2023
Prospectus
BlackRock ETF Trust
BlackRock
Advantage Large Cap Income
ETF | BALI | CBOE
The Securities and Exchange Commission (“SEC”) has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
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Not FDIC Insured • May Lose Value • No Bank
Guarantee |
BlackRock® is a registered trademark of
BlackRock Fund Advisors and its affiliates.
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BLACKROCK
ADVANTAGE LARGE CAP INCOME ETF
Ticker:
BALI
Stock
Exchange: CBOE
Investment
Objective
The
BlackRock Advantage Large Cap Income ETF (the “Fund”) seeks consistent income
with lower volatility than the broader U.S. equity
market.
Fees
and Expenses
The
following table describes the fees and expenses that you will incur if you buy,
hold and sell shares of the Fund. The investment advisory agreement between
BlackRock ETF Trust (the “Trust”) and BlackRock Fund Advisors (“BFA”) (the
“Investment Advisory Agreement”) provides that BFA will pay all operating
expenses of the Fund, except: (i) the management fees, (ii) interest
expenses, (iii) taxes, (iv) expenses incurred with respect to the
acquisition and disposition of portfolio securities and the execution of
portfolio transactions, including brokerage commissions, (v) distribution
fees or expenses, and (vi) litigation expenses and any extraordinary
expenses. The Fund may incur “Acquired Fund Fees and Expenses.” Acquired Fund
Fees and Expenses reflect the Fund’s pro rata share of the fees and expenses
incurred indirectly by the Fund as a result of investing in other investment
companies. The impact of Acquired Fund Fees and Expenses is included in the
total returns of the Fund.
You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Annual Fund Operating Expenses (ongoing
expenses that you pay each year as a percentage of the value of your
investments) |
Management Fees1 |
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Distribution and Service (12b‑1) Fees |
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Other Expenses |
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Total Annual Fund Operating Expenses |
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Fee Waiver1 |
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Total Annual Fund Operating Expenses After Fee Waiver1 |
0.35% |
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None |
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None |
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0.35% |
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— |
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0.35% |
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1 |
As
described in the “Management” section of the Fund’s prospectus beginning
on page 17, BFA has contractually agreed to waive a portion of its
management fees in an amount equal to the aggregate Acquired Fund Fees and
Expenses, if any, attributable to investments by the Fund in other funds
advised by BFA or its affiliates through June 30,
2025. The agreement may be terminated upon 90 days’ notice
by a majority of the non‑interested trustees of the Trust or by a vote of
a majority of the outstanding voting securities of the
Fund. |
Example. This Example is
intended to help you compare the cost of owning shares of the Fund with the cost
of investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then sell all of your shares at the end
of those periods. The Example also assumes that your investment has a 5% return
each year and that the Fund’s operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions, your costs
would be:
Portfolio
Turnover. The Fund
may pay transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These costs,
which are not reflected in the
Annual Fund Operating Expenses or in the Example, affect the Fund’s performance.
There has been no portfolio turnover because the Fund has not commenced
operations as of the date of this prospectus (the
“Prospectus”).
S-1
Principal
Investment Strategies
Under
normal market conditions, the Fund invests at least 80% of its net assets (plus
any borrowings for investment purposes) in large cap equity securities and
derivatives that have similar economic characteristics to such securities. The
Fund seeks to achieve its investment objective by employing the following
strategies:
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holding
long positions in U.S. large cap equity
securities, |
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selling
(writing) call options on a large cap equity index, such as the S&P
500 Index, and |
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buying
futures on a large cap equity index, such as the S&P 500
Index. |
The
Fund will invest primarily in equity securities of large cap companies. For
purposes of the Fund’s 80% test, large cap equity securities are equity
securities of companies that, at the time of purchase, have a market
capitalization within the range of companies included in the S&P 500 Index.
As of July 31, 2023, the market capitalization range of companies included
in the S&P 500 Index is $3.9 billion to $3.1 trillion. Equity
securities include common stock, preferred stock and convertible securities or
other financial instruments that are components of, or have characteristics
similar to, securities included in a large cap equity index, such as the S&P
500 Index. From time to time, the Fund may invest in shares of companies through
initial public offerings (“IPOs”).
To
generate income, the Fund will sell (write) call options on a large cap equity
index, such as the S&P 500 Index. An options contract is an agreement
between a buyer and seller that gives the purchaser of the option the right to
buy (in the case of a call option) a particular asset at a specified future date
at an agreed upon price (commonly known as the “strike price”). When the Fund
writes (sells) a call option, the Fund is entitled to receive a premium.
Although not perfectly correlated, such call options may have the impact of
capping potential gains from the Fund’s long position in equity securities.
Therefore, to reduce the potential impact of this cap on the potential gains
(with actual results dependent on various factors including the degree of
options and futures activity over time), the Fund will buy futures on a large
cap equity index.
The
Fund seeks to pursue its investment objective by investing in securities in a
disciplined manner, by using proprietary return forecast models
that
incorporate
quantitative analysis. These forecast models are designed to prioritize insights
that demonstrate downside protection as well as identify aspects of mispricing
across stocks which the Fund can seek to capture by over- and under-weighting
particular equity securities while seeking to control incremental risk. BFA then
constructs and rebalances the portfolio by integrating its investment insights
with the model-based optimization process.
Summary
of Principal Risks
As with any investment, you could lose all or part of your
investment in the Fund, and the Fund’s performance could trail that of other
investments. The Fund is subject to certain risks, including the
principal risks noted below, any of which may adversely affect the Fund’s net
asset value per share (“NAV”), trading price, yield, total return and ability to
meet its investment objective. Unlike many exchange-traded funds (“ETFs”), the
Fund is not an index-based ETF. The relative significance of each risk factor
below may change over time and you should review each risk factor
carefully.
Model
Risk. The Fund seeks to pursue its investment objective by using
proprietary models that incorporate quantitative analysis. Investments selected
using these models may perform differently than as forecasted due to the factors
incorporated into the models and the weighting of each factor, changes from
historical trends, and issues in the construction and implementation of the
models (including, but not limited to, software issues and other technological
issues). There is no guarantee that BFA’s use of these models will result in
effective investment decisions for the Fund. The information and data used in
the models may be supplied by third parties. Inaccurate or incomplete data may
limit the effectiveness of the models. In addition, some of the data that BFA
uses may be historical data, which may not accurately predict future market
movement. There is a risk that the models will not be successful in selecting
investments or in determining the weighting of investment positions that will
enable the Fund to achieve its investment
objective.
Equity Securities
Risk. Equity securities are
subject to changes in value, and their values may be more volatile than those of
other asset classes. Common stocks 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.
S-2
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.
Call Option Risk.
When the Fund sells call options on a large cap equity index, it
receives a premium but it takes on the risk that these options may reduce any
profit from increases in the market value of the long equity positions held by
the Fund. Any such reduction in profits would be the difference between the
payoff of the call option and the premium received. The Fund would also retain
the risk of loss if the long equity positions decline in value. The premiums
received from the options may not be sufficient to offset any losses sustained
from the long equity positions.
Factors
that may influence the value of the options generally include the underlying
asset’s price, interest rates, dividends, the actual and implied volatility
levels of the underlying asset’s price, and the remaining time until the options
expire, among others. The value of the options written by the Fund typically do
not increase or decrease at the same rate as the underlying asset’s price on a
day‑to‑day basis due to these factors.
Implied
volatility is one of the primary inputs in options pricing. As volatility
increases, the value of an option also increases (and vice-versa). Changes in
the level of volatility can affect the amount of premium the Fund will receive
from writing options.
In
less liquid markets, initiating or terminating the options positions may require
the acceptance of a discounted price or payment of a premium and may take longer
to complete. In a less liquid market, the purchase or liquidation of a large
number of options may significantly impact the price of the options and may
adversely impact the value of your investment. Additionally, to the extent
market participants are not willing or able to enter into option transactions
with the Fund at prices that reflect the market price of the Fund shares, the
Fund’s NAV and, in turn the share price of the Fund, could be negatively
impacted.
Futures Contract
Risk. Futures are
standardized, exchange-traded contracts that obligate a purchaser to take
delivery, and a seller to make delivery, of a
specific
amount of an asset at a specified future date at a specified price. Unlike
equities, which typically entitle the holder to a continuing ownership stake in
an issuer, futures contracts normally specify a certain date for settlement in
cash based on the level of the reference rate. The primary risks associated with
the use of futures contracts are: (i) the imperfect correlation between the
change in market value of the index and the price of the futures contract;
(ii) possible lack of a liquid secondary market for a futures contract and
the resulting inability to close a futures contract when desired;
(iii) losses caused by unanticipated market movements, which are
potentially unlimited; (iv) BFA’s inability to predict correctly the
direction of prices and other economic factors; and (v) the possibility
that the counterparty will default in the performance of its
obligations.
Distribution Tax
Risk. The Fund currently expects to make distributions on a
regular basis. While the Fund will normally pay its income as distributions, the
Fund’s distributions may exceed the Fund’s income and gains for the Fund’s
taxable year. The Fund may be required to reduce its distributions if it has
insufficient income. Distributions in excess of the Fund’s current and
accumulated earnings and profits will be treated as a return of capital.
Distributions in excess of the Fund’s minimum distribution requirements, but not
in excess of the Fund’s earnings and profits, will be taxable to Fund
shareholders and will not constitute nontaxable returns of capital. A return of
capital distribution generally will not be taxable but will reduce the
shareholder’s cost basis and will result in a higher capital gain or lower
capital loss when those Fund shares on which the distribution was received are
sold. Once a Fund shareholder’s cost basis is reduced to zero, further
distributions will be treated as capital gain, if the Fund shareholder holds
shares of the Fund as capital assets. Because the Fund’s distributions may
consist of return of capital, the Fund may not be an appropriate investment for
investors who do not want their principal investment in the Fund to decrease
over time or who do not wish to receive return of capital in a given
period.
Counterparty
Risk. Derivatives, such as
futures contracts, are subject to counterparty risk, which is the risk that the
other party in the transaction will be unable or unwilling to fulfill its
contractual obligation, and the related risks of having concentrated exposure to
such a counterparty.
