The
information in this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
Subject
to Completion—Dated April 17, 2023
[ ],
2023 Prospectus
BondBloxxSM
ETF Trust
|
● |
BondBloxx
BBB Rated 1-5 Year Corporate Bond ETF | [ ] | [NYSE
Arca] |
|
● |
BondBloxx
BBB Rated 5-10 Year Corporate Bond ETF | [ ] | [NYSE
Arca] |
|
● |
BondBloxx
BBB Rated 10+ Year Corporate Bond ETF | [ ] | [NYSE
Arca] |
The 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.
BondBloxxSM
is a service mark of BondBloxx Investment Management
Corporation.
Table of
Contents
[Disclaimer
to come]
BONDBLOXX BBB RATED 1-5 YEAR
CORPORATE BOND ETF
|
Ticker:
[ ] |
Stock
Exchange: [NYSE Arca] |
|
Investment
Objective
The
BondBloxx BBB Rated 1-5 Year Corporate Bond ETF (the “Fund”) seeks to track the
investment results of an index composed of U.S. investment grade corporate bonds
issued by U.S. and non-U.S. corporate issuers rated between BBB3 and BBB1 with
remaining maturities of greater than or equal to one year and less than five
years.
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.
You may pay
other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the tables and examples
below.
Annual
Fund Operating Expenses
(ongoing
expenses that you pay each year as a percentage of the value of your
investments)
Management
Fees1 |
|
|
[ ] |
% |
Distribution and
Service (12b-1) |
|
|
[None] |
|
Other
Expenses2 |
|
|
[ ] |
% |
Total Annual Fund
Operating Expenses |
|
|
[ ] |
% |
|
1 |
The
investment advisory agreement between BondBloxx ETF Trust (the “Trust”)
and BondBloxx Investment Management Corporation (“BIM”) (the “Investment
Advisory Agreement”) provides that BIM will pay all operating 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. |
|
2 |
Other
Expenses are based on estimated amounts for the current fiscal
year. |
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. Portfolio turnover information for the Fund is not presented
because the Fund had not commenced investment operations as of the date of this
prospectus.
Principal
Investment Strategies
The Fund is
newly organized, non-diversified and seeks to track the investment results of
the [ ] (the “Index”), which contains all bonds in the [ ]
(the “Underlying Index”) that are U.S. investment grade corporate bonds publicly
issued by U.S. and non-U.S. corporate issuers rated between BBB3 and BBB1 and
that have a maturity of greater than or equal to 1 year and less than 5 years.
[The Index includes fixed-rate, taxable, non-convertible, U.S. dollar
denominated debt with $300 million or more of par amount outstanding, issued by
U.S. and non-U.S. industrial, utility, and financial institutions. The Index
includes investment grade securities rated between Baa3/BBB- and Baa1/BBB+,
using the middle rating of Moody’s Investors Service, Inc., Fitch Ratings Inc.,
or S&P Global Ratings. If only two of the three agencies rate the security,
then the more conservative (lower) rating will be used to determine Index
eligibility. If only one of the agencies rates the security, then that rating
will be used. Subordinated issues, securities with normal call and put
provisions and sinking funds, publicly underwritten medium-term notes, 144A
securities with registration rights, and global issues that are SEC-registered
are included. Equity-linked securities, securities in legal default, hybrid
securitized corporate bonds, Eurodollar bonds, taxable and tax-exempt U.S.
municipal securities are excluded. The Index is rebalanced monthly, on the last
business day of the month.] Because the Index is rebalanced [monthly], the
components of the Index are likely to change over time. As of [ ],
2023, there were [ ] securities in the Index. For more information
regarding the Underlying Index, see “More Information About the Funds—Underlying
Index” below.
The Fund
will invest in privately-issued securities, including those that are normally
purchased pursuant to Rule 144A or Regulation S promulgated under the
Securities Act of 1933, as amended (the “1933 Act”).
BIM uses a
“passive” or indexing approach to try to achieve the Fund’s investment
objective. Unlike many investment companies, the Fund does not try to
“outperform” the index it tracks and does not seek temporary defensive positions
when markets decline or appear overvalued.
Indexing
will eliminate the chance that the Fund will substantially outperform the Index
but also may reduce some of the risks of active management, such as poor
security selection. Indexing seeks to achieve lower costs and better after-tax
performance by aiming to keep portfolio turnover low in comparison to actively
managed investment companies.
BIM uses a
representative sampling indexing strategy to manage the Fund. “Representative
sampling” is an indexing strategy that involves investing in a representative
sample of securities that collectively has an investment profile similar to that
of an applicable underlying index. The securities selected are expected to have,
in the aggregate, investment characteristics (based on factors such as market
value and sector weightings), fundamental characteristics (such as return
variability, duration, maturity, credit ratings and yield) and liquidity
measures similar to those of an applicable underlying index. The Fund may or may
not hold all of the securities in the Index.
Under
normal circumstances, the Fund will invest at least 80% of its net assets (plus
the amount of any borrowings for investment purposes) either
directly or indirectly (e.g., through derivatives) in a portfolio of U.S.
investment grade corporate bonds issued by U.S. and non-U.S. corporate issuers
rated between BBB3 and BBB1 with remaining maturities of greater than or equal
to one year and less than five years. The
Fund may also invest up to 20% of its net assets in certain futures, options and
swap contracts, U.S. Treasury obligations, U.S. Government obligations, U.S.
agency securities, securities of other registered investment companies, cash and
cash equivalents, as well as in securities not included in its Index, but which
BIM believes will help the Fund track its Index.
The Fund
seeks to track the investment results (i.e., the total return) of the
Index before fees and expenses of the Fund.
The Index is
sponsored by the Index Provider, which is independent of the Fund and BIM. The
Index Provider determines the composition and relative weightings of the bonds
in the Index and publishes information regarding the market value of the
Index.
Industry
Concentration Policy. The Fund will concentrate its investments
(i.e., hold 25% or more of its total assets) in a particular industry or
group of industries to approximately the same extent that the Index is
concentrated. For purposes of this limitation, securities of the U.S. government
(including its agencies and instrumentalities), repurchase agreements
collateralized by U.S. government securities, and tax exempt securities of state
or municipal governments and their political subdivisions are not considered to
be issued by members of any industry. The degree to which components of the
Index represent certain sectors or industries may change over time.
Summary
of Principal Risks
As with any
investment, you could lose all or a substantial 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.
Interest
Rate Risk. During periods of very low or negative interest rates, the
Fund may be unable to maintain positive returns or pay dividends to Fund
shareholders. Very low or negative interest rates may magnify interest rate
risk. Changing interest rates, including rates that fall below zero, may have
unpredictable effects on markets, result in heightened market volatility and
detract from the Fund’s performance to the extent the Fund is exposed to such
interest rates. Additionally, under certain market conditions in which interest
rates are low and the market prices for portfolio securities have increased, the
Fund may have a very low, or even negative yield. A low or negative yield would
cause the Fund to lose money in certain conditions and over certain time
periods. Recently, inflation levels have been at their highest point in nearly
40 years, and the U.S. Federal Reserve has begun a campaign to raise certain
benchmark interest rates in an effort to combat inflation. An increase in
interest rates will generally cause the value of securities held by the Fund to
decline, may lead to heightened volatility in the fixed-income markets and may
adversely affect the liquidity of certain fixed-income investments, including
those held by the Fund.
No
Operating History. As a newly organized entity, the Fund has no
operating history. The Fund’s shares have no history of public
trading.
Bond
Risk. The Fund invests a substantial portion of its assets in U.S.
dollar-denominated bonds. A bond is an interest-bearing security typically
issued by a corporate or government issuer that has a contractual obligation to
pay interest at a stated rate on specific dates and to repay principal (the
bond’s face value) periodically or on a specified maturity date. Bonds generally
are used by corporations and governments to borrow money from investors. An
issuer may have the right to redeem or “call” a bond before maturity, in which
case the Fund may have to reinvest the proceeds at lower market rates.
Similarly, the Fund may have to reinvest interest income or payments received
when bonds mature, sometimes at lower market rates. Most bonds bear interest
income at a “coupon” rate that is fixed for the life of the bond. The value of a
fixed-rate bond usually rises when market interest rates fall, and falls when
market interest rates rise. Other types of bonds bear interest at an interest
rate that is adjusted periodically. Interest rates on “floating rate” or
“variable rate” bonds may be higher or lower than current market rates for
fixed-rate bonds of comparable quality with similar final maturities. Because of
their adjustable interest rates, the value of “floating rate” or “variable rate”
bonds fluctuates much less in response to market interest rate movements than
the value of fixed-rate bonds, but their value may decline if their interest
rates do not rise as much, or as quickly, as interest rates in general. Bonds
may be unsecured (backed only by the issuer’s general creditworthiness) or
secured (backed by specified collateral).
Corporate
Bond Risk. The Fund will invest in corporate bonds, which are debt
instruments issued by corporations to raise capital. The investment return of
corporate bonds reflects interest earned on the security and changes in the
market value of the security. The market value of a corporate bond may be
affected by changes in the market rate of interest, the credit rating of the
corporation, the corporation’s performance and perceptions of the corporation in
the marketplace. There is a risk that the issuers of the securities may not be
able to meet their obligations on interest or principal payments at the time
called for by an instrument.
BBB-Rated
Bond Risk. BBB-rated bonds are typically subject to greater risk of
downgrade than other investment grade bonds. The risk of downgrade to
below-investment grade will be heightened during an economic downturn or
substantial period of rising interest rates. Adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation. Any downgrade of
such bonds would relegate such bonds from the investment grade universe to the
high yield (or “junk” bond) universe, which could negatively affect their
liquidity and their value.
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, the advent of
significant inflation, 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 or the Fund’s underlying
portfolio securities, losses from trading in secondary markets, periods of high
volatility and disruptions in the creation/redemption process. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR
DISCOUNT TO NAV. Accordingly, if a shareholder purchases Fund shares at a time
when the market price is at a premium to the NAV, or sells shares at a time when
the market price is at a discount to the NAV, the shareholder may sustain
losses.
Index-Related
Risk. There is no guarantee that the Fund’s investment results will have
a high degree of correlation to those of the Index or that the Fund will achieve
its investment objective. Market disruptions and regulatory restrictions could
have an adverse effect on the Fund’s ability to adjust its exposure to the
required levels in order to track the Index. Errors in index data, index
computations or the construction of the Index in accordance with its methodology
may occur from time to time and may not be identified and corrected by the Index
Provider for a period of time or at all, which may have an adverse impact on the
Fund and its shareholders. Unusual market conditions may cause the Index
Provider to postpone a scheduled rebalance, which could cause the Index to vary
from its normal or expected composition. In addition, the Index Provider may be
subject to business or regulatory changes that impair its ability to continue to
operate the Index in its current form.
Tracking
Error Risk. The Fund may be subject to tracking error, which is the
divergence of the Fund’s performance from that of the Index. Tracking error may
occur because of differences between the securities and other instruments held
in the Fund’s portfolio and those included in the Index, pricing differences
(including, as applicable, differences between a security’s price at the local
market close and the Fund’s valuation of a security at the time of calculation
of the Fund’s NAV or differences between the securities prices used to value the
Index and those used by the Fund), transaction costs incurred by the Fund,
securities lending earnings, the Fund’s holding of uninvested cash, differences
in timing of the accrual of or the valuation of distributions, the requirements
to maintain pass-through tax treatment, portfolio transactions carried out to
minimize the distribution of capital gains to shareholders, acceptance of custom
baskets, changes to the Index or the costs to the Fund of complying with various
new or existing regulatory requirements, among other reasons. This risk may be
heightened during times of increased market volatility or other unusual market
conditions. Tracking error also may result because the Fund incurs fees and
expenses, while the Index does not.
Asset
Class Risk. Securities and other assets in the Index or in the Fund’s
portfolio may underperform in comparison to the general financial markets, a
particular financial market or other asset classes.
Focused
Investment Risk. To the extent the Fund invests more heavily in
particular sectors, sub-sectors, industries, groups of industries, asset
classes, markets, regions, countries, or groups of countries, its performance
will be especially sensitive to developments that significantly affect those
sectors, sub-sectors, industries, asset classes, markets, regions, or countries.
In addition, the value of the Fund’s shares may change at different rates
compared to the value of shares of a fund with investments in a more diversified
mix of sectors, sub-sectors, industries, asset classes, markets, regions, or
countries.
