in certain investment programs. Such payments, which may
be significant to the intermediary, are not made by the
Funds. 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 iShares funds complex. 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
Funds or other iShares funds over another investment. More information regarding
these payments is contained in the Funds' 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.
Financial
Highlights
Financial
highlights for the Funds are not available because, as of the effective date of
this Prospectus, the Funds have not commenced operations and
therefore have no financial highlights to report.
37
Disclaimer
Shares
of the Funds are not sponsored, endorsed or promoted by NYSE Arca. NYSE Arca
makes no representation or warranty, express
or implied, to the owners of shares of the Funds or any member of the public
regarding the ability of the Funds to track the
total return performance of the Benchmark or the ability of the Benchmark to
track market performance. NYSE Arca is not responsible
for, nor has it participated in, the determination of the compilation or the
calculation of the Benchmark, nor in the determination
of the timing of, prices of, or quantities of shares of the Funds to be issued,
nor in the determination or calculation
of the equation by which the shares are redeemable. NYSE Arca has no obligation
or liability to owners of shares of the
Funds in connection with the administration, marketing or trading of shares of
the Funds.
38
Want to know
more?
iShares.com
| 1-800-474-2737 (1-800-iShares)
Information on the
Funds' net asset value, market price, premiums and discounts, and bid-ask
spreads can be found at www.iShares.com. Copies of the
Prospectus, SAI, shareholder reports and other information, as applicable and
when available, can be found on our
website at www.iShares.com. For more information about the Funds, you may
request a copy of the SAI. The SAI provides detailed
information about the Funds and is incorporated by reference into this
Prospectus. This means that the SAI, for legal purposes, is a
part of this Prospectus.
Additional
information about each Fund's investments is, or will be, available in the
Fund's Annual and Semi-Annual Reports to shareholders. In the
Fund's Annual Report, you will find a discussion of the market conditions and
investment strategies that significantly
affected the Fund's performance during the last fiscal year.
If you have any
questions about the Trust or shares of the Funds or you wish to obtain the SAI,
Semi-Annual or Annual Report free of charge,
please:
|
Call: |
1-800-iShares
or 1-800-474-2737 (toll free)
Monday
through Friday, 8:30 a.m. to 6:30 p.m. (Eastern
time) |
|
Email: |
|
|
Write: |
c/o
BlackRock Investments, LLC
1
University Square Drive, Princeton, NJ
08540 |
Reports and other
information about the Funds 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 each
Fund
and its shares not contained in this Prospectus
and you should not rely on any other information. Read and keep this Prospectus
for future reference.
©2023 BlackRock, Inc.
All rights reserved. iSHARES and BLACKROCK are registered
trademarks of BFA and its affiliates. All other marks are the
property of their respective owners.
Investment Company
Act File No.: 811-09729
IS-P-LIFEPATH-1023A