Clearing Member
Default Risk. Transactions
in some types of derivatives, including options and
S-3
futures,
are required to be centrally cleared (“cleared derivatives”). In a transaction
involving cleared derivatives, the Fund’s counterparty is a clearing house, such
as the Options Clearing Corporation (“OCC”), rather than a bank or broker. Since
the Fund is not a member of clearing houses and only members of a clearing house
(“clearing members”) can participate directly in the clearing house, the Fund
will hold cleared derivatives through accounts at clearing members. In cleared
derivatives positions, the Fund will make payments (including margin payments)
to and receive payments from a clearing house through their accounts at clearing
members. Customer funds held at a clearing organization in connection with any
options contracts are held in a commingled omnibus account and are not
identified to the name of the clearing member’s individual customers. As a
result, assets deposited by the Fund with any clearing member as margin for
options may, in certain circumstances, be used to satisfy losses of other
clients of the Fund’s clearing member. In addition, although clearing members
guarantee performance of their clients’ obligations to the clearing house, there
is a risk that the assets of the Fund might not be fully protected in the event
of the clearing member’s bankruptcy, as the Fund would be limited to recovering
only a pro rata share of all available funds segregated on behalf of the
clearing member’s customers for the relevant account class. The Fund is also
subject to the risk that a limited number of clearing members are willing to
transact on the Fund’s behalf, which heightens the risks associated with a
clearing member’s default. If a clearing member defaults, the Fund could lose
some or all of the benefits of a transaction entered into by the Fund with the
clearing member. If the Fund cannot find a clearing member to transact with on
the Fund’s behalf, the Fund may be unable to effectively implement its
investment strategy.
High Portfolio
Turnover Risk. The
Fund may engage in active and frequent trading of its portfolio securities or
other assets. High portfolio turnover (considered by the Fund to mean
higher than 100% annually) may result in increased transaction costs to the
Fund, including brokerage commissions, dealer mark‑ups and other transaction
costs on the sale of the securities and on reinvestment in other securities.
Given the frequency of sales, in any given year, all or a substantial portion of
such gain or loss may be short-term capital gain or loss and, in the event of
either net short-term or long-term realized gain, would increase an investor’s
tax liability unless shares are held through a tax‑deferred or exempt vehicle.
These effects of higher than normal portfolio turnover may adversely affect
Fund performance.
Assets Under
Management (AUM) Risk. From time to time, an Authorized
Participant (as defined in the Creations and
Redemptions section of this Prospectus), a third-party investor, the
Fund’s adviser or an affiliate of the Fund’s adviser, or a fund may invest in
the Fund and hold its investment for a specific period of time in order to
facilitate commencement of the Fund’s operations or to allow the Fund to achieve
size or scale. There can be no assurance that any such entity would not redeem
its investment or that the size of the Fund would be maintained at such levels,
which could negatively impact the Fund.
Authorized
Participant Concentration Risk. Only an Authorized Participant (as
defined in the Creations and Redemptions
section of this Prospectus) may engage in creation or redemption
transactions directly with the Fund, and none of those Authorized Participants
is obligated to engage in creation and/or redemption transactions. The Fund has
a limited number of institutions that may act as Authorized Participants on an
agency basis (i.e., on behalf of other
market participants). To the extent that Authorized Participants exit the
business or are unable to proceed with creation or redemption orders with
respect to the Fund and no other Authorized Participant is able to step forward
to create or redeem, Fund shares may be more likely to trade at a premium or
discount to NAV and possibly face trading halts or
delisting.
Cybersecurity
Risk. Failures or breaches
of the electronic systems of the Fund, the Fund’s adviser, distributor, and
other service providers, market makers, Authorized Participants, hedging
counterparties to the Fund or the issuers of securities in which the Fund
invests have the ability to cause disruptions, negatively impact the Fund’s
business operations and/or potentially result in financial losses to the Fund
and its shareholders. While the Fund has established business continuity plans
and risk management systems seeking to address system breaches or failures,
there are inherent limitations in such plans and systems. Furthermore, the Fund
cannot control the cybersecurity plans and systems of the Fund’s service
providers, market makers, Authorized Participants, hedging counterparties to the
Fund or issuers of securities in which the Fund
invests.
S-4
Depositary Receipts
Risk. The Fund will invest in stocks of foreign corporations. The
Fund’s investment in such stocks will be in the form of depositary receipts
including American Depositary Receipts (“ADRs”) and Global Depositary Receipts
(“GDRs”). While the use of ADRs and GDRs, which are traded on exchanges and
represent an ownership in a foreign security, provide an alternative to directly
purchasing the underlying foreign securities in their respective markets and
currencies, investments in ADRs and GDRs continue to be subject to many of the
risks associated with investing directly in foreign securities, including
political, economic, and currency risk.
Derivatives
Risk. The Fund may invest in certain types of derivatives
contracts, including options and futures, 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. The Fund’s use of
derivatives for hedging purposes are sometimes subject to imperfect matching
between the derivative and the underlying index, and there can be no assurance
that the Fund’s hedging strategy will be effective. The hedging strategy may
also result in certain adverse tax
consequences.
Infectious Illness
Risk. A widespread
outbreak of an infectious illness, such as the COVID‑19 pandemic, may result in
travel restrictions, disruption of healthcare services, prolonged quarantines,
cancellations, supply chain disruptions, business closures, lower consumer
demand, layoffs, ratings downgrades, defaults and other significant economic,
social and political impacts. Markets may experience temporary closures, extreme
volatility, severe losses, reduced liquidity and increased trading costs. Such
events may adversely affect the Fund and its investments and may impact the
Fund’s ability to purchase or sell securities or cause increased premiums or
discounts to the Fund’s NAV. Despite the development of vaccines, the duration
of the COVID‑19 pandemic and its effects cannot be predicted with
certainty.
Investment Companies
and ETFs Risk. Subject to
the limitations set forth in the Investment Company Act of 1940, as amended (the
“1940 Act”) and the rules thereunder, the Fund may acquire shares in other
investment companies and in ETFs, some of which may be affiliated investment
companies. The market value of the shares of other investment companies and ETFs
may differ from their net asset value. As an investor in investment companies
and
ETFs,
the Fund would bear its ratable share of that entity’s expenses, including its
investment advisory and administration fees, while continuing to pay its own
advisory and administration fees and other expenses (to the extent not offset by
BFA through waivers). As a result, shareholders will be absorbing duplicate
levels of fees with respect to investments in other investment companies and
ETFs (to the extent not offset by BFA through
waivers).
The
securities of other investment companies and ETFs in which the Fund may invest
may be leveraged. As a result, the Fund may be indirectly exposed to leverage
through an investment in such securities. An investment in securities of other
investment companies and ETFs that use leverage may expose the Fund to higher
volatility in the market value of such securities and the possibility that the
Fund’s long-term returns on such securities (and, indirectly, the long-term
returns of shares of the Fund) will be
diminished.
As
with other investments, investments in other investment companies, including
ETFs, are subject to market and selection risk. To the extent the Fund is held
by an affiliated fund, the ability of the Fund itself to hold other investment
companies may be limited.
Large Shareholder and
Large-Scale Redemption Risk. Certain shareholders, including an Authorized
Participant, a third-party investor, the Fund’s adviser or an affiliate of the
Fund’s adviser, a market maker, or another entity, may from time to time own or
manage a substantial amount of Fund shares, or may invest in the Fund and hold
their investment for a limited period of time. There can be no assurance that
any large shareholder or large group of shareholders would not redeem their
investment.
Leverage
Risk. The Fund’s use of derivative contracts may give risk to a
form of economic leverage and may expose the Fund to greater risk and increase
its costs. The use of leverage may cause the Fund to liquidate portfolio
positions when it may not be advantageous to do so to satisfy its obligations or
to meet the applicable requirements of the 1940 Act, and the rules thereunder.
Increases and decreases in the value of the Fund’s portfolio may be magnified
when the Fund uses leverage.
Management
Risk. The Fund is subject to management risk, which is the risk
that the investment process, techniques and analyses applied by BFA will not
produce the desired results, and those securities or other financial instruments
selected by
S-5
BFA
may result in returns that are inconsistent with the Fund’s investment
objective. In addition, legislative, regulatory, or tax developments may affect
the investment techniques available to BFA in connection with managing the Fund
and may also adversely affect the ability of the Fund to achieve its investment
objective.
Market
Risk. The Fund could lose
money over short periods due to short-term market movements and over longer
periods during more prolonged market downturns. Local, regional or global events
such as war, acts of terrorism, the spread of infectious illness or other public
health issues, recessions, or other events could have a significant impact on
the Fund and its investments and could result in increased premiums or
discounts to the Fund’s NAV.
Market Trading
Risk. The Fund faces
numerous market trading risks, including the potential lack of an active market
for Fund shares, losses from trading in secondary markets, periods of high
volatility and disruptions in the creation/redemption process. Unlike some ETFs
that track specific indexes, the Fund does not seek to replicate the performance
of a specified index. Index-based ETFs have generally traded at prices that
closely correspond to NAV per share. Given the high level of transparency of the
Fund’s holdings, BFA believes that the trading experience of the Fund should be
similar to that of index-based ETFs. However, ETFs that do not seek to replicate
the performance of a specified index have a limited trading history and,
therefore, there can be no assurance as to whether, and/or the extent to which,
the Fund’s shares will trade at premiums or discounts to NAV. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR
DISCOUNT TO NAV.
Non‑Diversification
Risk. The Fund is classified as “non‑diversified.” This means
that, compared with other funds that are classified as “diversified,” the Fund
may invest a greater percentage of its assets in securities issued by or
representing a small number of issuers. As a result, the Fund’s performance may
depend on the performance of a small number of
issuers.
Operational
Risk. The Fund is exposed
to operational risks arising from a number of factors, including, but not
limited to, human error, processing and communication errors, errors of the
Fund’s service providers, counterparties or other third parties, failed or
inadequate processes and technology or systems failures. The Fund and BFA seek
to reduce these operational risks through controls
and
procedures.
However, these measures do not address every possible risk and may be inadequate
to address significant operational risks.
Risk of Investing in
the U.S. Certain changes in
the U.S. economy, such as when the U.S. economy weakens or when its financial
markets decline, may have an adverse effect on the securities to which the Fund
has exposure.
Small Fund Risk.
When the Fund’s size is small, the Fund may experience low trading
volume and wide bid/ask spreads. In addition, the Fund may face the risk of
being delisted if the Fund does not meet certain conditions of the listing
exchange. Any resulting liquidation of the Fund could cause the Fund to incur
elevated transaction costs for the Fund and negative tax consequences for its
shareholders.
Tax
Risk. The Fund intends to elect and to qualify each year to be
treated as a regulated investment company (“RIC”) under Subchapter M of the U.S.
Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). As a
RIC, the Fund will not be subject to U.S. federal income tax on the portion of
its net investment income and net capital gain that it distributes to
shareholders, provided that it satisfies certain requirements of the Internal
Revenue Code. However, the federal income tax treatment of certain aspects of
the proposed operations of the Fund are not entirely clear. This includes the
tax aspects of the Fund’s options strategy, its hedging strategy, the possible
application of the “straddle” rules, and various loss limitation provisions of
the Internal Revenue Code. To qualify and maintain its status as a RIC, the Fund
must meet certain income, diversification and distributions tests. For purposes
of the diversification test, the identification of the issuer (or, in some
cases, issuers) of a particular Fund investment can depend on the terms and
conditions of that investment. In particular, there is no published Internal
Revenue Service (“IRS”) guidance or case law on how to determine the “issuer” of
certain derivatives that the Fund will enter
into.
The
Fund’s investments in offsetting positions may affect the character of gains or
losses realized by the Fund under the Internal Revenue Code’s “straddle” rules
and may increase the amount of short-term capital gain realized by the Fund.
Certain options may not qualify as “Section 1256 contracts” under
Section 1256 of the Internal Revenue Code, and disposition of such options
will likely result in short-term capital gains or
losses.
S-6
Performance
Information
Because the Fund has not commenced operations
as of the date of this Prospectus, it does not have performance information an
investor would find useful in evaluating the risks of investing in the
Fund. The Fund’s benchmark is the S&P 500
Index.
Management
Investment Adviser and Sub‑Adviser. The Fund’s investment adviser
is BFA. The Fund’s sub‑adviser is BlackRock International Limited (“BIL” or the
“Sub‑Adviser”).
Portfolio Managers. Robert Fisher, CFA,
Raffaele Savi and Travis Cooke, CFA (the “Portfolio Managers”) are jointly and
primarily responsible for the day‑to‑day management of the Fund. Messrs. Fisher,
Savi and Cooke have been Portfolio Managers of the Fund since
September 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-7
More
Information About the Fund
This
Prospectus contains important information about investing in the Fund. Please
read this Prospectus carefully before you make any investment decisions.
Additional information regarding the Fund is available at
www.blackrock.com.
Additional Information on Principal Investment
Strategies. The Fund’s investment objective is a non‑fundamental policy
and may be changed without shareholder approval. The Fund seeks consistent
income with lower volatility than the broader U.S. equity market. The Fund seeks
to achieve its investment objective by investing, under normal circumstances, at
least 80% of its net assets plus the amount of any borrowings for investment
purposes in large cap equity securities and derivatives that have similar
economic characteristics to such securities. The Fund seeks to achieve its
investment objective by employing the following strategies: (i) holding
long positions in U.S. large cap equity securities, (ii) selling (writing)
call options on a large cap equity index, such as the S&P 500 Index, and
(iii) buying futures on a large cap equity index, such as the S&P 500
Index.
The
Fund will invest primarily in equity securities of large cap companies. For
purposes of the Fund’s 80% policy, large cap equity securities are equity
securities of companies that, at the time of purchase, have a market
capitalization within the range of companies included in the S&P 500 Index.
Equity securities include common stock, preferred stock and convertible
securities or other financial instruments that are components of, or have
characteristics similar to, securities included in a large cap equity index,
such as the S&P 500 Index. From time to time, the Fund may invest in shares
of companies through initial public offerings (“IPOs”).
To
generate income, the Fund will sell (write) call options on a large cap equity
index, such as the S&P 500 Index. An options contract is an agreement
between a buyer and seller that gives the purchaser of the option the right to
buy (in the case of a call option) a particular asset at a specified future date
at an agreed upon price (commonly known as the “strike price”). When the Fund
writes (sells) a call option, the Fund is entitled to receive a premium.
Although not perfectly correlated, such call options may have the impact of
capping potential gains from the Fund’s long position in equity securities.
Therefore, to reduce the potential impact of this cap on the potential gains
(with actual results dependent on various factors including the degree of
options and futures activity over time), the Fund will buy futures on a large
cap equity index.
The
Fund’s 80% investment policy may be changed by the Trust’s Board of Trustees
(the “Board”) upon 60 days’ notice to shareholders.
During
temporary defensive periods (i.e., in response to adverse market, economic or
political conditions), the Fund may depart from its principal investment
strategies and may invest up to 100% of its total assets in liquid, short-term
investments, including high quality, short-term securities. The Fund may not
achieve its investment objectives under these circumstances. BFA’s determination
that it is temporarily unable to follow the Fund’s investment strategy or that
it is impractical to do so will generally occur only in situations in which a
market disruption event has occurred and where trading in the securities
selected through application of the Fund’s investment strategy is extremely
limited or absent. The Fund may lend securities representing up to one‑third of
the value of the Fund’s total assets (including the value of the collateral
received).
Investment Process. The Fund seeks to pursue
its investment objective by investing in securities in a disciplined manner, by
using proprietary return forecast models that incorporate quantitative analysis.
These forecast models are designed to prioritize insights that demonstrate
downside protection as well as identify aspects of mispricing across stocks
which the Fund can seek to capture by over- and under-weighting particular
equity securities while seeking to control incremental risk. BFA then constructs
and rebalances the portfolio by integrating its investment insights with the
model-based optimization process.
An
investment in the 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.
Other Strategies. In addition to the principal
strategies discussed above, the Fund may also invest or engage in the following
investments/strategies:
|
• |
|
Borrowing — The Fund may borrow
up to the limits set forth in the Investment Company Act of 1940, as
amended (the “1940 Act”), the rules and regulations thereunder and any
applicable exemptive relief. |
|
• |
|
Securities
Lending — The Fund may lend securities with a value up to
331⁄3% of its total assets to financial
institutions that provide cash or securities issued or guaranteed by the
U.S. Government as collateral. |
8
|
• |
|
Temporary
Defensive Strategies — For temporary defensive purposes, the
Fund may depart from its principal investment strategies and may restrict
the markets in which it invests and may invest without limitation in cash,
cash equivalents, money market securities, such as U.S. Treasury and
agency obligations, other U.S. Government securities, short-term debt
obligations of corporate issuers, certificates of deposit, bankers
acceptances, commercial paper (short-term, unsecured, negotiable
promissory notes of a domestic or foreign issuer) or other high quality
fixed income securities. Temporary defensive positions may affect the
Fund’s ability to achieve its investment
objectives. |
A
Further Discussion of Principal Risks
The
Fund is subject to various risks, including the principal risks noted below, any
of which may adversely affect the Fund’s NAV, trading price, yield, total return
and ability to meet its investment objective. You could lose all or part of your
investment in the Fund, and the Fund could underperform other investments. The
order of the below risk factors does not indicate the significance of any
particular risk factor. The Fund discloses its portfolio holdings daily at
www.blackrock.com.
Assets Under Management (AUM) Risk. From time
to time, an Authorized Participant (as defined in the Creations and Redemptions section of this
Prospectus), a third-party investor, the Fund’s adviser or an affiliate of the
Fund’s adviser, or a fund may invest in the Fund and hold its investment for a
specific period of time in order to facilitate commencement of the Fund’s
operations or to allow the Fund to achieve size or scale. There can be no
assurance that any such entity would not redeem its investment or that the size
of the Fund would be maintained at such levels, which could negatively impact
the Fund.
Authorized Participant Concentration Risk. Only
an Authorized Participant 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 aggregations of a specified number of shares (“Creation Units”), Fund
shares may be more likely to trade at a premium or discount to NAV and possibly
face trading halts or delisting.
Call Option Risk. When the Fund sells call
options on a large cap equity index, it receives a premium but it takes on the
risk that these options will reduce any profit from increases in the market
value of the long equity positions held by the Fund. Any such reduction in
profits would be the difference between the payoff of the call option and the
premium received. The Fund would also retain the risk of loss if the long equity
positions decline in value. The premiums received from the options may not be
sufficient to offset any losses sustained from the long equity positions.
Factors
that may influence the value of the options generally include the underlying
asset’s price, interest rates, dividends, the actual and implied volatility
levels of the underlying asset’s price, and the remaining time until the options
expire, among others. The value of the options written by the Fund typically do
not increase or decrease at the same rate as the underlying asset’s price on a
day‑to‑day basis due to these factors.
Implied
volatility is one of the primary inputs in options pricing. As volatility
increases, the value of an option also increases (and vice-versa). Changes in
the level of volatility can affect the amount of premium the Fund will receive
from writing options.
In
less liquid markets, initiating or terminating the options positions may require
the acceptance of a discounted price or payment of a premium and may take longer
to complete. In a less liquid market, the purchase or liquidation of a large
number of options may significantly impact the price of the options and may
adversely impact the value of your investment. Additionally, to the extent
market participants are not willing or able to enter into option transactions
with the Fund at prices that reflect the market price of the Fund shares, the
Fund’s NAV and, in turn the share price of the Fund, could be negatively
impacted.
Clearing Member Default Risk. Transactions in
some types of derivatives, including options and futures, are required to be
centrally cleared (“cleared derivatives”). In a transaction involving cleared
derivatives, the Fund’s
9
counterparty
is a clearing house, such as the OCC, rather than a bank or broker. Since the
Fund is not a member of clearing houses and only members of a clearing house
(“clearing members”) can participate directly in the clearing house, the Fund
will hold cleared derivatives through accounts at clearing members. In cleared
derivatives positions, the Fund will make payments (including margin payments)
to and receive payments from a clearing house through their accounts at clearing
members. Customer funds held at a clearing organization in connection with any
options contracts are held in a commingled omnibus account and are not
identified to the name of the clearing member’s individual customers. As a
result, assets deposited by the Fund with any clearing member as margin for
options may, in certain circumstances, be used to satisfy losses of other
clients of the Fund’s clearing member. In addition, although clearing members
guarantee performance of their clients’ obligations to the clearing house, there
is a risk that the assets of the Fund might not be fully protected in the event
of the clearing member’s bankruptcy, as the Fund would be limited to recovering
only a pro rata share of all available funds segregated on behalf of the
clearing member’s customers for the relevant account class. The Fund is also
subject to the risk that a limited number of clearing members are willing to
transact on the Fund’s behalf, which heightens the risks associated with a
clearing member’s default. If a clearing member defaults, the Fund could lose
some or all of the benefits of a transaction entered into by the Fund with the
clearing member. If the Fund cannot find a clearing member to transact with on
the Fund’s behalf, the Fund may be unable to effectively implement its
investment strategy.
Counterparty Risk. Derivatives, such as futures
contracts, are subject to counterparty risk, which is the risk that the other
party in the transaction will be unable or unwilling to fulfill its contractual
obligation, and the related risks of having concentrated exposure to such a
counterparty.