An
individual sector, sub-sector, industry, group of industries, asset-class,
market, region, country, or group of countries may outperform the broader market
during particular periods, but may do so with considerably greater volatility
than the broader market. In addition, the several industries that constitute a
sector or sub-sector or the several countries or markets that constitute a
region or group of countries may all react similarly to economic, political,
regulatory or other market events. The Fund’s performance could also be affected
if the sectors, sub-sectors, industries, asset classes, markets, regions, or
countries do not perform as expected. Alternatively, a lack of exposure to one
or more other sectors, sub-sectors, industries, asset classes, markets, regions,
or countries may adversely affect performance.
Financial
Sector Risk. Performance of companies in the financial sector may be
adversely impacted by many factors, including, among others, changes in
government regulations, economic conditions, and interest rates, credit rating
downgrades, and decreased liquidity in credit markets. The extent to which the
Fund may invest in a company that engages in securities-related activities or
banking is limited by applicable law. The impact of changes in capital
requirements and recent or future regulation of any individual financial
company, or of the financial sector as a whole, cannot be predicted. In recent
years, cyberattacks and technology malfunctions and failures have become
increasingly frequent in this sector and have caused significant losses to
companies in this sector, which may negatively impact the Fund.
Passive
Investment Risk. The Fund is not actively managed, and BIM generally
does not attempt to take defensive positions under any market conditions,
including declining markets or changing interest rate environments.
Income
Risk. The Fund’s income may decline if interest rates fall. This decline
in income can occur because the Fund may subsequently invest in lower-yielding
bonds as bonds in its portfolio mature, are near maturity or are called, bonds
in the Index are substituted, or the Fund otherwise needs to purchase additional
bonds.
Call
Risk. During periods of falling interest rates, an issuer of a callable
bond held by the Fund may “call” or repay the security prior to its stated
maturity, and the Fund may have to reinvest the proceeds in securities with
lower yields, which would result in a decline in the Fund’s income, or in
securities with greater risks or with other less favorable features.
Credit
Risk. Debt issuers and other counterparties may be unable or unwilling
to make timely interest and/or principal payments when due or otherwise honor
their obligations. Changes in an issuer’s credit rating or the market’s
perception of an issuer’s creditworthiness may also adversely affect the value
of the Fund’s investment in that issuer. The degree of credit risk depends on an
issuer’s or counterparty’s financial condition and on the terms of an
obligation.
Inflation
Risk. Inflation is a sustained rise in overall price levels. Moderate
inflation is associated with economic growth, while high inflation can signal an
overheated economy. Inflation risk is the risk that the value of assets or
income from investments will be less in the future as inflation decreases the
value of money (i.e., as inflation increases, the values of the Fund’s assets
can decline). Inflation poses a “stealth” threat to investors because it reduces
savings and investment returns. Central banks, such as the U.S. Federal Reserve,
generally attempt to control inflation by regulating the pace of economic
activity. They typically attempt to affect economic activity by raising and
lowering short-term interest rates. At times, governments may attempt to manage
inflation through fiscal policy, such as by raising taxes or reducing spending,
thereby reducing economic activity; conversely, governments can attempt to
combat deflation with tax cuts and increased spending designed to stimulate
economic activity. Inflation rates may change frequently and significantly as a
result of various factors, including unexpected shifts in the domestic or global
economy and changes in economic policies, and the Fund’s investments may not
keep pace with inflation, which may result in losses to Fund shareholders. This
risk is greater for fixed-income instruments with longer maturities.
Issuer
Risk. The performance of the Fund depends on the performance of
individual securities to which the Fund has exposure. The Fund may be adversely
affected if an issuer of underlying securities held by the Fund is unable or
unwilling to repay principal or interest when due. Changes in the financial
condition or credit rating of an issuer of those securities may cause the value
of the securities to decline.
Geographic
Risk. A natural disaster could occur in a geographic region in which the
Fund invests, which could adversely affect the economy or the business
operations of companies in the specific geographic region, causing an adverse
impact on the Fund’s investments in, or which are exposed to, the affected
region.
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.
Non-U.S.
Issuers Risk. Securities issued by non-U.S. issuers have different risks
from securities issued by U.S. issuers. These risks include differences in
accounting, auditing and financial reporting standards, the possibility of
expropriation or confiscatory taxation, restrictions or limitations on trade,
including export controls and tariffs, adverse changes in investment or exchange
control regulations, political instability which could affect U.S. investments
in non-U.S. countries, uncertainties of transnational litigation, and potential
restrictions on the flow of international capital, including the possible
seizure or nationalization of the securities issued by non-U.S. issuers held by
the Fund. Non-U.S. issuers may be subject to less governmental regulation than
U.S. issuers. Moreover, individual non-U.S. economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payment positions. Unfavorable political, economic or governmental
developments in non-U.S. countries could affect the payment of a security’s
principal and interest. Securities issued by non-U.S. issuers may also be less
liquid than, and more difficult to value than, securities of U.S. issuers. In
addition, the value of these securities may fluctuate due to changes in the
exchange rate of the issuer’s local currency against the U.S. dollar.
Infectious
Illness Risk. A widespread outbreak of an infectious illness, such as
the COVID-19 pandemic, may result in travel restrictions, disruption of
healthcare services, prolonged quarantines, cancellations, supply chain
disruptions, business closures, lower consumer demand, layoffs, ratings
downgrades, defaults and other significant economic, social and political
impacts. Markets may experience temporary closures, extreme volatility, severe
losses, reduced liquidity and increased trading costs. Such events may adversely
affect the Fund and its investments and may impact the Fund’s ability to
purchase or sell securities or cause elevated tracking error and increased
premiums or discounts to the Fund’s NAV. Despite the development of vaccines,
the duration of the COVID-19 pandemic and its effects cannot be predicted with
certainty.
Concentration
Risk. The Fund may be susceptible to an increased risk of loss,
including losses due to adverse events that affect the Fund’s investments more
than the market as a whole, to the extent that the Fund’s investments are
concentrated in the securities and/or other assets of a particular issuer or
issuers, sector, sub-sector, market segment, market, industry, group of
industries, country, group of countries, region or asset class.
Non-Diversification
Risk. The Fund is classified as a “non-diversified” fund under the 1940
Act. Accordingly, the Fund may invest a greater portion of its assets in the
securities of a single issuer than if it were a “diversified” fund. To the
extent that the Fund invests a higher percentage of its assets in the securities
of a single issuer, the Fund is subject to a higher degree of risk associated
with and developments affecting that issuer than a fund that invests more
widely.
Illiquid
Investments Risk. The Fund may invest up to an aggregate amount of 15%
of its net assets in illiquid investments. An illiquid investment is any
investment that the Fund reasonably expects cannot be sold or disposed of in
current market conditions in seven calendar days or less without significantly
changing the market value of the investment. To the extent the Fund holds
illiquid investments, the illiquid investments may reduce the returns of the
Fund because the Fund may be unable to transact at advantageous times or prices.
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.
Privately
Issued Securities Risk. The Fund will invest in privately issued
securities, including those that are normally purchased pursuant to
Rule 144A or Regulation S promulgated under the 1933 Act. Privately issued
securities are securities that have not been registered under the 1933 Act and
as a result may be subject to legal restrictions on resale. Privately issued
securities are generally not traded on established markets. As a result of the
absence of a public trading market, privately issued securities may be deemed to
be illiquid investments, may be more difficult to value than publicly traded
securities and may be subject to wide fluctuations in value. Delay or difficulty
in selling such securities may result in a loss to 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
Authorized Participants are not 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 or unwilling to proceed with creation or redemption
orders with respect to the Fund and no other Authorized Participant is willing
or 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.
Exchange-Traded
Fund (ETF) and Other Investment Company Risk. The Fund may invest in
shares of other investment companies and ETFs. Shareholders bear both their
proportionate share of the Fund’s expenses and similar expenses of the
underlying investment company or ETF when the Fund invests in shares of another
investment company or ETF. The Fund is subject to the risks associated with the
ETF or investment company’s investments. The price and movement of an ETF
designed to track an index may not track the index and may result in a loss. In
addition, ETFs may trade at a price above (premium) or below (discount) their
net asset value, especially during periods of significant market volatility or
stress, causing investors to pay significantly more or less than the value of
the ETF’s underlying portfolio. Certain ETFs traded on exchanges may be thinly
traded and experience large spreads between the “ask” price quoted by a seller
and the “bid” price offered by a buyer.
Management
Risk. Because BIM uses a representative sampling indexing strategy, the
Fund may not be able to fully replicate the Index and may hold securities not
included in the Index. As a result, the Fund is subject to the risk that BIM’s
investment strategy, the implementation of which is subject to a number of
constraints, may not produce the intended results.
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, Authorized
Participants, market makers, counterparties or other third-parties, failed or
inadequate processes and computer, technology or systems failures. The Fund and
BIM 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.
Valuation
Risk. The price the Fund could receive upon the sale of a security or
other asset may differ from the Fund’s valuation of the security or other asset
and from the value used by the Index, particularly for securities or other
assets that trade in low volume or volatile markets or that are valued using a
fair value methodology as a result of trade suspensions or for other reasons. In
addition, the value of the securities or other assets in the Fund’s portfolio
may change on days or during time periods when shareholders will not be able to
purchase or sell the Fund’s shares. Authorized Participants who purchase or
redeem Fund shares on days when the Fund is holding fair-valued securities may
receive fewer or more shares, or lower or higher redemption proceeds, than they
would have received had the Fund not fair-valued securities or used a different
valuation methodology. The Fund’s ability to value investments may be impacted
by a lack of current market prices, technological issues or errors by pricing
services or other third-party service providers.
Cybersecurity
Risk. Failures or breaches of the electronic or computer systems of the
Fund, the Fund’s adviser, distributor, the Index Provider and other service
providers, market makers, Authorized Participants or the issuers of securities
in which the Fund invests have the ability to cause disruptions, negatively
impact the Fund’s business operations and/or potentially result in financial
losses to the Fund and its shareholders. While the Fund has established business
continuity plans and risk management systems seeking to address system breaches
or failures, there are inherent limitations in such plans and systems.
Furthermore, the Fund cannot control the cybersecurity plans and systems of the
Fund’s Index Provider and other service providers, market makers, Authorized
Participants or issuers of securities in which the Fund invests.
Performance
Information
In the
future, this section will show how the Fund’s total return has varied from
year-to-year, along with a broad-based market index for reference. Past
performance (before and after taxes) is not an indication of future performance.
Because the Fund has not commenced operations as of the date of this prospectus,
there is no past performance to return. Updated performance information,
including the Fund’s current NAV, may be obtained by visiting our website at
www.bondbloxxetf.com or by calling (800) 896-5089 (toll free).
Management
Investment
Adviser. BondBloxx Investment Management Corporation.
Portfolio
Manager. Elya Schwartzman (the “Portfolio Manager”) is primarily responsible
for the day-to-day management of the Fund. The Portfolio Manager has been a
fixed income Portfolio Manager of the Fund since the Fund’s
inception.
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 at a market price. When you buy or sell
shares of the Fund, you may be required to pay a brokerage commission, and you
may experience tax consequences, including gains or losses, in connection with
these transactions. 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”).
Recent information regarding the Fund’s NAV, market price, premiums and
discounts, and bid-ask spreads is available at www.bondbloxxetf.com.
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 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), BIM or other related companies could in the
future 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.
BONDBLOXX BBB RATED 5-10 YEAR
CORPORATE BOND ETF
|
Ticker:
[ ] |
Stock
Exchange: [NYSE Arca] |
|
Investment
Objective
The
BondBloxx BBB Rated 5-10 Year Corporate Bond ETF (the “Fund”) seeks to track the
investment results of an index composed of U.S. investment grade corporate bonds
issued by U.S. and non-U.S. corporate issuers rated between BBB3 and BBB1 with
remaining maturities of greater than or equal to five years and less than ten
years.
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.
You may pay
other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the tables and examples
below.
Annual
Fund Operating Expenses
(ongoing
expenses that you pay each year as a percentage of the value of your
investments)
Management
Fees1 |
|
|
[ ] |
% |
Distribution and
Service (12b-1) |
|
|
[None] |
|
Other
Expenses2 |
|
|
[ ] |
% |
Total Annual Fund
Operating Expenses |
|
|
[ ] |
% |
|
1 |
The
investment advisory agreement between BondBloxx ETF Trust (the “Trust”)
and BondBloxx Investment Management Corporation (“BIM”) (the “Investment
Advisory Agreement”) provides that BIM will pay all operating 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. |
|
2 |
Other
Expenses are based on estimated amounts for the current fiscal
year. |
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. Portfolio turnover information for the Fund is not presented
because the Fund had not commenced investment operations as of the date of this
prospectus.