Cybersecurity Risk. The Fund, Authorized
Participants, service providers and the relevant listing exchange are
susceptible to operational, information security and related “cyber” risks both
directly and through their service providers. Similar types of cybersecurity
risks are also present for issuers of securities in which the Fund invests,
which could result in material adverse consequences for such issuers and may
cause the Fund’s investment in such issuers to lose value. In general, cyber
incidents can result from deliberate attacks or unintentional events. Cyber
incidents include, but are not limited to, gaining unauthorized access to
digital systems (e.g., through “hacking”
or malicious software coding) for purposes of misappropriating assets or
sensitive information, corrupting data, or causing operational disruption.
Cyberattacks may also be carried out in a manner that does not require gaining
unauthorized access, such as causing denial‑of service attacks on websites
(i.e., efforts to make network services
unavailable to intended users). Recently, geopolitical tensions may have
increased the scale and sophistication of deliberate attacks, particularly those
from nation-states or from entities with nation-state backing.
Cybersecurity
failures by or breaches of the systems of the Fund’s adviser, distributor and
other service providers (including, but not limited to, index and benchmark
providers, fund accountants, custodians, transfer agents and administrators),
market makers, Authorized Participants, hedging counterparties to the Fund or
the issuers of securities in which the Fund invests, have the ability to cause
disruptions and impact business operations, potentially resulting in: financial
losses; interference with the Fund’s ability to calculate its NAV; disclosure of
confidential trading information; impediments to trading; submission of
erroneous trades or erroneous creation or redemption orders; the inability of
the Fund or its service providers to transact business; violations of applicable
privacy and other laws; regulatory fines, penalties, reputational damage,
reimbursement or other compensation costs; or additional compliance costs. In
addition, cyberattacks may render records of Fund assets and transactions,
shareholder ownership of Fund shares, and other data integral to the functioning
of the Fund inaccessible, inaccurate or incomplete. Substantial costs may be
incurred by the Fund in order to resolve or prevent cyber incidents in the
future. While the Fund has established business continuity plans in the event
of, and risk management systems to prevent, such cyber incidents, there are
inherent limitations in such plans and systems, including the possibility that
certain risks have not been identified, that prevention and remediation efforts
will not be successful or that cyberattacks will go undetected. Furthermore, the
Fund cannot control the cybersecurity plans and systems put in place by service
providers to the Fund, issuers in which the Fund invests, market makers or
Authorized Participants. The Fund and its shareholders could be negatively
impacted as a result.
Depositary Receipts Risk. ADRs and Global
Depositary Receipts (“GDRs”) have the same currency and economic risks as the
underlying non‑U.S. shares they represent. They are affected by the risks
associated with non‑U.S. securities, such as changes in political and/or
economic conditions of other countries and changes in the exchange rates of
foreign currencies. In addition, investments in ADRs and GDRs may be less liquid
than the underlying securities in their primary trading market. Depositary
receipts may be purchased through “sponsored” or “unsponsored” facilities. A
sponsored facility is established jointly by the issuer of the underlying
security and a depositary. A depositary may establish an unsponsored facility
without participation by the issuer of the security. Holders of unsponsored
depositary receipts generally bear all the costs of such facilities and the
depositary of an unsponsored facility frequently is under no
10
obligation
to distribute shareholder communications received from the issuer of the
deposited security or to pass through voting rights to the holders of such
receipts of the deposited securities.
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. The Fund may invest in certain
types of derivatives contracts, including options and futures, 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. The Fund’s use of derivatives for hedging purposes are sometimes subject
to imperfect matching between the derivative and the underlying index, and there
can be no assurance that the Fund’s hedging strategy will be effective. The
hedging strategy may also result in certain adverse tax consequences.
Distribution Tax Risk. The Fund currently expects to make
distributions on a regular basis. While the Fund will normally pay its income as
distributions, the Fund’s distributions may exceed the Fund’s income and gains
for the Fund’s taxable year. The Fund may be required to reduce its
distributions if it has insufficient income. Distributions in excess of the
Fund’s current and accumulated earnings and profits will be treated as a return
of capital. Distributions in excess of the Fund’s minimum distribution
requirements, but not in excess of the Fund’s earnings and profits, will be
taxable to Fund shareholders and will not constitute nontaxable returns of
capital. A return of capital distribution generally will not be taxable but will
reduce the shareholder’s cost basis and will result in a higher capital gain or
lower capital loss when those Fund shares on which the distribution was received
are sold. Once a Fund shareholder’s cost basis is reduced to zero, further
distributions will be treated as capital gain, if the Fund shareholder holds
shares of the Fund as capital assets. Because the Fund’s distributions may
consist of return of capital, the Fund may not be an appropriate investment for
investors who do not want their principal investment in the Fund to decrease
over time or who do not wish to receive return of capital in a given
period.
Equity Securities Risk. The Fund invests 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. Common stocks
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.
Futures Contract Risk. Futures are
standardized, exchange-traded contracts that obligate a purchaser to take
delivery, and a seller to make delivery, of a specific amount of an asset at a
specified future date at a specified price. Unlike equities, which typically
entitle the holder to a continuing ownership stake in an issuer, futures
contracts normally specify a certain date for settlement in cash based on the
level of the reference rate. The primary risks associated with the use of
futures contracts are: (i) the imperfect correlation between the change in
market value of the index and the price of the futures contract;
(ii) possible lack of a liquid secondary market for a futures contract and
the resulting inability to close a futures contract when desired;
(iii) losses caused by unanticipated market movements, which are
potentially unlimited; (iv) BFA’s inability to predict correctly the
direction of prices and other economic factors; and (v) the possibility
that the counterparty will default in the performance of its obligations.
High Portfolio Turnover Risk. The Fund may
engage in active and frequent trading of its portfolio securities or other
assets. High portfolio turnover (considered by the Fund to mean higher than 100%
annually) may result in increased transaction costs to the Fund, including
brokerage commissions, dealer mark ups and other transaction costs on the sale
of the securities and on reinvestment in other securities. Given the frequency
of sales, in any given year, all or a substantial portion of such gain or loss
may be short-term capital gain or loss and, in the event of either net
short-term or long-term realized gain, would increase an investor’s tax
liability unless shares are held through a tax deferred or exempt vehicle. These
effects of higher than normal portfolio turnover may adversely affect Fund
performance.
Infectious Illness Risk. A widespread outbreak
of an infectious illness, such as the COVID‑19 pandemic, may adversely affect
the economies of many nations and the global economy and may impact individual
issuers and capital markets in ways that cannot be foreseen.
An
infectious illness outbreak may result in travel restrictions, closed
international borders, disruption of healthcare services, prolonged quarantines,
cancellations, supply chain disruptions, lower consumer demand, temporary and
permanent closures of businesses, layoffs, defaults and other significant
economic, social and political impacts, as well as general concern and
uncertainty.
An
infectious illness outbreak may result in extreme volatility, severe losses,
credit deterioration of issuers, and disruptions in markets, which could
adversely impact the Fund and its investments, including impairing any hedging
activity.
11
Certain
local markets may be subject to closures. Any suspension of trading in markets
in which the Fund invests will have an impact on the Fund and its investments
and will impact the Fund’s ability to purchase or sell securities in such
markets. Market or economic disruptions could result in increased premiums or
discounts to the Fund’s NAV. Additionally, an outbreak could impair the
operations of the Fund’s service providers, including BFA, which could adversely
impact the Fund.
Governmental
and quasi-governmental authorities and regulators throughout the world may
respond to an outbreak and any resulting economic disruptions with a variety of
fiscal and monetary policy changes, including direct capital infusions into
companies and other issuers, new monetary policy tools, and changes in interest
rates. A reversal of these policies, or the ineffectiveness of such policies, is
likely to increase market volatility, which could adversely affect the Fund’s
investments.
An
outbreak may exacerbate other pre‑existing political, social and economic risks
in certain countries or globally, which could adversely affect the Fund and its
investments and could result in increased premiums or discounts to the Fund’s
NAV.
Despite
the development of vaccines, the duration of the COVID‑19 pandemic and its
effects cannot be predicted with certainty.
Investment Companies and ETFs Risk. Subject to
the limitations set forth in the 1940 Act, and the rules thereunder, the Fund
may acquire shares in other investment companies and in ETFs, some of which may
be affiliated investment companies. The market value of the shares of other
investment companies and ETFs may differ from their net asset value. As an
investor in investment companies and ETFs, the Fund would bear its ratable share
of that entity’s expenses, including its investment advisory and administration
fees, while continuing to pay its own advisory and administration fees and other
expenses (to the extent not offset by BFA through waivers). As a result,
shareholders will be absorbing duplicate levels of fees with respect to
investments in other investment companies and ETFs (to the extent not offset by
BFA through waivers).
The
securities of other investment companies and ETFs in which the Fund may invest
may be leveraged. As a result, the Fund may be indirectly exposed to leverage
through an investment in such securities. An investment in securities of other
investment companies and ETFs that use leverage may expose the Fund to higher
volatility in the market value of such securities and the possibility that the
Fund’s long-term returns on such securities (and, indirectly, the long-term
returns of shares of the Fund) will be diminished.
As
with other investments, investments in other investment companies, including
ETFs, are subject to market and selection risk. To the extent the Fund is held
by an affiliated fund, the ability of the Fund itself to hold other investment
companies may be limited.
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.
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 its
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
12
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.
Leverage Risk. The
Fund’s use of derivative contracts may give risk to a form of economic leverage
and may expose the Fund to greater risk and increase its costs. The use of
leverage may cause the Fund to liquidate portfolio positions when it may not be
advantageous to do so to satisfy its obligations or to meet the applicable
requirements of the 1940 Act and the rules thereunder. Increases and decreases
in the value of the Fund’s portfolio will be magnified when the Fund uses
leverage.
Management Risk. The Fund is subject to
management risk, which is the risk that the investment process, techniques and
analyses applied by BFA will not produce the desired results, and that
securities or other financial instruments selected by BFA may result in returns
that are inconsistent with the Fund’s investment objective. In addition,
legislative, regulatory, or tax developments may affect the investment
techniques available to BFA in connection with managing the Fund and may also
adversely affect the ability of the Fund to achieve its investment
objective.
Market Risk. The Fund could lose money over
short periods due to short-term market movements and over longer periods during
more prolonged market downturns. The value of a security or other asset may
decline due to changes in general market conditions, economic trends or events
that are not specifically related to the issuer of the security or other asset,
or factors that affect a particular issuer or issuers, exchange or exchanges,
country, group of countries, region, market, industry, group of industries,
sector or asset class. Local, regional or global events such as war, acts of
terrorism, the spread of infectious illness or other public health issues,
recessions, or other events could have a significant impact on the Fund and its
investments and could result in increased premiums or discounts to the Fund’s
NAV. During a general market downturn, multiple asset classes may be negatively
affected.
Changes
in market conditions and interest rates generally do not have the same impact on
all types of securities and instruments.
Market Trading Risk. Absence of Active Market. Although shares of
the Fund are listed for trading on one or more stock exchanges, there can be no
assurance that an active trading market for such shares will develop or be
maintained by market makers or Authorized Participants.
Risk of Secondary Listings. The Fund’s shares
may be listed or traded on U.S. and non‑U.S. stock exchanges other than the U.S.
stock exchange where the Fund’s primary listing is maintained, and may otherwise
be made available to non‑U.S. investors through funds or structured investment
vehicles similar to depositary receipts. There can be no assurance that the
Fund’s shares will continue to trade on any such stock exchange or in any market
or that the Fund’s shares will continue to meet the requirements for listing or
trading on any exchange or in any market. The Fund’s shares may be less actively
traded in certain markets than in others, and investors are subject to the
execution and settlement risks and market standards of the market where they or
their broker direct their trades for execution. Certain information available to
investors who trade Fund shares on a U.S. stock exchange during regular U.S.
market hours may not be available to investors who trade in other markets, which
may result in secondary market prices in such markets being less
efficient.
Secondary Market Trading Risk. Shares of the
Fund may trade in the secondary market at times when the Fund does not accept
orders to purchase or redeem shares. At such times, shares may trade in the
secondary market with more significant premiums or discounts than might be
experienced at times when the Fund accepts purchase and redemption orders.
Secondary
market trading in Fund shares may be halted by a stock exchange because of
market conditions or for other reasons. In addition, trading in Fund shares on a
stock exchange or in any market may be subject to trading halts caused by
extraordinary market volatility pursuant to “circuit breaker” rules on the stock
exchange or market.
Shares
of the Fund, similar to shares of other issuers listed on a stock exchange, may
be sold short and are therefore subject to the risk of increased volatility and
price decreases associated with short selling.
Shares of the Fund May Trade at Prices Other Than
NAV. Shares of the Fund trade on stock exchanges at prices at, above or
below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end
of each business day and
13
fluctuates
with changes in the market value of the Fund’s holdings. The trading price of
the Fund’s shares fluctuates continuously throughout trading hours based on both
market supply of and demand for Fund shares and the underlying value of the
Fund’s portfolio holdings or NAV. As a result, the trading prices of the Fund’s
shares may deviate significantly from NAV during periods of market volatility.
Unlike conventional ETFs, the Fund is not an index fund and does not seek to
replicate the performance of a specified index. Index-based ETFs have generally
traded at prices which closely correspond to NAV. Given the high level of
transparency of the Fund’s holdings, BFA believes that the trading experience of
the Fund should be similar to that of index-based ETFs. However, ETFs that do
not seek to replicate the performance of a specified index have a limited
trading history and, therefore, there can be no assurance as to whether, and/or
the extent to which, the Fund’s shares will trade at premiums or discounts to
NAV. ANY OF THESE FACTORS, AMONG OTHERS, MAY
LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV.
However, because shares can be created and redeemed in Creation Units at NAV,
BFA believes that large discounts or premiums to the NAV of the Fund are not
likely to be sustained over the long term (unlike shares of many closed‑end
funds, which frequently trade at appreciable discounts from, and sometimes at
premiums to, their NAVs). While the creation/redemption feature is designed to
make it more likely that the Fund’s shares normally will trade on stock
exchanges at prices close to the Fund’s next calculated NAV, exchange prices are
not expected to correlate exactly with the Fund’s NAV due to timing reasons,
supply and demand imbalances and other factors. In addition, disruptions to
creations and redemptions, including disruptions at market makers, Authorized
Participants, or market participants, and during periods of significant market
volatility, may result in trading prices for shares of the Fund that differ
significantly from its NAV. Authorized Participants may be less willing to
redeem Fund shares if there is a lack of an active market for such shares or its
underlying investments, which may contribute to the Fund’s shares trading at a
discount to NAV.
Costs of Buying or Selling Fund Shares. Buying
or selling Fund shares on an exchange involves two types of costs that apply to
all securities transactions. When buying or selling shares of the Fund through a
broker, you will likely incur a brokerage commission and other charges. In
addition, you may incur the cost of the “spread”; that is, the difference
between what investors are willing to pay for Fund shares (the “bid” price) and
the price at which they are willing to sell Fund shares (the “ask” price). The
spread, which varies over time for shares of the Fund based on trading volume
and market liquidity, is generally narrower if the Fund has more trading volume
and market liquidity and wider if the Fund has less trading volume and market
liquidity. In addition, increased market volatility may cause wider spreads.
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 trading in
Fund shares.
Model Risk. The Fund seeks to pursue its
investment objective by using proprietary models that incorporate quantitative
analysis. Investments selected using these models may perform differently than
as forecasted due to the factors incorporated into the models and the weighting
of each factor, changes from historical trends, and issues in the construction
and implementation of the models (including, but not limited to, software issues
and other technological issues). There is no guarantee that BFA’s use of these
models will result in effective investment decisions for the Fund. The
information and data used in the models may be supplied by third parties.
Inaccurate or incomplete data may limit the effectiveness of the models. In
addition, some of the data that BFA uses may be historical data, which may not
accurately predict future market movement. There is a risk that the models will
not be successful in selecting investments or in determining the weighting of
investment positions that will enable the Fund to achieve its investment
objective.
Non‑Diversification Risk. The Fund is
classified as non‑diversified. This means that, compared with other funds that
are classified as “diversified,” the Fund may invest a greater percentage of its
assets in securities issued by or representing a small number of issuers. As a
result, the Fund may be more susceptible to the risks associated with these
particular issuers or to a single economic, political or regulatory occurrence
affecting these issuers.
Operational Risk. The Fund is exposed to
operational risks arising from a number of factors, including, but not limited
to, human error, processing and communication errors, errors of the Fund’s
service providers, counterparties or other third parties, failed or inadequate
processes and technology or systems failures. The Fund and BFA seek to reduce
these operational risks through controls and procedures. However, these measures
do not address every possible risk and may be inadequate to address significant
operational risks.
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
14
to
maintain elevated public debt levels for the foreseeable future. Although
elevated debt levels do not necessarily indicate or cause economic problems,
elevated public debt service costs may constrain future economic growth.
The
U.S. has developed increasingly strained relations with a number of foreign
countries. If relations with certain countries deteriorate, it could adversely
affect U.S. issuers as well as non‑U.S. issuers that rely on the U.S. for trade.
The U.S. has also experienced increased internal unrest and discord, as well as
significant challenges in managing and containing the outbreak of COVID‑19. If
these trends were to continue, it may have an adverse impact on the U.S. economy
and the issuers in which the Fund invests.
Small Fund Risk. When
the Fund’s size is small, the Fund may experience low trading volume and wide
bid/ask spreads. In addition, the Fund may face the risk of being delisted if
the Fund does not meet certain conditions of the listing exchange. If the Fund
were to be required to delist from the listing exchange, the value of the Fund
may rapidly decline and performance may be negatively impacted. Any resulting
liquidation of the Fund could cause the Fund to incur elevated transaction costs
for the Fund and negative tax consequences for its shareholders.
Tax Risk. The Fund intends to elect and to
qualify each year to be treated as a regulated investment company (“RIC”) under
Subchapter M of the U.S. Internal Revenue Code of 1986, as amended (the
“Internal Revenue Code”). As a RIC, the Fund will not be subject to U.S. federal
income tax on the portion of its net investment income and net capital gain that
it distributes to shareholders, provided that it satisfies certain requirements
of the Internal Revenue Code. However, the federal income tax treatment of
certain aspects of the proposed operations of the Fund are not entirely clear.
This includes the tax aspects of the Fund’s options strategy, its hedging
strategy, the possible application of the “straddle” rules, and various loss
limitation provisions of the Internal Revenue Code. To qualify and maintain its
status as a RIC, the Fund must meet certain income, diversification and
distributions tests. For purposes of the diversification test, the
identification of the issuer (or, in some cases, issuers) of a particular Fund
investment can depend on the terms and conditions of that investment. In
particular, there is no published IRS guidance or case law on how to determine
the “issuer” of certain derivatives that the Fund will enter into.
The
Fund’s investments in offsetting positions may affect the character of gains or
losses realized by the Fund under the Internal Revenue Code’s “straddle” rules
and may increase the amount of short-term capital gain realized by the Fund.
Certain options may not qualify as “Section 1256 contracts” under
Section 1256 of the Internal Revenue Code, and disposition of such options
will likely result in short-term capital gains or losses.
A
Further Discussion of Other Risks
The
Fund may also be subject to certain other non‑principal risks associated with
its investments and investment strategies.
Borrowing Risk. Borrowing may exaggerate
changes in the net asset value (“NAV”) of Fund shares and in the return on the
Fund’s portfolio. Borrowing will cost the Fund interest expense and other fees.
The costs of borrowing may reduce the Fund’s return. Borrowing may also cause
the Fund to liquidate positions when it may not be advantageous to do so to
satisfy its obligations.
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 Fund from closing out a qualified
financial contract during a specified time period if the counterparty is subject
to resolution proceedings and also prohibit the Fund 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
Fund.
Illiquid Investments Risk. The Fund may not
acquire any illiquid investment if, immediately after the acquisition, the Fund
would have invested more than 15% of its net assets in illiquid investments. An
illiquid investment is any investment that the Fund reasonably expects cannot be
sold or disposed of in current market conditions in seven calendar days or less
without significantly changing the market value of the investment. Liquid
investments may become illiquid after purchase by the Fund, particularly during
periods of market turmoil. There can be no assurance that a security or
instrument that is deemed to be liquid when purchased will continue to be liquid
for as long as it is held by the Fund, and any security or instrument held by
the Fund may be deemed an illiquid investment pursuant to the Fund’s liquidity
risk management program. To the extent the Fund holds illiquid investments, the
illiquid investments may reduce the returns of the Fund because the Fund may be
unable to transact at advantageous times or prices. An investment
15
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. In particular, some frontier markets in which the Fund
invests are experiencing a shortage of USD reserves and have recently restricted
or delayed repatriation of local currency, and these issues are likely to
persist. To the extent that the Fund invests in securities or instruments with
substantial market and/or credit risk, the Fund will tend to have increased
exposure to the risks associated with illiquid investments. Illiquid investments
may be harder to value, especially in changing markets. If the Fund is forced to
sell underlying investments at reduced prices or under unfavorable conditions to
meet redemption requests or for other cash needs, the Fund may suffer a loss.