Principal
Investment Strategies
The Fund is
newly organized, non-diversified and seeks to track the investment results of
the [ ] (the “Index”), which contains all bonds in the [ ]
(the “Underlying Index”) that are U.S. investment grade corporate bonds publicly
issued by U.S. and non-U.S. corporate issuers rated between BBB3 and BBB1 and
that have a maturity of greater than or equal to five years and less than ten
years. [The Index includes fixed-rate, taxable, non-convertible, U.S. dollar
denominated debt with $300 million or more of par amount outstanding, issued by
U.S. and non-U.S. industrial, utility, and financial institutions. The Index
includes investment grade securities rated between Baa3/BBB- and Baa1/BBB+,
using the middle rating of Moody’s Investors Service, Inc., Fitch Ratings Inc.,
or S&P Global Ratings. If only two of the three agencies rate the security,
then the more conservative (lower) rating will be used to determine Index
eligibility. If only one of the agencies rates the security, then that rating
will be used. Subordinated issues, securities with normal call and put
provisions and sinking funds, publicly underwritten medium-term notes, 144A
securities with registration rights, and global issues that are SEC-registered
are included. Equity-linked securities, securities in legal default, hybrid
securitized corporate bonds, Eurodollar bonds, taxable and tax-exempt U.S.
municipal securities are excluded. The Index is rebalanced monthly, on the last
business day of the month.] Because the Index is rebalanced [monthly], the
components of the Index are likely to change over time. As of [ ],
2023, there were [ ] securities in the Index. For more information
regarding the Underlying Index, see “More Information About the Funds—Underlying
Index” below.
The Fund
will invest in privately-issued securities, including those that are normally
purchased pursuant to Rule 144A or Regulation S promulgated under the
Securities Act of 1933, as amended (the “1933 Act”).
BIM uses a
“passive” or indexing approach to try to achieve the Fund’s investment
objective. Unlike many investment companies, the Fund does not try to
“outperform” the index it tracks and does not seek temporary defensive positions
when markets decline or appear overvalued.
Indexing
will eliminate the chance that the Fund will substantially outperform the Index
but also may reduce some of the risks of active management, such as poor
security selection. Indexing seeks to achieve lower costs and better after-tax
performance by aiming to keep portfolio turnover low in comparison to actively
managed investment companies.
BIM uses a
representative sampling indexing strategy to manage the Fund. “Representative
sampling” is an indexing strategy that involves investing in a representative
sample of securities that collectively has an investment profile similar to that
of an applicable underlying index. The securities selected are expected to have,
in the aggregate, investment characteristics (based on factors such as market
value and sector weightings), fundamental characteristics (such as return
variability, duration, maturity, credit ratings and yield) and liquidity
measures similar to those of an applicable underlying index. The Fund may or may
not hold all of the securities in the Index.
Under
normal circumstances, the Fund will invest at least 80% of its net assets (plus
the amount of any borrowings for investment purposes) either
directly or indirectly (e.g., through derivatives) in a portfolio of U.S.
investment grade corporate bonds issued by U.S. and non-U.S. corporate issuers
rated between BBB3 and BBB1 with remaining maturities of greater than or equal
to five years and less than ten years. The
Fund may also invest up to 20% of its net assets in certain futures, options and
swap contracts, U.S. Treasury obligations, U.S. Government obligations, U.S.
agency securities, securities of other registered investment companies, cash and
cash equivalents, as well as in securities not included in its Index, but which
BIM believes will help the Fund track its Index.
The Fund
seeks to track the investment results (i.e., the total return) of the
Index before fees and expenses of the Fund.
The Index is
sponsored by the Index Provider, which is independent of the Fund and BIM. The
Index Provider determines the composition and relative weightings of the bonds
in the Index and publishes information regarding the market value of the
Index.
Industry
Concentration Policy. The Fund will concentrate its investments
(i.e., hold 25% or more of its total assets) in a particular industry or
group of industries to approximately the same extent that the Index is
concentrated. For purposes of this limitation, securities of the U.S. government
(including its agencies and instrumentalities), repurchase agreements
collateralized by U.S. government securities, and tax exempt securities of state
or municipal governments and their political subdivisions are not considered to
be issued by members of any industry. The degree to which components of the
Index represent certain sectors or industries may change over time.
Summary
of Principal Risks
As with any
investment, you could lose all or a substantial 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.
Interest
Rate Risk. During periods of very low or negative interest rates, the
Fund may be unable to maintain positive returns or pay dividends to Fund
shareholders. Very low or negative interest rates may magnify interest rate
risk. Changing interest rates, including rates that fall below zero, may have
unpredictable effects on markets, result in heightened market volatility and
detract from the Fund’s performance to the extent the Fund is exposed to such
interest rates. Additionally, under certain market conditions in which interest
rates are low and the market prices for portfolio securities have increased, the
Fund may have a very low, or even negative yield. A low or negative yield would
cause the Fund to lose money in certain conditions and over certain time
periods. Recently, inflation levels have been at their highest point in nearly
40 years, and the U.S. Federal Reserve has begun a campaign to raise certain
benchmark interest rates in an effort to combat inflation. An increase in
interest rates will generally cause the value of securities held by the Fund to
decline, may lead to heightened volatility in the fixed-income markets and may
adversely affect the liquidity of certain fixed-income investments, including
those held by the Fund.
No
Operating History. As a newly organized entity, the Fund has no
operating history. The Fund’s shares have no history of public
trading.
Bond
Risk. The Fund invests a substantial portion of its assets in U.S.
dollar-denominated bonds. A bond is an interest-bearing security typically
issued by a corporate or government issuer that has a contractual obligation to
pay interest at a stated rate on specific dates and to repay principal (the
bond’s face value) periodically or on a specified maturity date. Bonds generally
are used by corporations and governments to borrow money from investors. An
issuer may have the right to redeem or “call” a bond before maturity, in which
case the Fund may have to reinvest the proceeds at lower market rates.
Similarly, the Fund may have to reinvest interest income or payments received
when bonds mature, sometimes at lower market rates. Most bonds bear interest
income at a “coupon” rate that is fixed for the life of the bond. The value of a
fixed-rate bond usually rises when market interest rates fall, and falls when
market interest rates rise. Other types of bonds bear interest at an interest
rate that is adjusted periodically. Interest rates on “floating rate” or
“variable rate” bonds may be higher or lower than current market rates for
fixed-rate bonds of comparable quality with similar final maturities. Because of
their adjustable interest rates, the value of “floating rate” or “variable rate”
bonds fluctuates much less in response to market interest rate movements than
the value of fixed-rate bonds, but their value may decline if their interest
rates do not rise as much, or as quickly, as interest rates in general. Bonds
may be unsecured (backed only by the issuer’s general creditworthiness) or
secured (backed by specified collateral).
Corporate
Bond Risk. The Fund will invest in corporate bonds, which are debt
instruments issued by corporations to raise capital. The investment return of
corporate bonds reflects interest earned on the security and changes in the
market value of the security. The market value of a corporate bond may be
affected by changes in the market rate of interest, the credit rating of the
corporation, the corporation’s performance and perceptions of the corporation in
the marketplace. There is a risk that the issuers of the securities may not be
able to meet their obligations on interest or principal payments at the time
called for by an instrument.
BBB-Rated
Bond Risk. BBB-rated bonds are typically subject to greater risk of
downgrade than other investment grade bonds. The risk of downgrade to
below-investment grade will be heightened during an economic downturn or
substantial period of rising interest rates. Adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation. Any downgrade of
such bonds would relegate such bonds from the investment grade universe to the
high yield (or “junk” bond) universe, which could negatively affect their
liquidity and their value.
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, the advent of
significant inflation, 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 or the Fund’s underlying
portfolio securities, losses from trading in secondary markets, periods of high
volatility and disruptions in the creation/redemption process. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR
DISCOUNT TO NAV. Accordingly, if a shareholder purchases Fund shares at a time
when the market price is at a premium to the NAV, or sells shares at a time when
the market price is at a discount to the NAV, the shareholder may sustain
losses.
Index-Related
Risk. There is no guarantee that the Fund’s investment results will have
a high degree of correlation to those of the Index or that the Fund will achieve
its investment objective. Market disruptions and regulatory restrictions could
have an adverse effect on the Fund’s ability to adjust its exposure to the
required levels in order to track the Index. Errors in index data, index
computations or the construction of the Index in accordance with its methodology
may occur from time to time and may not be identified and corrected by the Index
Provider for a period of time or at all, which may have an adverse impact on the
Fund and its shareholders. Unusual market conditions may cause the Index
Provider to postpone a scheduled rebalance, which could cause the Index to vary
from its normal or expected composition. In addition, the Index Provider may be
subject to business or regulatory changes that impair its ability to continue to
operate the Index in its current form.
Tracking
Error Risk. The Fund may be subject to tracking error, which is the
divergence of the Fund’s performance from that of the Index. Tracking error may
occur because of differences between the securities and other instruments held
in the Fund’s portfolio and those included in the Index, pricing differences
(including, as applicable, differences between a security’s price at the local
market close and the Fund’s valuation of a security at the time of calculation
of the Fund’s NAV or differences between the securities prices used to value the
Index and those used by the Fund), transaction costs incurred by the Fund,
securities lending earnings, the Fund’s holding of uninvested cash, differences
in timing of the accrual of or the valuation of distributions, the requirements
to maintain pass-through tax treatment, portfolio transactions carried out to
minimize the distribution of capital gains to shareholders, acceptance of custom
baskets, changes to the Index or the costs to the Fund of complying with various
new or existing regulatory requirements, among other reasons. This risk may be
heightened during times of increased market volatility or other unusual market
conditions. Tracking error also may result because the Fund incurs fees and
expenses, while the Index does not.
Asset
Class Risk. Securities and other assets in the Index or in the Fund’s
portfolio may underperform in comparison to the general financial markets, a
particular financial market or other asset classes.
Focused
Investment Risk. To the extent the Fund invests more heavily in
particular sectors, sub-sectors, industries, groups of industries, asset
classes, markets, regions, countries, or groups of countries, its performance
will be especially sensitive to developments that significantly affect those
sectors, sub-sectors, industries, asset classes, markets, regions, or countries.
In addition, the value of the Fund’s shares may change at different rates
compared to the value of shares of a fund with investments in a more diversified
mix of sectors, sub-sectors, industries, asset classes, markets, regions, or
countries.
An
individual sector, sub-sector, industry, group of industries, asset-class,
market, region, country, or group of countries may outperform the broader market
during particular periods, but may do so with considerably greater volatility
than the broader market. In addition, the several industries that constitute a
sector or sub-sector or the several countries or markets that constitute a
region or group of countries may all react similarly to economic, political,
regulatory or other market events. The Fund’s performance could also be affected
if the sectors, sub-sectors, industries, asset classes, markets, regions, or
countries do not perform as expected. Alternatively, a lack of exposure to one
or more other sectors, sub-sectors, industries, asset classes, markets, regions,
or countries may adversely affect performance.
Financial
Sector Risk. Performance of companies in the financial sector may be
adversely impacted by many factors, including, among others, changes in
government regulations, economic conditions, and interest rates, credit rating
downgrades, and decreased liquidity in credit markets. The extent to which the
Fund may invest in a company that engages in securities-related activities or
banking is limited by applicable law. The impact of changes in capital
requirements and recent or future regulation of any individual financial
company, or of the financial sector as a whole, cannot be predicted. In recent
years, cyberattacks and technology malfunctions and failures have become
increasingly frequent in this sector and have caused significant losses to
companies in this sector, which may negatively impact the Fund.
Passive
Investment Risk. The Fund is not actively managed, and BIM generally
does not attempt to take defensive positions under any market conditions,
including declining markets or changing interest rate environments.
Income
Risk. The Fund’s income may decline if interest rates fall. This decline
in income can occur because the Fund may subsequently invest in lower-yielding
bonds as bonds in its portfolio mature, are near maturity or are called, bonds
in the Index are substituted, or the Fund otherwise needs to purchase additional
bonds.
Call
Risk. During periods of falling interest rates, an issuer of a callable
bond held by the Fund may “call” or repay the security prior to its stated
maturity, and the Fund may have to reinvest the proceeds in securities with
lower yields, which would result in a decline in the Fund’s income, or in
securities with greater risks or with other less favorable features.
Credit
Risk. Debt issuers and other counterparties may be unable or unwilling
to make timely interest and/or principal payments when due or otherwise honor
their obligations. Changes in an issuer’s credit rating or the market’s
perception of an issuer’s creditworthiness may also adversely affect the value
of the Fund’s investment in that issuer. The degree of credit risk depends on an
issuer’s or counterparty’s financial condition and on the terms of an
obligation.
Inflation
Risk. Inflation is a sustained rise in overall price levels. Moderate
inflation is associated with economic growth, while high inflation can signal an
overheated economy. Inflation risk is the risk that the value of assets or
income from investments will be less in the future as inflation decreases the
value of money (i.e., as inflation increases, the values of the Fund’s assets
can decline). Inflation poses a “stealth” threat to investors because it reduces
savings and investment returns. Central banks, such as the U.S. Federal Reserve,
generally attempt to control inflation by regulating the pace of economic
activity. They typically attempt to affect economic activity by raising and
lowering short-term interest rates. At times, governments may attempt to manage
inflation through fiscal policy, such as by raising taxes or reducing spending,
thereby reducing economic activity; conversely, governments can attempt to
combat deflation with tax cuts and increased spending designed to stimulate
economic activity. Inflation rates may change frequently and significantly as a
result of various factors, including unexpected shifts in the domestic or global
economy and changes in economic policies, and the Fund’s investments may not
keep pace with inflation, which may result in losses to Fund shareholders. This
risk is greater for fixed-income instruments with longer maturities.
Issuer
Risk. The performance of the Fund depends on the performance of
individual securities to which the Fund has exposure. The Fund may be adversely
affected if an issuer of underlying securities held by the Fund is unable or
unwilling to repay principal or interest when due. Changes in the financial
condition or credit rating of an issuer of those securities may cause the value
of the securities to decline.
Geographic
Risk. A natural disaster could occur in a geographic region in which the
Fund invests, which could adversely affect the economy or the business
operations of companies in the specific geographic region, causing an adverse
impact on the Fund’s investments in, or which are exposed to, the affected
region.
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.
Non-U.S.
Issuers Risk. Securities issued by non-U.S. issuers have different risks
from securities issued by U.S. issuers. These risks include differences in
accounting, auditing and financial reporting standards, the possibility of
expropriation or confiscatory taxation, restrictions or limitations on trade,
including export controls and tariffs, adverse changes in investment or exchange
control regulations, political instability which could affect U.S. investments
in non-U.S. countries, uncertainties of transnational litigation, and potential
restrictions on the flow of international capital, including the possible
seizure or nationalization of the securities issued by non-U.S. issuers held by
the Fund. Non-U.S. issuers may be subject to less governmental regulation than
U.S. issuers. Moreover, individual non-U.S. economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payment positions. Unfavorable political, economic or governmental
developments in non-U.S. countries could affect the payment of a security’s
principal and interest. Securities issued by non-U.S. issuers may also be less
liquid than, and more difficult to value than, securities of U.S. issuers. In
addition, the value of these securities may fluctuate due to changes in the
exchange rate of the issuer’s local currency against the U.S. dollar.
Infectious
Illness Risk. A widespread outbreak of an infectious illness, such as
the COVID-19 pandemic, may result in travel restrictions, disruption of
healthcare services, prolonged quarantines, cancellations, supply chain
disruptions, business closures, lower consumer demand, layoffs, ratings
downgrades, defaults and other significant economic, social and political
impacts. Markets may experience temporary closures, extreme volatility, severe
losses, reduced liquidity and increased trading costs. Such events may adversely
affect the Fund and its investments and may impact the Fund’s ability to
purchase or sell securities or cause elevated tracking error and increased
premiums or discounts to the Fund’s NAV. Despite the development of vaccines,
the duration of the COVID-19 pandemic and its effects cannot be predicted with
certainty.
Concentration
Risk. The Fund may be susceptible to an increased risk of loss,
including losses due to adverse events that affect the Fund’s investments more
than the market as a whole, to the extent that the Fund’s investments are
concentrated in the securities and/or other assets of a particular issuer or
issuers, sector, sub-sector, market segment, market, industry, group of
industries, country, group of countries, region or asset class.
Non-Diversification
Risk. The Fund is classified as a “non-diversified” fund under the 1940
Act. Accordingly, the Fund may invest a greater portion of its assets in the
securities of a single issuer than if it were a “diversified” fund. To the
extent that the Fund invests a higher percentage of its assets in the securities
of a single issuer, the Fund is subject to a higher degree of risk associated
with and developments affecting that issuer than a fund that invests more
widely.
Illiquid
Investments Risk. The Fund may invest up to an aggregate amount of 15%
of its net assets in illiquid investments. An illiquid investment is any
investment that the Fund reasonably expects cannot be sold or disposed of in
current market conditions in seven calendar days or less without significantly
changing the market value of the investment. To the extent the Fund holds
illiquid investments, the illiquid investments may reduce the returns of the
Fund because the Fund may be unable to transact at advantageous times or prices.
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.
Privately
Issued Securities Risk. The Fund will invest in privately issued
securities, including those that are normally purchased pursuant to
Rule 144A or Regulation S promulgated under the 1933 Act. Privately issued
securities are securities that have not been registered under the 1933 Act and
as a result may be subject to legal restrictions on resale. Privately issued
securities are generally not traded on established markets. As a result of the
absence of a public trading market, privately issued securities may be deemed to
be illiquid investments, may be more difficult to value than publicly traded
securities and may be subject to wide fluctuations in value. Delay or difficulty
in selling such securities may result in a loss to 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
Authorized Participants are not 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 or unwilling to proceed with creation or redemption
orders with respect to the Fund and no other Authorized Participant is willing
or 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.
Exchange-Traded
Fund (ETF) and Other Investment Company Risk. The Fund may invest in
shares of other investment companies and ETFs. Shareholders bear both their
proportionate share of the Fund’s expenses and similar expenses of the
underlying investment company or ETF when the Fund invests in shares of another
investment company or ETF. The Fund is subject to the risks associated with the
ETF or investment company’s investments. The price and movement of an ETF
designed to track an index may not track the index and may result in a loss. In
addition, ETFs may trade at a price above (premium) or below (discount) their
net asset value, especially during periods of significant market volatility or
stress, causing investors to pay significantly more or less than the value of
the ETF’s underlying portfolio. Certain ETFs traded on exchanges may be thinly
traded and experience large spreads between the “ask” price quoted by a seller
and the “bid” price offered by a buyer.
Management
Risk. Because BIM uses a representative sampling indexing strategy, the
Fund may not be able to fully replicate the Index and may hold securities not
included in the Index. As a result, the Fund is subject to the risk that BIM’s
investment strategy, the implementation of which is subject to a number of
constraints, may not produce the intended results.
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, Authorized
Participants, market makers, counterparties or other third-parties, failed or
inadequate processes and computer, technology or systems failures. The Fund and
BIM 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.
Valuation
Risk. The price the Fund could receive upon the sale of a security or
other asset may differ from the Fund’s valuation of the security or other asset
and from the value used by the Index, particularly for securities or other
assets that trade in low volume or volatile markets or that are valued using a
fair value methodology as a result of trade suspensions or for other reasons. In
addition, the value of the securities or other assets in the Fund’s portfolio
may change on days or during time periods when shareholders will not be able to
purchase or sell the Fund’s shares. Authorized Participants who purchase or
redeem Fund shares on days when the Fund is holding fair-valued securities may
receive fewer or more shares, or lower or higher redemption proceeds, than they
would have received had the Fund not fair-valued securities or used a different
valuation methodology. The Fund’s ability to value investments may be impacted
by a lack of current market prices, technological issues or errors by pricing
services or other third-party service providers.
Cybersecurity
Risk. Failures or breaches of the electronic or computer systems of the
Fund, the Fund’s adviser, distributor, the Index Provider and other service
providers, market makers, Authorized Participants or the issuers of securities
in which the Fund invests have the ability to cause disruptions, negatively
impact the Fund’s business operations and/or potentially result in financial
losses to the Fund and its shareholders. While the Fund has established business
continuity plans and risk management systems seeking to address system breaches
or failures, there are inherent limitations in such plans and systems.
Furthermore, the Fund cannot control the cybersecurity plans and systems of the
Fund’s Index Provider and other service providers, market makers, Authorized
Participants or issuers of securities in which the Fund invests.
Performance
Information
In the
future, this section will show how the Fund’s total return has varied from
year-to-year, along with a broad-based market index for reference. Past
performance (before and after taxes) is not an indication of future performance.
Because the Fund has not commenced operations as of the date of this prospectus,
there is no past performance to return. Updated performance information,
including the Fund’s current NAV, may be obtained by visiting our website at
www.bondbloxxetf.com or by calling (800) 896-5089 (toll free).
Management
Investment
Adviser. BondBloxx Investment Management Corporation.
Portfolio
Manager. Elya Schwartzman (the “Portfolio Manager”) is primarily responsible
for the day-to-day management of the Fund. The Portfolio Manager has been a
fixed income Portfolio Manager of the Fund since the Fund’s
inception.
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 at a market price. When you buy or sell
shares of the Fund, you may be required to pay a brokerage commission, and you
may experience tax consequences, including gains or losses, in connection with
these transactions. 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”).
Recent information regarding the Fund’s NAV, market price, premiums and
discounts, and bid-ask spreads is available at www.bondbloxxetf.com.
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 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), BIM or other related companies could in the
future 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.
BONDBLOXX BBB RATED 10+ YEAR
CORPORATE BOND ETF
|
Ticker:
[ ] |
Stock
Exchange: [NYSE Arca] |
|
Investment
Objective
The
BondBloxx BBB Rated 10+ Year Corporate Bond ETF (the “Fund”) seeks to track the
investment results of an index composed of U.S. investment grade corporate bonds
issued by U.S. and non-U.S. corporate issuers rated between BBB3 and BBB1 with
remaining maturities of greater than or equal to ten years.
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.
You may pay
other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the tables and examples
below.
Annual
Fund Operating Expenses
(ongoing
expenses that you pay each year as a percentage of the value of your
investments)
Management
Fees1 |
|
|
[ ] |
% |
Distribution and
Service (12b-1) |
|
|
[None] |
|
Other
Expenses2 |
|
|
[ ] |
% |
Total Annual Fund
Operating Expenses |
|
|
[ ] |
% |
|
1 |
The
investment advisory agreement between BondBloxx ETF Trust (the “Trust”)
and BondBloxx Investment Management Corporation (“BIM”) (the “Investment
Advisory Agreement”) provides that BIM will pay all operating 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. |
|
2 |
Other
Expenses are based on estimated amounts for the current fiscal
year. |
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. Portfolio turnover information for the Fund is not presented
because the Fund had not commenced investment operations as of the date of this
prospectus.
Principal
Investment Strategies
The Fund is
newly organized, non-diversified and seeks to track the investment results of
the [ ] (the “Index”), which contains all bonds in the [ ]
(the “Underlying Index”) that are U.S. investment grade corporate bonds publicly
issued by U.S. and non-U.S. corporate issuers rated between BBB3 and BBB1 and
that have a maturity of greater than or equal to ten years. [The Index includes
fixed-rate, taxable, non-convertible, U.S. dollar denominated debt with $300
million or more of par amount outstanding, issued by U.S. and non-U.S.
industrial, utility, and financial institutions. The Index includes investment
grade securities rated between Baa3/BBB- and Baa1/BBB+, using the middle rating
of Moody’s Investors Service, Inc., Fitch Ratings Inc., or S&P Global
Ratings. If only two of the three agencies rate the security, then the more
conservative (lower) rating will be used to determine Index eligibility. If only
one of the agencies rates the security, then that rating will be used.
Subordinated issues, securities with normal call and put provisions and sinking
funds, publicly underwritten medium-term notes, 144A securities with
registration rights, and global issues that are SEC-registered are included.
Equity-linked securities, securities in legal default, hybrid securitized
corporate bonds, Eurodollar bonds, taxable and tax-exempt U.S. municipal
securities are excluded. The Index is rebalanced monthly, on the last business
day of the month.] Because the Index is rebalanced [monthly], the components of
the Index are likely to change over time. As of [ ], 2023, there were
[ ] securities in the Index. For more information regarding the
Underlying Index, see “More Information About the Funds—Underlying Index”
below.