This may be magnified in a rising interest rate environment or other
circumstances where redemptions from the Fund may be greater than normal. Other
market participants may be attempting to liquidate holdings at the same time as
the Fund, causing increased supply of the Fund’s underlying investments in the
market and contributing to illiquid investments risk and downward pricing
pressure. In addition, if the Fund is limited in its ability to sell illiquid
investments during periods when shareholders are redeeming their shares, the
Fund will need to sell liquid securities to meet redemption requests and
illiquid securities will become a larger portion of the Fund’s holdings. During
periods of market volatility, liquidity in the market for the Fund’s shares may
be impacted by the liquidity in the market for the underlying securities or
instruments held by the Fund, which could lead to the Fund’s shares trading at a
premium or discount to the Fund’s NAV.
Indexed and Inverse Securities Risk. Indexed
and inverse securities provide a potential return based on a particular index of
value or interest rates. The Fund’s return on these securities will be subject
to risk with respect to the value of the particular index. These securities are
subject to leverage risk and correlation risk. Certain indexed and inverse
securities have greater sensitivity to changes in interest rates or index levels
than other securities, and the Fund’s investment in such instruments may decline
significantly in value if interest rates or index levels move in a way Fund
management does not anticipate.
Money Market Instruments Risk. The value of
money market instruments may be affected by changing interest rates and by
changes in the credit ratings of the investments. If a significant amount of the
Fund’s assets are invested in money market instruments, it will be more
difficult for the Fund to achieve its investment objective. An investment in a
money market fund is not insured or guaranteed by the FDIC or any other
government agency. It is possible to lose money by investing in a money market
fund. Money market funds other than government money market funds or retail
money market funds “float” their NAV instead of using a stable $1.00 per share
price.
Securities Lending Risk. The Fund may engage in
securities lending. Securities lending involves the risk that the Fund may lose
money because the borrower of the loaned securities fails to return the
securities in a timely manner or at all. The Fund could also lose money in the
event of a decline in the value of collateral provided for loaned securities or
a decline in the value of any investments made with cash collateral. These
events could also trigger adverse tax consequences for the Fund.
Threshold/Underinvestment Risk. If certain
aggregate and/or fund-level ownership thresholds are reached through
transactions undertaken by BFA, its affiliates or the 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 the 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 the Fund
to make investments in certain securities, and derivatives such as options,
swaps, and futures, may be affected by the relevant threshold limits, and such
limitations may have adverse effects on the liquidity and performance of the
Fund’s portfolio holdings.
For
example, in certain circumstances where the 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 the 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 the Fund’s portfolio securities is available in the Fund’s
Statement of Additional Information (“SAI”). The Fund discloses its portfolio
holdings daily at www.blackrock.com. Fund fact sheets provide information
regarding the Fund’s top holdings and may be requested by calling
1‑800‑474‑2737.
16
Management
Investment Adviser. As investment adviser, BFA
has overall responsibility for the general management and administration of the
Fund. BFA provides an investment program for the Fund and manages the investment
of the Fund’s assets. In managing the Fund, BFA may draw upon the research and
expertise of its asset management affiliates with respect to certain portfolio
securities. In seeking to achieve the 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 Fund), BFA is responsible for substantially all expenses of the
Fund, except the management fees, interest expenses, taxes, expenses incurred
with respect to the acquisition and disposition of portfolio securities and the
execution of portfolio transactions, including brokerage commissions,
distribution fees or expenses, litigation expenses and any extraordinary
expenses (as determined by a majority of the Trustees who are not “interested
persons” of the Trust).
For
its investment advisory services to the Fund, BFA is paid a management fee from
the Fund, based on a percentage of the Fund’s average daily net assets, at an
annual rate of 0.35%.
BFA
has entered into a sub‑advisory agreement with the Sub‑Adviser, an affiliate of
BFA, under which BFA pays the Sub‑Adviser for services it provides for that
portion of the Fund for which it acts as sub‑adviser a monthly fee at an annual
rate equal to a percentage of the management fee paid to BFA under the
Investment Advisory Agreement.
BFA
has contractually agreed to waive a portion of its management fees in an amount
equal to the aggregate Acquired Fund Fees and Expenses, if any, attributable to
investments by the Fund in other equity and fixed-income mutual funds and ETFs
advised by BFA or its affiliates through June 30, 2025. BFA has also
contractually agreed to waive a portion of its management fees by an amount
equal to the aggregate Acquired Fund Fees and Expenses, if any, attributable to
investments by the Fund in money market funds advised by BFA or its affiliates
through June 30, 2025. The agreement (with respect to either waiver) may be
terminated upon 90 days’ notice by a majority of the non‑interested trustees of
the Trust or by a vote of a majority of the outstanding voting securities of the
Fund. BFA may also 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 in
excess of $9.425 trillion. The Sub‑Adviser is an investment adviser located in
the U.K. at Exchange Place One, 1 Semple Street, Edinburgh EH3 8BL, Scotland 011
44 131 472 7200. The Sub‑Adviser is a registered investment adviser and a
commodity pool operator organized in 1999. BFA, the Sub‑Adviser, and their
affiliates trade and invest for their own accounts in the actual securities and
types of securities in which the Fund may also invest, which may affect the
price of such securities.
A
discussion regarding the basis for the approval by the Board of the Investment
Advisory Agreement with BFA and the sub‑advisory agreement between BFA and the
Sub‑Adviser will be available in the Fund’s first shareholder report following
the commencement of operations.
From
time to time, a manager, analyst, or other employee of BlackRock or its
affiliates may express views regarding a particular asset class, company,
security, industry, or market sector. The views expressed by any such person are
the views of only that individual as of the time expressed and do not
necessarily represent the views of BlackRock or any other person within the
BlackRock organization. Any such views are subject to change at any time based
upon market or other conditions and BlackRock disclaims any responsibility to
update such views. These views may not be relied on as investment advice and,
because investment decisions for the Fund are based on numerous factors, may not
be relied on as an indication of trading intent on behalf of the Fund.
Portfolio Managers. Robert Fisher, CFA,
Raffaele Savi and Travis Cooke, CFA are jointly and primarily responsible for
the day‑to‑day management of the Fund.
Robert
Fisher, CFA has been with BlackRock since 2009. Mr. Fisher has been
employed by BFA or its affiliates as a portfolio manager since 2009 and has been
a Portfolio Manager of the Fund since September 2023.
17
Raffaele
Savi has been with BlackRock since 2009. Mr. Savi has been employed by BFA
or its affiliates as a portfolio manager since 2009 and has been a Portfolio
Manager of the Fund since September 2023.
Travis
Cooke, CFA has been with BlackRock since 2009. Mr. Cooke has been employed
by BFA or its affiliates as a portfolio manager since 2009 and has been a
Portfolio Manager of the Fund since September 2023.
The
Fund’s SAI provides additional information about the Portfolio Managers’
compensation, other accounts managed by the Portfolio Managers and the Portfolio
Managers’ ownership (if any) of shares in the Fund.
Administrator, Custodian and Transfer Agent.
The Bank of New York Mellon (“BNYM”) is the administrator, custodian and
transfer agent for the Fund.
Conflicts of Interest. The investment
activities of BFA and its affiliates (including BlackRock and its subsidiaries
(collectively, the “Affiliates”)), and their respective directors, officers or
employees, in the management of, or their interest in, their own accounts and
other accounts they manage, may present conflicts of interest that could
disadvantage the Fund and its shareholders.
BFA
and its Affiliates provide investment management services to other funds and
discretionary managed accounts that may follow investment programs similar to
that of the Fund. BFA and its Affiliates are involved worldwide with a broad
spectrum of financial services and asset management activities and may engage in
the ordinary course of business in activities in which their interests or the
interests of their clients may conflict with those of the Fund. BFA or one or
more Affiliates act or may act as an investor, research provider, investment
manager, commodity pool operator, commodity trading advisor, financier,
underwriter, adviser, trader, lender, index provider, agent and/or principal,
and have other direct and indirect interests in securities, currencies,
commodities, derivatives and other instruments in which the Fund may directly or
indirectly invest. The Fund may invest in securities of, or engage in other
transactions with, companies with which an Affiliate has significant debt or
equity investments or other interests. The Fund may also invest in issuances
(such as structured notes) by entities for which an Affiliate provides and is
compensated for cash management services relating to the proceeds from the sale
of such issuances.
The
Fund also may invest in securities of, or engage in other transactions with,
companies for which an Affiliate provides or may in the future provide research
coverage. An Affiliate may have business relationships with, and purchase, or
distribute or sell services or products from or to, distributors, consultants or
others who recommend the Fund or who engage in transactions with or for the
Fund, and may receive compensation for such services. BFA or one or more
Affiliates may engage in proprietary trading and advise accounts and funds that
have investment objectives similar to those of the Fund and/or that engage in
and compete for transactions in the same types of securities, currencies and
other instruments as the Fund. This may include transactions in securities
issued by other open‑end and closed‑end investment companies (which may include
investment companies that are affiliated with the Fund and BFA, to the extent
permitted under the 1940 Act). The trading activities of BFA and these
Affiliates are carried out without reference to positions held directly or
indirectly by the Fund and may result in BFA or an Affiliate having positions in
certain securities that are senior or junior to, or have interests different
from or adverse to, the securities that are owned by the Fund.
Neither
BFA nor any Affiliate is under any obligation to share any investment
opportunity, idea or strategy with the Fund. As a result, an Affiliate may
compete with the Fund for appropriate investment opportunities. The results of
the Fund’s investment activities, therefore, may differ from those of an
Affiliate and of other accounts managed by BFA or an Affiliate, and it is
possible that the Fund could sustain losses during periods in which one or more
Affiliates and other accounts achieve profits on their trading for proprietary
or other accounts. The opposite result is also possible.
In
addition, the Fund may, from time to time, enter into transactions in which BFA
or an Affiliate or 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 Fund. Transactions by
one or more clients or BFA or its Affiliates or their directors, officers or
employees may have the effect of diluting or otherwise disadvantaging the
values, prices or investment strategies of the Fund. The Fund’s activities may
be limited because of regulatory restrictions applicable to BFA or one or more
Affiliates and/or their internal policies designed to comply with such
restrictions.
Under
a securities lending program approved by the Board, the Trust, on behalf of the
Fund, has retained BlackRock Institutional Trust Company, N.A., an Affiliate of
BFA, to serve as the securities lending agent for the Fund to the extent that
the Fund participates in the securities lending program. For these services, the
securities lending agent will
18
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 Fund has 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 Fund (“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, N.A. (“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, BFA and/or its advisory clients
(including other funds and separately managed accounts) may, subject to
compliance with applicable law, purchase and hold shares of the Fund. The price,
availability, liquidity, and (in some cases) expense ratio of the Fund may be
impacted by purchases and sales of the Fund by BFA and/or its advisory
clients.