The Fund
will invest in privately-issued securities, including those that are normally
purchased pursuant to Rule 144A or Regulation S promulgated under the
Securities Act of 1933, as amended (the “1933 Act”).
BIM uses a
“passive” or indexing approach to try to achieve the Fund’s investment
objective. Unlike many investment companies, the Fund does not try to
“outperform” the index it tracks and does not seek temporary defensive positions
when markets decline or appear overvalued.
Indexing
will eliminate the chance that the Fund will substantially outperform the Index
but also may reduce some of the risks of active management, such as poor
security selection. Indexing seeks to achieve lower costs and better after-tax
performance by aiming to keep portfolio turnover low in comparison to actively
managed investment companies.
BIM uses a
representative sampling indexing strategy to manage the Fund. “Representative
sampling” is an indexing strategy that involves investing in a representative
sample of securities that collectively has an investment profile similar to that
of an applicable underlying index. The securities selected are expected to have,
in the aggregate, investment characteristics (based on factors such as market
value and sector weightings), fundamental characteristics (such as return
variability, duration, maturity, credit ratings and yield) and liquidity
measures similar to those of an applicable underlying index. The Fund may or may
not hold all of the securities in the Index.
Under
normal circumstances, the Fund will invest at least 80% of its net assets (plus
the amount of any borrowings for investment purposes) either
directly or indirectly (e.g., through derivatives) in a portfolio of U.S.
investment grade corporate bonds issued by U.S. and non-U.S. corporate issuers
rated between BBB3 and BBB1 with remaining maturities of greater than or equal
to ten years. The Fund may also invest up
to 20% of its net assets in certain futures, options and swap contracts, U.S.
Treasury obligations, U.S. Government obligations, U.S. agency securities,
securities of other registered investment companies, cash and cash equivalents,
as well as in securities not included in its Index, but which BIM believes will
help the Fund track its Index.
The Fund
seeks to track the investment results (i.e., the total return) of the
Index before fees and expenses of the Fund.
The Index is
sponsored by the Index Provider, which is independent of the Fund and BIM. The
Index Provider determines the composition and relative weightings of the bonds
in the Index and publishes information regarding the market value of the
Index.
Industry
Concentration Policy. The Fund will concentrate its investments
(i.e., hold 25% or more of its total assets) in a particular industry or
group of industries to approximately the same extent that the Index is
concentrated. For purposes of this limitation, securities of the U.S. government
(including its agencies and instrumentalities), repurchase agreements
collateralized by U.S. government securities, and tax exempt securities of state
or municipal governments and their political subdivisions are not considered to
be issued by members of any industry. The degree to which components of the
Index represent certain sectors or industries may change over time.
Summary
of Principal Risks
As with any
investment, you could lose all or a substantial 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.
Interest
Rate Risk. During periods of very low or negative interest rates, the
Fund may be unable to maintain positive returns or pay dividends to Fund
shareholders. Very low or negative interest rates may magnify interest rate
risk. Changing interest rates, including rates that fall below zero, may have
unpredictable effects on markets, result in heightened market volatility and
detract from the Fund’s performance to the extent the Fund is exposed to such
interest rates. Additionally, under certain market conditions in which interest
rates are low and the market prices for portfolio securities have increased, the
Fund may have a very low, or even negative yield. A low or negative yield would
cause the Fund to lose money in certain conditions and over certain time
periods. Recently, inflation levels have been at their highest point in nearly
40 years, and the U.S. Federal Reserve has begun a campaign to raise certain
benchmark interest rates in an effort to combat inflation. An increase in
interest rates will generally cause the value of securities held by the Fund to
decline, may lead to heightened volatility in the fixed-income markets and may
adversely affect the liquidity of certain fixed-income investments, including
those held by the Fund.
No
Operating History. As a newly organized entity, the Fund has no
operating history. The Fund’s shares have no history of public
trading.
Bond
Risk. The Fund invests a substantial portion of its assets in U.S.
dollar-denominated bonds. A bond is an interest-bearing security typically
issued by a corporate or government issuer that has a contractual obligation to
pay interest at a stated rate on specific dates and to repay principal (the
bond’s face value) periodically or on a specified maturity date. Bonds generally
are used by corporations and governments to borrow money from investors. An
issuer may have the right to redeem or “call” a bond before maturity, in which
case the Fund may have to reinvest the proceeds at lower market rates.
Similarly, the Fund may have to reinvest interest income or payments received
when bonds mature, sometimes at lower market rates. Most bonds bear interest
income at a “coupon” rate that is fixed for the life of the bond. The value of a
fixed-rate bond usually rises when market interest rates fall, and falls when
market interest rates rise. Other types of bonds bear interest at an interest
rate that is adjusted periodically. Interest rates on “floating rate” or
“variable rate” bonds may be higher or lower than current market rates for
fixed-rate bonds of comparable quality with similar final maturities. Because of
their adjustable interest rates, the value of “floating rate” or “variable rate”
bonds fluctuates much less in response to market interest rate movements than
the value of fixed-rate bonds, but their value may decline if their interest
rates do not rise as much, or as quickly, as interest rates in general. Bonds
may be unsecured (backed only by the issuer’s general creditworthiness) or
secured (backed by specified collateral).
Corporate
Bond Risk. The Fund will invest in corporate bonds, which are debt
instruments issued by corporations to raise capital. The investment return of
corporate bonds reflects interest earned on the security and changes in the
market value of the security. The market value of a corporate bond may be
affected by changes in the market rate of interest, the credit rating of the
corporation, the corporation’s performance and perceptions of the corporation in
the marketplace. There is a risk that the issuers of the securities may not be
able to meet their obligations on interest or principal payments at the time
called for by an instrument.
BBB-Rated
Bond Risk. BBB-rated bonds are typically subject to greater risk of
downgrade than other investment grade bonds. The risk of downgrade to
below-investment grade will be heightened during an economic downturn or
substantial period of rising interest rates. Adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation. Any downgrade of
such bonds would relegate such bonds from the investment grade universe to the
high yield (or “junk” bond) universe, which could negatively affect their
liquidity and their value.
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, the advent of
significant inflation, 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 or the Fund’s underlying
portfolio securities, losses from trading in secondary markets, periods of high
volatility and disruptions in the creation/redemption process. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR
DISCOUNT TO NAV. Accordingly, if a shareholder purchases Fund shares at a time
when the market price is at a premium to the NAV, or sells shares at a time when
the market price is at a discount to the NAV, the shareholder may sustain
losses.
Index-Related
Risk. There is no guarantee that the Fund’s investment results will have
a high degree of correlation to those of the Index or that the Fund will achieve
its investment objective. Market disruptions and regulatory restrictions could
have an adverse effect on the Fund’s ability to adjust its exposure to the
required levels in order to track the Index. Errors in index data, index
computations or the construction of the Index in accordance with its methodology
may occur from time to time and may not be identified and corrected by the Index
Provider for a period of time or at all, which may have an adverse impact on the
Fund and its shareholders. Unusual market conditions may cause the Index
Provider to postpone a scheduled rebalance, which could cause the Index to vary
from its normal or expected composition. In addition, the Index Provider may be
subject to business or regulatory changes that impair its ability to continue to
operate the Index in its current form.
Tracking
Error Risk. The Fund may be subject to tracking error, which is the
divergence of the Fund’s performance from that of the Index. Tracking error may
occur because of differences between the securities and other instruments held
in the Fund’s portfolio and those included in the Index, pricing differences
(including, as applicable, differences between a security’s price at the local
market close and the Fund’s valuation of a security at the time of calculation
of the Fund’s NAV or differences between the securities prices used to value the
Index and those used by the Fund), transaction costs incurred by the Fund,
securities lending earnings, the Fund’s holding of uninvested cash, differences
in timing of the accrual of or the valuation of distributions, the requirements
to maintain pass-through tax treatment, portfolio transactions carried out to
minimize the distribution of capital gains to shareholders, acceptance of custom
baskets, changes to the Index or the costs to the Fund of complying with various
new or existing regulatory requirements, among other reasons. This risk may be
heightened during times of increased market volatility or other unusual market
conditions. Tracking error also may result because the Fund incurs fees and
expenses, while the Index does not.
Asset
Class Risk. Securities and other assets in the Index or in the Fund’s
portfolio may underperform in comparison to the general financial markets, a
particular financial market or other asset classes.
Focused
Investment Risk. To the extent the Fund invests more heavily in
particular sectors, sub-sectors, industries, groups of industries, asset
classes, markets, regions, countries, or groups of countries, its performance
will be especially sensitive to developments that significantly affect those
sectors, sub-sectors, industries, asset classes, markets, regions, or countries.
In addition, the value of the Fund’s shares may change at different rates
compared to the value of shares of a fund with investments in a more diversified
mix of sectors, sub-sectors, industries, asset classes, markets, regions, or
countries.
An
individual sector, sub-sector, industry, group of industries, asset-class,
market, region, country, or group of countries may outperform the broader market
during particular periods, but may do so with considerably greater volatility
than the broader market. In addition, the several industries that constitute a
sector or sub-sector or the several countries or markets that constitute a
region or group of countries may all react similarly to economic, political,
regulatory or other market events. The Fund’s performance could also be affected
if the sectors, sub-sectors, industries, asset classes, markets, regions, or
countries do not perform as expected. Alternatively, a lack of exposure to one
or more other sectors, sub-sectors, industries, asset classes, markets, regions,
or countries may adversely affect performance.
Financial
Sector Risk. Performance of companies in the financial sector may be
adversely impacted by many factors, including, among others, changes in
government regulations, economic conditions, and interest rates, credit rating
downgrades, and decreased liquidity in credit markets. The extent to which the
Fund may invest in a company that engages in securities-related activities or
banking is limited by applicable law. The impact of changes in capital
requirements and recent or future regulation of any individual financial
company, or of the financial sector as a whole, cannot be predicted. In recent
years, cyberattacks and technology malfunctions and failures have become
increasingly frequent in this sector and have caused significant losses to
companies in this sector, which may negatively impact the Fund.
Passive
Investment Risk. The Fund is not actively managed, and BIM generally
does not attempt to take defensive positions under any market conditions,
including declining markets or changing interest rate environments.
Income
Risk. The Fund’s income may decline if interest rates fall. This decline
in income can occur because the Fund may subsequently invest in lower-yielding
bonds as bonds in its portfolio mature, are near maturity or are called, bonds
in the Index are substituted, or the Fund otherwise needs to purchase additional
bonds.
Call
Risk. During periods of falling interest rates, an issuer of a callable
bond held by the Fund may “call” or repay the security prior to its stated
maturity, and the Fund may have to reinvest the proceeds in securities with
lower yields, which would result in a decline in the Fund’s income, or in
securities with greater risks or with other less favorable features.
Credit
Risk. Debt issuers and other counterparties may be unable or unwilling
to make timely interest and/or principal payments when due or otherwise honor
their obligations. Changes in an issuer’s credit rating or the market’s
perception of an issuer’s creditworthiness may also adversely affect the value
of the Fund’s investment in that issuer. The degree of credit risk depends on an
issuer’s or counterparty’s financial condition and on the terms of an
obligation.
Inflation
Risk. Inflation is a sustained rise in overall price levels. Moderate
inflation is associated with economic growth, while high inflation can signal an
overheated economy. Inflation risk is the risk that the value of assets or
income from investments will be less in the future as inflation decreases the
value of money (i.e., as inflation increases, the values of the Fund’s assets
can decline). Inflation poses a “stealth” threat to investors because it reduces
savings and investment returns. Central banks, such as the U.S. Federal Reserve,
generally attempt to control inflation by regulating the pace of economic
activity. They typically attempt to affect economic activity by raising and
lowering short-term interest rates. At times, governments may attempt to manage
inflation through fiscal policy, such as by raising taxes or reducing spending,
thereby reducing economic activity; conversely, governments can attempt to
combat deflation with tax cuts and increased spending designed to stimulate
economic activity. Inflation rates may change frequently and significantly as a
result of various factors, including unexpected shifts in the domestic or global
economy and changes in economic policies, and the Fund’s investments may not
keep pace with inflation, which may result in losses to Fund shareholders. This
risk is greater for fixed-income instruments with longer maturities.
Issuer
Risk. The performance of the Fund depends on the performance of
individual securities to which the Fund has exposure. The Fund may be adversely
affected if an issuer of underlying securities held by the Fund is unable or
unwilling to repay principal or interest when due. Changes in the financial
condition or credit rating of an issuer of those securities may cause the value
of the securities to decline.
Geographic
Risk. A natural disaster could occur in a geographic region in which the
Fund invests, which could adversely affect the economy or the business
operations of companies in the specific geographic region, causing an adverse
impact on the Fund’s investments in, or which are exposed to, the affected
region.
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.
Non-U.S.
Issuers Risk. Securities issued by non-U.S. issuers have different risks
from securities issued by U.S. issuers. These risks include differences in
accounting, auditing and financial reporting standards, the possibility of
expropriation or confiscatory taxation, restrictions or limitations on trade,
including export controls and tariffs, adverse changes in investment or exchange
control regulations, political instability which could affect U.S. investments
in non-U.S. countries, uncertainties of transnational litigation, and potential
restrictions on the flow of international capital, including the possible
seizure or nationalization of the securities issued by non-U.S. issuers held by
the Fund. Non-U.S. issuers may be subject to less governmental regulation than
U.S. issuers. Moreover, individual non-U.S. economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payment positions. Unfavorable political, economic or governmental
developments in non-U.S. countries could affect the payment of a security’s
principal and interest. Securities issued by non-U.S. issuers may also be less
liquid than, and more difficult to value than, securities of U.S. issuers. In
addition, the value of these securities may fluctuate due to changes in the
exchange rate of the issuer’s local currency against the U.S. dollar.
Infectious
Illness Risk. A widespread outbreak of an infectious illness, such as
the COVID-19 pandemic, may result in travel restrictions, disruption of
healthcare services, prolonged quarantines, cancellations, supply chain
disruptions, business closures, lower consumer demand, layoffs, ratings
downgrades, defaults and other significant economic, social and political
impacts. Markets may experience temporary closures, extreme volatility, severe
losses, reduced liquidity and increased trading costs. Such events may adversely
affect the Fund and its investments and may impact the Fund’s ability to
purchase or sell securities or cause elevated tracking error and increased
premiums or discounts to the Fund’s NAV. Despite the development of vaccines,
the duration of the COVID-19 pandemic and its effects cannot be predicted with
certainty.
Concentration
Risk. The Fund may be susceptible to an increased risk of loss,
including losses due to adverse events that affect the Fund’s investments more
than the market as a whole, to the extent that the Fund’s investments are
concentrated in the securities and/or other assets of a particular issuer or
issuers, sector, sub-sector, market segment, market, industry, group of
industries, country, group of countries, region or asset class.
Non-Diversification
Risk. The Fund is classified as a “non-diversified” fund under the 1940
Act. Accordingly, the Fund may invest a greater portion of its assets in the
securities of a single issuer than if it were a “diversified” fund. To the
extent that the Fund invests a higher percentage of its assets in the securities
of a single issuer, the Fund is subject to a higher degree of risk associated
with and developments affecting that issuer than a fund that invests more
widely.
Illiquid
Investments Risk. The Fund may invest up to an aggregate amount of 15%
of its net assets in illiquid investments. An illiquid investment is any
investment that the Fund reasonably expects cannot be sold or disposed of in
current market conditions in seven calendar days or less without significantly
changing the market value of the investment. To the extent the Fund holds
illiquid investments, the illiquid investments may reduce the returns of the
Fund because the Fund may be unable to transact at advantageous times or prices.
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.
Privately
Issued Securities Risk. The Fund will invest in privately issued
securities, including those that are normally purchased pursuant to
Rule 144A or Regulation S promulgated under the 1933 Act. Privately issued
securities are securities that have not been registered under the 1933 Act and
as a result may be subject to legal restrictions on resale. Privately issued
securities are generally not traded on established markets. As a result of the
absence of a public trading market, privately issued securities may be deemed to
be illiquid investments, may be more difficult to value than publicly traded
securities and may be subject to wide fluctuations in value. Delay or difficulty
in selling such securities may result in a loss to 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
Authorized Participants are not 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 or unwilling to proceed with creation or redemption
orders with respect to the Fund and no other Authorized Participant is willing
or 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.
Exchange-Traded
Fund (ETF) and Other Investment Company Risk. The Fund may invest in
shares of other investment companies and ETFs. Shareholders bear both their
proportionate share of the Fund’s expenses and similar expenses of the
underlying investment company or ETF when the Fund invests in shares of another
investment company or ETF. The Fund is subject to the risks associated with the
ETF or investment company’s investments. The price and movement of an ETF
designed to track an index may not track the index and may result in a loss. In
addition, ETFs may trade at a price above (premium) or below (discount) their
net asset value, especially during periods of significant market volatility or
stress, causing investors to pay significantly more or less than the value of
the ETF’s underlying portfolio. Certain ETFs traded on exchanges may be thinly
traded and experience large spreads between the “ask” price quoted by a seller
and the “bid” price offered by a buyer.
Management
Risk. Because BIM uses a representative sampling indexing strategy, the
Fund may not be able to fully replicate the Index and may hold securities not
included in the Index. As a result, the Fund is subject to the risk that BIM’s
investment strategy, the implementation of which is subject to a number of
constraints, may not produce the intended results.
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, Authorized
Participants, market makers, counterparties or other third-parties, failed or
inadequate processes and computer, technology or systems failures. The Fund and
BIM 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.
Valuation
Risk. The price the Fund could receive upon the sale of a security or
other asset may differ from the Fund’s valuation of the security or other asset
and from the value used by the Index, particularly for securities or other
assets that trade in low volume or volatile markets or that are valued using a
fair value methodology as a result of trade suspensions or for other reasons. In
addition, the value of the securities or other assets in the Fund’s portfolio
may change on days or during time periods when shareholders will not be able to
purchase or sell the Fund’s shares. Authorized Participants who purchase or
redeem Fund shares on days when the Fund is holding fair-valued securities may
receive fewer or more shares, or lower or higher redemption proceeds, than they
would have received had the Fund not fair-valued securities or used a different
valuation methodology. The Fund’s ability to value investments may be impacted
by a lack of current market prices, technological issues or errors by pricing
services or other third-party service providers.
Cybersecurity
Risk. Failures or breaches of the electronic or computer systems of the
Fund, the Fund’s adviser, distributor, the Index Provider and other service
providers, market makers, Authorized Participants or the issuers of securities
in which the Fund invests have the ability to cause disruptions, negatively
impact the Fund’s business operations and/or potentially result in financial
losses to the Fund and its shareholders. While the Fund has established business
continuity plans and risk management systems seeking to address system breaches
or failures, there are inherent limitations in such plans and systems.
Furthermore, the Fund cannot control the cybersecurity plans and systems of the
Fund’s Index Provider and other service providers, market makers, Authorized
Participants or issuers of securities in which the Fund invests.
Performance
Information
In the
future, this section will show how the Fund’s total return has varied from
year-to-year, along with a broad-based market index for reference. Past
performance (before and after taxes) is not an indication of future performance.
Because the Fund has not commenced operations as of the date of this prospectus,
there is no past performance to return. Updated performance information,
including the Fund’s current NAV, may be obtained by visiting our website at
www.bondbloxxetf.com or by calling (800) 896-5089 (toll free).
Management
Investment
Adviser. BondBloxx Investment Management Corporation.
Portfolio
Manager. Elya Schwartzman (the “Portfolio Manager”) is primarily responsible
for the day-to-day management of the Fund. The Portfolio Manager has been a
fixed income Portfolio Manager of the Fund since the Fund’s
inception.
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 at a market price. When you buy or sell
shares of the Fund, you may be required to pay a brokerage commission, and you
may experience tax consequences, including gains or losses, in connection with
these transactions. 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”).
Recent information regarding the Fund’s NAV, market price, premiums and
discounts, and bid-ask spreads is available at www.bondbloxxetf.com.
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 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), BIM or other related companies could in the
future 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.
More Information About the Funds
This
Prospectus contains important information about investing in the Funds. Please
read this Prospectus carefully before you make any investment decisions.
Additional information regarding the Funds is available at
www.bondbloxxetf.com.
The
investment objective of each Fund is to track the investment results of its
respective Index. Each Index is composed of U.S. investment grade corporate
bonds issued by U.S. and non-U.S. corporate issuers rated between BBB3 and BBB1
with varying lengths of remaining maturities. Each Fund’s investment objective
and Index may be changed without shareholder approval.
BIM is the
investment adviser to the Funds. Shares of the Funds are listed for trading on
[NYSE Arca (“NYSE”)]. The market price for a share of a Fund may be different
from the Fund’s most recent NAV.
ETFs are
funds that trade like other publicly-traded securities. Each Fund is designed to
track an index. Similar to shares of an index mutual fund, each share of a Fund
represents an ownership interest in an underlying portfolio of securities and
other instruments intended to track a market index. Unlike shares of a mutual
fund, which can be bought and redeemed from the issuing fund by all shareholders
at a price based on NAV, shares of the Funds may be purchased or redeemed
directly from the Funds at NAV solely by Authorized Participants and only in
aggregations of a specified number of shares (“Creation Units”). Also unlike
shares of a mutual fund, shares of the Funds are listed on a national securities
exchange and trade in the secondary market at market prices that change
throughout the day.
Each Fund
invests in a particular segment of the securities markets and seeks to track the
performance of a securities index that is not representative of the market as a
whole. Each Fund will concentrate its investments (i.e., hold 25% or more
of its total assets) in a particular industry or group of industries to
approximately the same extent that its Index is concentrated. For purposes of
this limitation, securities of the U.S. government (including its agencies and
instrumentalities), repurchase agreements collateralized by U.S. government
securities, and tax exempt securities of state or municipal governments and
their political subdivisions are not considered to be issued by members of any
industry. Each Fund is designed to be used as part of broader asset allocation
strategies. Accordingly, an investment in a Fund should not constitute a
complete investment program.
An index is
a financial calculation, based on a grouping of financial instruments, and is
not an investment product, while each Fund is an actual investment portfolio.
The performance of the Funds and the Indexes may vary for a number of reasons,
including transaction costs, non-U.S. currency valuations, asset valuations,
corporate actions (such as mergers and spin-offs), securities lending earnings,
timing variances and differences between a Fund’s portfolio and an Index
resulting from the Fund’s use of representative sampling or from legal
restrictions (such as diversification requirements) that apply to the Fund but
not to the Index. From time to time, the Index Provider may make changes to the
methodology or other adjustments to an Index. Unless otherwise determined by
BIM, any such change or adjustment will be reflected in the calculation of the
Index performance on a going-forward basis after the effective date of such
change or adjustment. Therefore, the Index performance shown for periods prior
to the effective date of any such change or adjustment will generally not be
recalculated or restated to reflect such change or adjustment.
“Tracking
error” is the divergence of a Fund’s performance from that of the Index. Because
each Fund uses a representative sampling indexing strategy, it can be expected
to have a larger tracking error than if it used a replication indexing strategy.
“Replication” is an indexing strategy in which a fund invests in substantially
all of the securities in its underlying index in approximately the same
proportions as in the underlying index.
Each Fund’s
respective Index is reconstituted and rebalanced monthly on the last calendar
day of the month, based on information available up to and including the third
business day before the last business day of the month. The Index Provider may
change the rules of an Index or the Underlying Index over time.
An
investment in a Fund is not a bank deposit and it is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency, BIM
or any of its affiliates.
Underlying
Index. Each Fund’s Index is composed of a subset of bonds in the
[ ]. As of the date of this Prospectus, the bonds eligible for
inclusion in the Underlying Index include U.S. dollar denominated investment
grade corporate bonds issued by U.S. and non-U.S. corporate issuers that: [(i)
are publicly issued, dollar-denominated, non-convertible and fixed rate
(although it can carry a coupon that steps up or changes according to a
predetermined schedule), (ii) have at least one year to final maturity
(regardless of call features) and at least $300 million par amount outstanding
and (iii) are rated investment-grade (Baa3/BBB- or higher) by at least two of
the following ratings agencies: Moody’s, S&P, Fitch].
Index
Construction. When constructing each Index, the Index Provider identifies
components of the Underlying Index that fall within the relevant credit rating
and maturity band for each Fund.
Name
Policies. For purposes of each Fund’s 80% policy, each Fund values its
derivative instruments based on their market value. To the extent a Fund invests
in other registered investment companies, the Fund will consider the holdings of
such registered investment company, to the extent they are known, for purposes
of complying with the Fund’s 80% policy.