The
activities of BFA and its Affiliates and their respective directors, officers or
employees, may give rise to other conflicts of interest that could disadvantage
the Fund and its shareholders. BFA has adopted policies and procedures designed
to address these potential conflicts of interest. See the SAI for further
information.
Shareholder
Information
Additional shareholder information, including how to
buy and sell shares of the Fund, is available free of charge by calling
toll-free: 1‑800‑474‑2737 or visiting our website at www.blackrock.com.
Buying and Selling Shares. Shares of the Fund
may be acquired or redeemed directly from the Fund only in Creation Units or
multiples thereof, as discussed in the Creations and Redemptions section of this
Prospectus. Only an Authorized Participant (as defined in the Creations and Redemptions section below) may
engage in creation or redemption transactions directly with the Fund. Once
created, shares of the Fund generally trade in the secondary market in amounts
less than a Creation Unit.
Shares
of the Fund are listed on a national securities exchange for trading during the
trading day. Shares can be bought and sold throughout the trading day like
shares of other publicly-traded companies. The Trust does not impose any minimum
investment for shares of the Fund purchased on an exchange or otherwise in the
secondary market. The Fund’s shares trade under the ticker symbol “BALI.”
Buying
or selling Fund shares on an exchange or other secondary market involves two
types of costs that may apply to all securities transactions. When buying or
selling shares of the Fund through a broker, you may incur a brokerage
commission and other charges. The commission is frequently a fixed amount and
may be a significant proportional cost for investors seeking to buy or sell
small amounts of shares. In addition, you may incur the cost of the “spread,”
that is, any difference between the bid price and the ask price. The spread
varies over time for shares of the Fund based on the Fund’s trading volume and
market liquidity, and is generally lower if the Fund has high trading volume and
market liquidity, and higher if the Fund has little trading volume and market
liquidity (which is often the case for funds that are newly launched or small in
size). The Fund’s spread may also be impacted by the liquidity or illiquidity of
the underlying securities held by the Fund, particularly for newly launched or
smaller funds or in instances of significant volatility of the underlying
securities.
The
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 the Fund generally sells and redeems its
shares directly through transactions that are in‑kind and/or 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, the 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 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 the Fund directly, and such trading is unlikely
to cause many of the harmful effects of frequent cash purchases or redemptions
of Fund shares.
19
The
national securities exchange on which the Fund’s shares are listed is open for
trading Monday through Friday and is closed on weekends and the following
holidays (or the days on which they are observed): New Year’s Day, Martin Luther
King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Juneteenth,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The Fund’s
listing exchange is CBOE.
Section 12(d)(1)
of the 1940 Act generally restricts investments by investment companies,
including foreign and unregistered investment companies, in the securities of
other investment companies. For example, a registered investment company (the
“Acquired Fund”), such as the Fund, may not knowingly sell or otherwise dispose
of any security issued by the Acquired Fund to any investment company (the
“Acquiring Fund”) or any company or companies controlled by the Acquiring Fund
if, immediately after such sale or disposition: (i) more than 3% of the
total outstanding voting stock of the Acquired Fund is owned by the Acquiring
Fund and any company or companies controlled by the Acquiring Fund, or
(ii) more than 10% of the total outstanding voting stock of the Acquired
Fund is owned by the Acquiring Fund and other investment companies and companies
controlled by them. However, registered investment companies are permitted to
invest in the Fund beyond the limits set forth in Section 12(d)(1), subject
to certain terms and conditions set forth in SEC rules. In order for a
registered investment company to invest in shares of the Fund beyond the
limitations of Section 12(d)(1) in reliance on Rule 12d1‑4 under the 1940
Act, the registered investment company must, among other things, enter into an
agreement with the Trust. Foreign investment companies are permitted to invest
in the Fund only up to the limits set forth in Section 12(d)(1), subject to
any applicable SEC no‑action relief.
Book Entry. Shares of the Fund are held in
book-entry form, which means that no stock certificates are issued. The
Depository Trust Company (“DTC”) or its nominee is the record owner of, and
holds legal title to, all outstanding shares of the Fund.
Investors
owning shares of the Fund are beneficial owners as shown on the records of DTC
or its participants. DTC serves as the securities depository for shares of the
Fund. DTC participants include securities brokers and dealers, banks, trust
companies, clearing corporations and other institutions that directly or
indirectly maintain a custodial relationship with DTC. As a beneficial owner of
shares, you are not entitled to receive physical delivery of stock certificates
or to have shares registered in your name, and you are not considered a
registered owner of shares. Therefore, to exercise any right as an owner of
shares, you must rely upon the procedures of DTC and its participants. These
procedures are the same as those that apply to any other securities that you
hold in book-entry or “street name” form.
Share Prices. The trading prices of the Fund’s
shares in the secondary market generally differ from the Fund’s daily NAV and
are affected by market forces such as the supply of and demand for ETF shares
and shares of underlying securities held by the Fund, economic conditions and
other factors.
Determination of Net Asset Value. The NAV of
the Fund normally is determined once daily Monday through Friday, generally as
of the close of regular trading hours of the New York Stock Exchange (“NYSE”)
(normally 4:00 p.m., Eastern time) on each day that the NYSE is open for
trading, based on prices at the time of closing, provided that 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 the Fund
is calculated by dividing the value of the net assets of the Fund (i.e., the value of its total assets less total
liabilities) by the total number of outstanding shares of the Fund, generally
rounded to the nearest cent.
The
value of the securities and other assets and liabilities held by the Fund 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.
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 Fund
are determined as of such times.
20
When
market quotations are not readily available or are believed by BFA to be
unreliable, BFA will fair value the Fund’s investments in accordance with its
policies and procedures. BFA may conclude that a market quotation is not readily
available or is unreliable if a security or other asset or liability does not
have a price source due to its lack of trading or other reasons, if a market
quotation differs significantly from recent price quotations or otherwise no
longer appears to reflect fair value, where the security or other asset or
liability is thinly traded, when there is a significant event subsequent to the
most recent market quotation, or if the trading market on which a security is
listed is suspended or closed and no appropriate alternative trading market is
available. A “significant event” is deemed to occur if BFA determines, in its
reasonable business judgment prior to or at the time of pricing the Fund’s
assets or liabilities, that the event is likely to cause a material change to
the last exchange closing price or closing market price of one or more assets
held by, or liabilities of, the Fund. For certain foreign assets, a third-party
vendor supplies evaluated, systematic fair value pricing based upon the movement
of a proprietary multi-factor model after the relevant foreign markets have
closed. This systematic fair value pricing methodology is designed to correlate
the prices of foreign assets in one or more non‑U.S. markets following the close
of the local markets to the prices that might have prevailed as of the Fund’s
pricing time.
Fair
value represents a good faith approximation of the value of an asset or
liability. The fair value of an asset or liability held by the Fund is the
amount the Fund might reasonably expect to receive from the current sale of that
asset or the cost to extinguish that liability in an arm’s‑length transaction.
Valuing the Fund’s investments using fair value pricing will result in prices
that may differ from current market valuations and that may not be the prices at
which those investments could have been sold during the period in which the
particular fair values were used.
Dividends
and Distributions
General Policies. Dividends from net
investment income, if any, generally are declared and paid monthly by the Fund.
Distributions of net realized securities gains, if any, generally are declared
and paid once a year, but the Trust may make distributions on a more frequent
basis for the Fund. The Trust reserves the right to declare special
distributions if, in its reasonable discretion, such action is necessary or
advisable to preserve its status as a regulated investment company (“RIC”) or to
avoid imposition of income or excise taxes on undistributed income or realized
gains.
Dividends
and other distributions on shares of the Fund are distributed on a pro rata basis to beneficial owners of such
shares. Dividend payments are made through DTC participants and indirect
participants to beneficial owners then of record with proceeds received from the
Fund.
Dividend Reinvestment Service. No dividend
reinvestment service is provided by the Trust. Broker-dealers may make available
the DTC book-entry Dividend Reinvestment Service for use by beneficial owners of
the Fund for reinvestment of their dividend distributions. Beneficial owners
should contact their broker to determine the availability and costs of the
service and the details of participation therein. Brokers may require beneficial
owners to adhere to specific procedures and timetables. If this service is
available and used, dividend distributions of both income and realized gains
will be automatically reinvested in additional whole shares of the Fund
purchased in the secondary market.
Taxes. As with any investment, you should
consider how your investment in shares of the Fund will be taxed. The tax
information in this Prospectus is provided as general information, based on
current law. You should consult your own tax professional about the tax
consequences of an investment in shares of the Fund.
Unless
your investment in Fund shares is made through a tax‑exempt entity or
tax‑deferred retirement account, such as an IRA, in which case your
distributions generally will be taxable when withdrawn, you need to be aware of
the possible tax consequences when the Fund makes distributions or you sell Fund
shares.
Taxes on Distributions. Distributions from the
Fund’s investment company taxable income (other than qualified dividend income),
including distributions of income from securities lending and distributions out
of the Fund’s net short-term capital gains, if any, are taxable to you as
ordinary income. Distributions by the 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
the Fund’s shares. Distributions by the Fund that qualify as qualified dividend
income are taxable to you at long-term capital gain rates, subject to the
holding period requirements applicable to both you and the Fund, as set forth
below. 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.
21
Dividends
will be qualified dividend income to you if they are attributable to qualified
dividend income received by the Fund. Generally, qualified dividend income
includes dividend income from taxable U.S. corporations and qualified non‑U.S.
corporations, provided that the 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 the 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.
It
is expected that dividends received by the Fund from a real estate investment
trust 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, and a shareholder
may treat the dividends as such, provided that the Fund and such shareholder
satisfy the applicable holding period requirements.
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 the Fund,
and with respect to a share of the 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.
Fund
distributions, to the extent attributable to dividends from U.S. corporations,
will be eligible for the dividends received deduction for Fund shareholders that
are corporations, subject to certain hedging and holding requirements.
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. If the Fund’s
distributions exceed current and accumulated earnings and profits, all or a
portion of the distributions made in the taxable year may be recharacterized as
a return of capital to shareholders. Distributions in excess of the Fund’s
minimum distribution requirements, but not in excess of the Fund’s current and
accumulated 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 the Fund as capital assets.