A Further Discussion of Principal Risks
Each Fund is
subject to various risks, including the principal risks noted below, any of
which may adversely affect a Fund’s NAV, trading price, yield, total return and
ability to meet its investment objective. You could lose all or a substantial
part of your investment in a Fund, and a Fund could underperform other
investments. Unless otherwise indicated, each of these risks is applicable to
each Fund. Accordingly, all references to the “Fund” in this section and the
section entitled “A Further Discussion of Other Risks” shall mean each Fund
listed on the cover page of this prospectus, unless otherwise noted.
No
Operating History. As a newly organized entity, the Fund has no operating
history. The Fund’s shares have no history of public trading.
Interest
Rate Risk. If interest rates rise, the value of bonds or other instruments
held by the Fund would likely decrease. A measure investors commonly use to
determine this price sensitivity is called duration. Fixed-income securities
with longer durations tend to be more sensitive to interest rate changes,
usually making their prices more volatile than those of securities with shorter
durations. To the extent the Fund invests a substantial portion of its assets in
fixed-income securities with longer duration, rising interest rates may cause
the value of the Fund’s investments to decline significantly, which would
adversely affect the value of the Fund. Recently, inflation levels have been at
their highest point in nearly 40 years, and the U.S. Federal Reserve has begun a
campaign to raise certain benchmark interest rates in an effort to combat
inflation. An increase in interest rates may lead to heightened volatility in
the fixed-income markets and adversely affect certain fixed-income investments,
including those held by the Fund. In addition, decreases in fixed income dealer
market-making capacity may lead to lower trading volume, heightened volatility,
wider bid-ask spreads and less transparent pricing in certain fixed-income
markets.
During
periods of very low or negative interest rates, the Fund may be unable to
maintain positive returns or pay dividends to Fund shareholders. Very low or
negative interest rates may magnify interest rate risk. Changing interest rates,
including rates that fall below zero, may have unpredictable effects on markets,
result in heightened market volatility and detract from the Fund’s performance
to the extent the Fund is exposed to such interest rates. Additionally, under
certain market conditions in which interest rates are set at low levels and the
market prices of portfolio securities have increased, the Fund may have a very
low, or even negative yield. A low or negative yield would cause the Fund to
lose money in certain conditions and over certain time periods.
Bond
Risk. The Fund invests a substantial portion of its assets in U.S.
dollar-denominated bonds. A bond is an interest-bearing security typically
issued by a corporate or government issuer that has a contractual obligation to
pay interest at a stated rate on specific dates and to repay principal (the
bond’s face value) periodically or on a specified maturity date. Bonds generally
are used by corporations and governments to borrow money from investors. An
issuer may have the right to redeem or “call” a bond before maturity, in which
case the Fund may have to reinvest the proceeds at lower market rates.
Similarly, the Fund may have to reinvest interest income or payments received
when bonds mature, sometimes at lower market rates. Most bonds bear interest
income at a “coupon” rate that is fixed for the life of the bond. The value of a
fixed-rate bond usually rises when market interest rates fall, and falls when
market interest rates rise. Other types of bonds bear interest at an interest
rate that is adjusted periodically. Interest rates on “floating rate” or
“variable rate” bonds may be higher or lower than current market rates for
fixed-rate bonds of comparable quality with similar final maturities. Because of
their adjustable interest rates, the value of “floating rate” or “variable rate”
bonds fluctuates much less in response to market interest rate movements than
the value of fixed-rate bonds, but their value may decline if their interest
rates do not rise as much, or as quickly, as interest rates in general. Bonds
may be unsecured (backed only by the issuer’s general creditworthiness) or
secured (backed by specified collateral).
Corporate
Bond Risk. The Fund will invest in corporate bonds, which are debt
instruments issued by corporations to raise capital. The investment return of
corporate bonds reflects interest earned on the security and changes in the
market value of the security. The market value of a corporate bond may be
affected by changes in the market rate of interest, the credit rating of the
corporation, the corporation’s performance and perceptions of the corporation in
the marketplace. There is a risk that the issuers of the securities may not be
able to meet their obligations on interest or principal payments at the time
called for by an instrument.
BBB-Rated
Bond Risk. BBB-rated bonds are typically subject to greater risk of
downgrade than other investment grade bonds. The risk of downgrade to
below-investment grade will be heightened during an economic downturn or
substantial period of rising interest rates. Adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation. Any downgrade of
such bonds would relegate such bonds from the investment grade universe to the
high yield (or “junk” bond) universe, which could negatively affect their
liquidity and their value.
Market
Risk. The Fund could lose money over short periods due to short-term market
movements and over longer periods during more prolonged market downturns. Market
risk arises mainly from uncertainty about future values of financial instruments
and may be influenced by price, currency and interest rate movements. It
represents the potential loss the Fund may suffer through holding financial
instruments in the face of market movements or uncertainty. The value of a
security or other asset may decline due to changes in general market conditions,
the advent of significant inflation, economic trends or events that are not
specifically related to the issuer of the security or other asset, or factors
that affect a particular issuer or issuers, country, group of countries, region,
market, industry, group of industries, sector or asset class. Local, regional or
global events such as war, acts of terrorism, the spread of infectious illness
or other public health issues, recessions, or other events could have a
significant impact on the Fund and its investments and could result in increased
premiums or discounts to the Fund’s NAV. During a general market downturn,
multiple asset classes may be negatively affected. Fixed-income securities with
short-term maturities are generally less sensitive to such changes than are
fixed-income securities with longer-term maturities. 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 or the Fund’s underlying portfolio securities 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 being sold short. Fund shares may be loaned,
borrowed, pledged or purchased on margin, and certain ETFs have options
associated with them. The use of Fund shares in these ways may result in
increased volatility and larger premiums and discounts on Fund shares. In
addition, trading activity in derivative products based on the Fund may lead to
increased trading volume and volatility in the secondary market for the shares
of the Fund.
Shares of
the Fund May Trade at Prices Other Than NAV. Shares of the Fund trade on
stock exchanges at prices at, above or below the Fund’s most recent NAV. The NAV
of the Fund is calculated at the end of each business day and fluctuates with
changes in the market value of the Fund’s holdings. The trading price of the
Fund’s shares fluctuates continuously throughout trading hours based on both
market supply of and demand for Fund shares and the underlying value of the
Fund’s portfolio holdings or NAV. As a result, the trading prices of the Fund’s
shares may deviate significantly from NAV during periods of market volatility,
including during periods of significant redemption requests or other unusual
market conditions. 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, BIM believes that large
discounts or premiums to the NAV of the Fund are not likely to be sustained over
the long term (unlike shares of many closed-end funds, which frequently trade at
appreciable discounts from, and sometimes at premiums to, their NAVs). While the
creation/redemption feature is designed to make it more likely that the Fund’s
shares normally will trade on stock exchanges at prices close to the Fund’s next
calculated NAV, exchange prices are not expected to correlate exactly with the
Fund’s NAV due to timing reasons, supply and demand imbalances and other
factors. In addition, disruptions to creations and redemptions, including
disruptions at market makers, Authorized Participants, or other market
participants, and during periods of significant market volatility, may result in
trading prices for shares of the Fund that differ significantly from its NAV.
Authorized Participants may be less willing to create or redeem Fund shares if
there is a lack of an active market for such shares or its underlying
investments, which may contribute to the Fund’s shares trading at a premium or
discount to NAV.
Costs of
Buying or Selling Fund Shares. Buying or selling Fund shares on an exchange
involves two types of costs that apply to all securities transactions. When
buying or selling shares of the Fund through a broker, you will likely incur a
brokerage commission and other charges. In addition, you may incur the cost of
the “bid-ask 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 bid-ask
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 bid-ask
spreads. There may also be regulatory and other charges that are incurred as a
result of trading activity. Because of the costs inherent in buying or selling
Fund shares, frequent trading may detract significantly from investment results
and an investment in Fund shares may not be advisable for investors who
anticipate regularly making small investments through a brokerage
account.
Index-Related
Risk. The Fund seeks to achieve a return that corresponds generally to the
price and yield performance, before fees and expenses, of the Index as published
by the Index Provider. There is no assurance that the Index Provider or any
agents that may act on its behalf will compile the Index accurately, or that the
Index will be determined, composed, disseminated or calculated accurately. While
the Index Provider provides descriptions of what the Index is designed to
achieve, neither the Index Provider nor its agents provide any warranty or
accept any liability in relation to the quality, accuracy or completeness of the
Index or its related data, and they do not guarantee that the Index will be in
line with the Index Provider’s methodology. BIM’s mandate as described in this
Prospectus is to manage the Fund consistently with the Index provided by the
Index Provider to BIM. BIM does not provide any warranty or guarantee against
the Index Provider’s or any agent’s errors. Errors in respect of the quality,
accuracy and completeness of the data used to compile the Index may occur from
time to time and may not be identified and corrected by the Index Provider for a
period of time or at all, particularly where the indices are less commonly used
as benchmarks by funds or managers. Such errors may negatively or positively
impact the Fund and its shareholders. For example, during a period where the
Index contains incorrect constituents, the Fund would have market exposure to
such constituents and would be underexposed to the Index’s correct constituents.
Shareholders should understand that any gains from Index Provider errors will be
kept by the Fund and its shareholders and any losses or costs resulting from
Index Provider errors will be borne by the Fund and its shareholders.
Unusual
market conditions may cause the Index Provider to postpone a scheduled rebalance
to the Index, which could cause the Index to vary from its normal or expected
composition. The postponement of a scheduled rebalance in a time of market
volatility could mean that constituents of the Index that would otherwise be
removed at rebalance due to changes in market value, issuer credit ratings, or
other reasons may remain, causing the performance and constituents of the Index
to vary from those expected under normal conditions. Apart from scheduled
rebalances, the Index Provider or its agents may carry out additional ad hoc
rebalances to the Index due to reaching certain weighting constraints, unusual
market conditions or corporate events or in order, for example, to correct an
error in the selection of index constituents. In addition, the Index Provider
may be subject to business or regulatory changes that impair its ability to
continue to operate the Index in its current form. When the Index is rebalanced
and the Fund in turn rebalances its portfolio to attempt to increase the
correlation between the Fund’s portfolio and the Index, any transaction costs
and market exposure arising from such portfolio rebalancing will be borne
directly by the Fund and its shareholders. Therefore, errors and additional ad
hoc rebalances carried out by the Index Provider or its agents to the Index may
increase the costs to and the tracking error risk of the Fund.
Tracking
Error Risk. The Fund may be subject to tracking error, which is the
divergence of the Fund’s performance from that of the Index. Tracking error may
occur because of differences between the securities and other instruments held
in the Fund’s portfolio and those included in the Index, pricing differences
(including, as applicable, differences between a security’s price at the local
market close and the Fund’s valuation of a security at the time of calculation
of the Fund’s NAV or differences between the securities prices used to value the
Index and those used by the Fund), transaction costs incurred by the Fund,
securities lending earnings, the Fund’s holding of uninvested cash, differences
in timing of the accrual of or the valuation of distributions, the requirements
to maintain pass-through tax treatment, portfolio transactions carried out to
minimize the distribution of capital gains to shareholders, use of custom
baskets, changes to the Index or the costs to the Fund of complying with various
new or existing regulatory requirements, among other reasons. This risk may be
heightened during times of increased market volatility or other unusual market
conditions. Tracking error also may result because the Fund incurs fees and
expenses, while the Index does not.
Asset
Class Risk. The bonds and other assets in the Index or in the Fund’s
portfolio may underperform in comparison to other securities or indexes that
track other countries, groups of countries, regions, industries, groups of
industries, markets, market segments, asset classes or sectors. Various types of
securities, currencies and indexes may experience cycles of outperformance and
underperformance in comparison to the general financial markets depending upon a
number of factors including, among other things, inflation, interest rates,
productivity, global demand for local products or resources, income taxes, and
regulation and governmental controls. This may cause the Fund to underperform
other investment vehicles that invest in different asset classes.