Dividends,
interest and capital gains earned by the Fund with respect to securities issued
by non‑U.S. issuers may give rise to withholding, capital gains and other taxes
imposed by non‑U.S. countries. Tax conventions between certain countries and the
U.S. may reduce or eliminate such taxes. If more than 50% of the total assets of
the Fund at the close of a year consists of non‑U.S. stocks or securities
(generally, for this purpose, depositary receipts, no matter where traded, of
non‑U.S. companies are treated as “non-U.S.”), generally the Fund may “pass
through” to you certain non‑U.S. income taxes (including withholding taxes) paid
by the Fund. This means that you would be considered to have received as an
additional dividend your share of such non‑U.S. taxes, but you may be entitled
to either a corresponding tax deduction in calculating your taxable income, or,
subject to certain limitations, a credit in calculating your U.S. federal income
tax.
For
purposes of foreign tax credits for U.S. shareholders of the Fund, foreign
capital gains taxes may not produce associated foreign source income, limiting
the availability of such credits for U.S. persons.
If
you are neither a resident nor a citizen of the United States or if you are a
non‑U.S. entity (other than a pass-through entity to the extent owned by U.S.
persons), the Fund’s ordinary income dividends (which include distributions of
net short-term capital gains) will generally be subject to a 30% U.S.
withholding tax, unless a lower treaty rate applies, provided that withholding
tax will generally not apply to distributions properly reported by the Fund as
capital gain dividends, interest-related dividends or short-term capital gain
dividends or upon the sale or other disposition of shares of the Fund.
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.
22
Taxes on Sales of Shares. 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.
FATCA. 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
and (ii) certain other foreign entities. To avoid withholding, foreign
financial institutions will need to (i) enter into agreements with the IRS
that state that they will provide the IRS information, including the names,
addresses and taxpayer identification numbers of direct and indirect U.S.
account holders, comply with due diligence procedures with respect to the
identification of U.S. accounts, report to the IRS certain information with
respect to U.S. accounts maintained, agree to withhold tax on certain payments
made to non‑compliant foreign financial institutions or to account holders who
fail to provide the required information, and determine certain other
information concerning their account holders, or (ii) in the event that an
applicable intergovernmental agreement and implementing legislation are adopted,
provide local revenue authorities with similar account holder information. Other
foreign entities may need to report the name, address, and taxpayer
identification number of each substantial U.S. owner or provide certifications
of no substantial U.S. ownership unless certain exceptions apply.
The foregoing discussion summarizes some of the
consequences under current U.S. federal tax law of an investment in the Fund. It
is not a substitute for personal tax advice. You may also be subject to state
and local taxation on Fund distributions and sales of shares. Consult your
personal tax advisor about the potential tax consequences of an investment in
shares of the Fund under all applicable tax laws.
Creations and Redemptions. Prior to trading in
the secondary market, shares of the Fund are “created” at NAV by market makers,
large investors and institutions only in block‑size Creation Units or multiples
thereof. Each “creator” or authorized participant (an “Authorized Participant”)
has entered into an agreement with the Distributor. An Authorized Participant is
a member or participant of a clearing agency registered with the SEC, which has
a written agreement with the Fund or one of its service providers that allows
such member or participant to place orders for the purchase and redemption of
Creation Units.
A
creation transaction, which is subject to acceptance by the Distributor and the
Fund, generally takes place when an Authorized Participant deposits into the
Fund a designated portfolio of securities, assets or other positions (a
“creation basket”), and an amount of cash (including any cash representing the
value of substituted securities, assets or other positions), if any, which
together approximate the holdings of the Fund in exchange for a specified number
of Creation Units.
Similarly,
shares can be redeemed only in Creation Units, generally for a designated
portfolio of securities, assets or other positions (a “redemption basket”) held
by the Fund and an amount of cash (including any portion of such securities for
which cash may be substituted).
The
Fund generally offers Creation Units partially for cash, but may, in certain
circumstances, offer Creation Units solely for cash or solely in-kind. Except
when aggregated in Creation Units, shares are not redeemable by the Fund.
Creation and redemption baskets may differ and the Fund may accept “custom
baskets.” More information regarding custom baskets is contained in the Fund’s
SAI.
The
prices at which creations and redemptions occur are based on the next
calculation of NAV after a creation or redemption order is received in an
acceptable form under the authorized participant agreement.
Only
an Authorized Participant may create or redeem Creation Units with the Fund.
Authorized Participants may create or redeem Creation Units for their own
accounts or for customers, including, without limitation, affiliates of the
Fund.
In
the event of a system failure or other interruption, including disruptions at
market makers or Authorized Participants, orders to purchase or redeem Creation
Units either may not be executed according to the Fund’s instructions or may not
be executed at all, or the Fund may not be able to place or change orders.
23
To
the extent the Fund engages in in‑kind transactions, the Fund intends to comply
with the U.S. federal securities laws in accepting securities for deposit and
satisfying redemptions with redemption securities by, among other means,
assuring that any securities accepted for deposit and any securities used to
satisfy redemption requests will be sold in transactions that would be exempt
from registration under the Securities Act of 1933, as amended (the “1933 Act”).
Further, an Authorized Participant that is not a “qualified institutional
buyer,” as such term is defined in Rule 144A under the 1933 Act, will not be
able to receive restricted securities eligible for resale under Rule 144A.
Creations
and redemptions must be made through a firm that is either a member of the
Continuous Net Settlement System of the National Securities Clearing Corporation
or a DTC participant that has executed an agreement with the Distributor with
respect to creations and redemptions of Creation Units. Information about the
procedures regarding creation and redemption of Creation Units (including the
cut‑off times for receipt of creation and redemption orders) is included in the
Fund’s SAI.
Because
new shares may be created and issued on an ongoing basis, at any point during
the life of the Fund a “distribution,” as such term is used in the 1933 Act, may
be occurring. Broker-dealers and other persons are cautioned that some
activities on their part may, depending on the circumstances, result in their
being deemed participants in a distribution in a manner that could render them
statutory underwriters subject to the prospectus delivery and liability
provisions of the 1933 Act. Any determination of whether one is an underwriter
must take into account all the relevant facts and circumstances of each
particular case.
Broker-dealers
should also note that dealers who are not “underwriters” but are participating
in a distribution (as contrasted to ordinary secondary transactions), and thus
dealing with shares that are part of an “unsold allotment” within the meaning of
Section 4(a)(3)(C) of the 1933 Act, would be unable to take advantage of
the prospectus delivery exemption provided by Section 4(a)(3) of the 1933
Act. For delivery of prospectuses to exchange members, the prospectus delivery
mechanism of Rule 153 under the 1933 Act is available only with respect to
transactions on a national securities exchange.
Householding. Householding is an option
available to certain Fund investors. Householding is a method of delivery, based
on the preference of the individual investor, in which a single copy of certain
shareholder documents can be delivered to investors who share the same address,
even if their accounts are registered under different names. Please contact your
broker-dealer if you are interested in enrolling in householding and receiving a
single copy of prospectuses and other shareholder documents, or if you are
currently enrolled in householding and wish to change your householding
status.
Distribution
The
Distributor or its agent distributes Creation Units for the Fund on an agency
basis. The Distributor does not maintain a secondary market in shares of the
Fund. The Distributor has no role in determining the policies of the Fund or the
securities that are purchased or sold by the Fund. The Distributor’s principal
address is 1 University Square Drive, Princeton, NJ 08540.
BFA
or its affiliates make payments to broker-dealers, registered investment
advisers, banks or other intermediaries (together, “intermediaries”) related to
marketing activities and presentations, educational training programs,
conferences, the development of technology platforms and reporting systems, data
provision services, or their making shares of the Fund and certain other
BFA‑advised ETFs available to their customers generally and in certain
investment programs. Such payments, which may be significant to the
intermediary, are not made by the Fund. Rather, such payments are made by BFA or
its affiliates from their own resources, which come directly or indirectly in
part from fees paid by the BFA‑advised ETFs. Payments of this type are sometimes
referred to as revenue-sharing payments. A financial intermediary may make
decisions about which investment options it recommends or makes available, or
the level of services provided, to its customers based on the payments or other
financial incentives it is eligible to receive. Therefore, such payments or
other financial incentives offered or made to an intermediary create conflicts
of interest between the intermediary and its customers and may cause the
intermediary to recommend the Fund or other BFA‑advised ETFs over another
investment. More information regarding these payments is contained in the Fund’s
SAI. Please contact your salesperson or other
investment professional for more information regarding any such payments his or
her firm may receive from BFA or its affiliates.
24
Financial
Highlights
Financial
highlights for the Fund are not available because, as of the effective date of
this Prospectus, the Fund has not commenced operations and therefore has no
financial highlights to report.
25
Disclaimers
Shares
of the Fund are not sponsored, endorsed or promoted by CBOE. CBOE makes no
representation or warranty, express or implied, to the owners of shares of the
Fund or any member of the public regarding the ability of the Fund to achieve
its investment objective. CBOE is not responsible for, nor has it participated
in, the determination of the Fund’s investments, nor in the determination of the
timing of, prices of, or quantities of shares of the Fund to be issued, nor in
the determination or calculation of the equation by which the shares are
redeemable. CBOE has no obligation or liability to owners of shares of the Fund
in connection with the administration, marketing or trading of shares of the
Fund.
Without
limiting any of the foregoing, in no event shall CBOE have any liability for any
direct, indirect, special, punitive, consequential or any other damages
(including lost profits) even if notified of the possibility of such
damages.
26
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Want
to know more?
www.blackrock.com
1‑800‑474‑2737
Information
on the Fund’s net asset value, market price, premiums and discounts, and bid‑ask
spreads can be found at www.blackrock.com.
Copies
of the Prospectus, SAI and other information can be found on our website at
www.blackrock.com. For more information about the Fund, you may request a copy
of the SAI. The SAI provides detailed information about the Fund and is
incorporated by reference into this Prospectus. This means that the SAI, for
legal purposes, is a part of this Prospectus.
If
you have any questions about the Trust or shares of the Fund or you wish to
obtain the SAI free of charge, please:
|
|
|
Call: |
|
1‑800‑474‑2737 (toll free) |
Write: |
|
c/o BlackRock Investments, LLC |
|
|
1 University Square Drive, Princeton, NJ
08540 |
Reports
and other information about the Fund are available on the EDGAR database on the
SEC’s website at www.sec.gov, and copies of this information may be obtained,
after paying a duplicating fee, by electronic request at the following e‑mail
address:
[email protected].
No person is authorized to give any information or to
make any representations about the Fund and its shares not contained in this
Prospectus and you should not rely on any other information. Read and keep this
Prospectus for future reference.
Investment
Company Act File No.: 811‑23402
PRO-ADV-LCI-0923