Focused
Investment Risk. To the extent the Fund invests more heavily in particular
sectors, sub-sectors, industries, groups of industries, asset classes, markets,
regions, countries, or groups of countries, its performance will be especially
sensitive to developments that significantly affect those sectors, sub-sectors,
industries, asset classes, markets, regions, or countries. In addition, the
value of the Fund’s shares may change at different rates compared to the value
of shares of a fund with investments in a more diversified mix of sectors,
sub-sectors, industries, asset classes, markets, regions, or countries. An
individual sector, sub-sector, industry, group of industries, asset-class,
market, region, country, or group of countries may outperform the broader market
during particular periods, but may do so with considerably greater volatility
than the broader market. In addition, the several industries that constitute a
sector or sub-sector or the several countries or markets that constitute a
region or group of countries may all react similarly to economic, political,
regulatory or other market events. The Fund’s performance could also be affected
if the sectors, sub-sectors, industries, asset classes, markets, regions, or
countries do not perform as expected. Alternatively, a lack of exposure to one
or more other sectors, sub-sectors, industries, asset classes, markets, regions,
or countries may adversely affect performance.
Financial
Sector Risk. Companies in the financial sector of an economy are subject to
extensive governmental regulation and intervention, which may adversely affect
the scope of their activities, the prices they can charge, the amount of capital
they must maintain and, potentially, their size. The extent to which the Fund
may invest in a company that engages in securities-related activities or banking
is limited by applicable law. Governmental regulation may change frequently and
may have significant adverse consequences for companies in the financials
sector, including effects not intended by such regulation. Recently enacted
legislation in the U.S. has relaxed capital requirements and other regulatory
burdens on certain U.S. banks. While the effect of the legislation may benefit
certain companies in the financials sector, increased risk taking by affected
banks may also result in greater overall risk in the U.S. and global financials
sector. The impact of changes in capital requirements, or recent or future
regulation in various countries, on any individual financial company or on the
financials sector as a whole cannot be predicted.
Certain
risks may impact the value of investments in the financials sector more severely
than those of investments outside this sector, including the risks associated
with companies that operate with substantial financial leverage. Companies in
the financials sector are exposed directly to the credit risk of their borrowers
and counterparties, who may be leveraged to an unknown degree, including through
swaps and other derivatives products. Financial services companies may have
significant exposure to the same borrowers and counterparties, with the result
that a borrower’s or counterparty’s inability to meet its obligations to one
company may affect other companies with exposure to the same borrower or
counterparty. This interconnectedness of risk may result in significant negative
impacts to companies with direct exposure to the defaulting counterparty as well
as adverse cascading effects in the markets and the financials sector generally.
Companies in the financials sector may also be adversely affected by increases
in interest rates and loan losses, decreases in the availability of money or
asset valuations, credit rating downgrades and adverse conditions in other
related markets. Insurance companies, in particular, may be subject to severe
price competition and/or rate regulation, which may have an adverse impact on
their profitability. The financials sector is particularly sensitive to
fluctuations in interest rates. The financials sector is also a target for
cyberattacks, and may experience technology malfunctions and disruptions. In
recent years, cyberattacks and technology malfunctions and failures have become
increasingly frequent in this sector and have reportedly caused losses to
companies in this sector, which may negatively impact the Fund.
Passive
Investment Risk. The Fund is not actively managed and may be affected by a
general decline in market segments related to the Index. The Fund invests in
bonds included in, or representative of, the Index, regardless of their
investment merits. BIM generally does not attempt to invest the Fund’s assets in
defensive positions under any market conditions, including declining markets or
changing interest rate environments.
Income
Risk. The Fund’s income may decline if interest rates fall. This decline in
income can occur because the Fund may subsequently invest in lower-yielding
bonds as bonds in its portfolio mature, are near maturity or are called, bonds
in the Index are substituted, or the Fund otherwise needs to purchase additional
bonds. The Index Provider’s substitution of bonds in the Index may occur, for
example, when the time to maturity for the bond no longer matches the Index’s
stated maturity guidelines.
Call
Risk. During periods of falling interest rates, an issuer of a callable bond
held by the Fund may “call” or repay the security prior to its stated maturity,
and the Fund may have to reinvest the proceeds in securities with lower yields,
which would result in a decline in the Fund’s income, or in securities with
greater risks or with other less favorable features.
Credit
Risk. Credit risk is the risk that the issuer or guarantor of a debt
instrument or the counterparty to a derivatives contract, repurchase agreement
or loan of portfolio securities will be unable or unwilling to make its timely
interest and/or principal payments when due or otherwise honor its obligations.
There are varying degrees of credit risk, depending on an issuer’s or
counterparty’s financial condition and on the terms of an obligation, which may
be reflected in the issuer’s or counterparty’s credit rating. There is the
chance that the Fund’s portfolio holdings will have their credit ratings
downgraded or will default (i.e., fail to make scheduled interest or
principal payments), or that the market’s perception of an issuer’s
creditworthiness may worsen, potentially reducing the Fund’s income level or
share price.
Inflation
Risk. Inflation is a sustained rise in overall price levels. Moderate
inflation is associated with economic growth, while high inflation can signal an
overheated economy. Inflation risk is the risk that the value of assets or
income from investments will be less in the future as inflation decreases the
value of money (i.e., as inflation increases, the values of the Fund’s assets
can decline). Inflation poses a “stealth” threat to investors because it reduces
savings and investment returns. Central banks, such as the U.S. Federal Reserve,
generally attempt to control inflation by regulating the pace of economic
activity. They typically attempt to affect economic activity by raising and
lowering short-term interest rates. At times, governments may attempt to manage
inflation through fiscal policy, such as by raising taxes or reducing spending,
thereby reducing economic activity; conversely, governments can attempt to
combat deflation with tax cuts and increased spending designed to stimulate
economic activity. Inflation rates may change frequently and significantly as a
result of various factors, including unexpected shifts in the domestic or global
economy and changes in economic policies, and the Fund’s investments may not
keep pace with inflation, which may result in losses to Fund shareholders. This
risk is greater for fixed-income instruments with longer maturities.
Issuer
Risk. The performance of the Fund depends on the performance of individual
securities to which the Fund has exposure. The Fund may be adversely affected if
an issuer of underlying securities held by the Fund is unable or unwilling to
repay principal or interest when due. Any issuer of these securities may perform
poorly, causing the value of its securities to decline. Poor performance may be
caused by poor management decisions, competitive pressures, changes in
technology, expiration of patent protection, disruptions in supply, labor
problems or shortages, corporate restructurings, fraudulent disclosures, credit
deterioration of the issuer, adverse regulatory changes or other factors.
Changes to the financial condition or credit rating of an issuer of those
securities may cause the value of the securities to decline. An issuer may also
be subject to risks associated with the countries, states and regions in which
the issuer resides, invests, sells products, or otherwise conducts
operations.
Geographic
Risk. Some of the companies in which the Fund invests are located in parts
of the world that have historically been prone to natural disasters, such as
earthquakes, tornadoes, volcanic eruptions, droughts, floods, hurricanes or
tsunamis, and are economically sensitive to environmental events. Any such event
may adversely impact the economies of these geographic areas or business
operations of companies in these geographic areas, causing an adverse impact on
the value of the Fund.
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. Government agencies
project that the U.S. will continue to maintain elevated public debt levels for
the foreseeable future. Although elevated debt levels do not necessarily
indicate or cause economic problems, elevated public debt service costs may
constrain future economic growth.
The U.S. has
developed increasingly strained relations with a number of foreign countries. If
relations with certain countries continue 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.
Non-U.S.
Issuers Risk. Securities issued by non-U.S. issuers have different risks
from securities issued by U.S. issuers. These risks include differences in
accounting, auditing and financial reporting standards, the possibility of
expropriation or confiscatory taxation, restrictions or limitations on trade,
including export controls and tariffs, adverse changes in investment or exchange
control regulations, political instability which could affect U.S. investments
in non-U.S. countries, uncertainties of transnational litigation, and potential
restrictions on the flow of international capital, including the possible
seizure or nationalization of the securities issued by non-U.S. issuers held by
the Fund. Non-U.S. issuers may be subject to less governmental regulation than
U.S. issuers. Moreover, individual non-U.S. economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payment positions. Unfavorable political, economic or governmental
developments in non-U.S. countries could affect the payment of a security’s
principal and interest. Securities issued by non-U.S. issuers may also be less
liquid than, and more difficult to value than, securities of U.S. issuers. In
addition, the value of these securities may fluctuate due to changes in the
exchange rate of the issuer’s local currency against the U.S. dollar.
Infectious
Illness Risk. A widespread outbreak of an infectious illness, such as the
COVID-19 pandemic, may adversely affect the economies of many nations and the
global economy and may impact individual issuers and capital markets in ways
that cannot be foreseen.
An
infectious illness outbreak may result in travel restrictions, closed
international borders, disruption of healthcare services, prolonged quarantines,
cancellations, supply chain disruptions, lower consumer demand, temporary and
permanent closures of businesses, layoffs, defaults and other significant
economic, social and political impacts, as well as general concern and
uncertainty.
An
infectious illness outbreak may result in extreme volatility, severe losses,
credit deterioration of issuers, and disruptions in markets, which could
adversely impact the Fund and its investments, including impairing any hedging
activity.
Certain
local markets may be subject to closures. Any suspension of trading in markets
in which the Fund invests will have an impact on the Fund and its investments
and will impact the Fund’s ability to purchase or sell securities in such
markets. Market or economic disruptions could result in elevated tracking error
and increased premiums or discounts to the Fund’s NAV. Additionally, an outbreak
could impair the operations of the Fund’s service providers, including BIM,
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.
Concentration
Risk. The Fund may be susceptible to an increased risk of loss, including
losses due to adverse events that affect the Fund’s investments more than the
market as a whole, to the extent that the Fund’s investments are concentrated in
the securities and/or other assets of a particular issuer or issuers, sector,
sub-sector, market segment, market, industry, group of industries, country,
group of countries, region or asset class. The Fund may be more adversely
affected by the underperformance of those securities and/or other assets, may
experience increased price volatility and may be more susceptible to adverse
economic, market, political or regulatory occurrences affecting those securities
and/or other assets than a fund that does not concentrate its
investments.
Non-Diversification
Risk. The Funds are classified as a “non-diversified” fund under the 1940
Act. Accordingly, a Fund may invest a greater portion of its assets in the
securities of a single issuer than if it were a “diversified” fund. To the
extent that a Fund invests a higher percentage of its assets in the securities
of a single issuer, the Fund is subject to a higher degree of risk associated
with and developments affecting that issuer than a fund that invests more
widely.
Illiquid
Investments Risk. The Fund may invest up to an aggregate amount of 15% of
its net assets in illiquid investments. An illiquid investment is any investment
that the Fund reasonably expects cannot be sold or disposed of in current market
conditions in seven calendar days or less without significantly changing the
market value of the investment. To the extent the Fund holds illiquid
investments, the illiquid investments may reduce the returns of the Fund because
the Fund may be unable to transact at advantageous times or prices. An
investment may be illiquid due to, among other things, the reduced number and
capacity of traditional market participants to make a market in securities or
instruments or the lack of an active market for such securities or instruments.
To the extent that the Fund invests in securities or instruments with
substantial market and/or credit risk, the Fund will tend to have increased
exposure to the risks associated with illiquid investments. 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. Illiquid investments may be harder to value, especially in changing
markets. Although the Fund primarily seeks to redeem shares of the Fund on an
in-kind basis, 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. 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.
Privately
Issued Securities Risk. The Fund will invest in privately issued securities,
including those that are normally purchased pursuant to Rule 144A or
Regulation S under the 1933 Act. Privately issued securities typically may be
resold only to qualified institutional buyers, or in a privately negotiated
transaction, or to a limited number of purchasers, or in limited quantities
after they have been held for a specified period of time and other conditions
are met for an exemption from registration. Because there may be relatively few
potential purchasers for such securities, especially under adverse market or
economic conditions or in the event of adverse changes in the financial
condition of the issuer, the Fund may find it more difficult to sell such
securities when it may be advisable to do so or it may be able to sell such
securities only at prices lower than if such securities were more widely held
and traded. At times, it also may be more difficult to determine the fair value
of such securities for purposes of computing the Fund’s NAV due to the absence
of an active trading market. There can be no assurance that a privately-issued
security that is deemed to be liquid when purchased will continue to be liquid
for as long as it is held by the Fund, and its value may decline as a
result.
Authorized
Participant Concentration Risk. Only an Authorized Participant may engage in
creation or redemption transactions directly with the Fund, and Authorized
Participants are not 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 or unwilling to proceed with creation or redemption
orders with respect to the Fund and no other Authorized Participant is willing
or able to step forward to create or redeem Creation Units, Fund shares may be
more likely to trade at a premium or discount to NAV and possibly face trading
halts or delisting. Authorized Participant concentration risk may be heightened
because ETFs, such as the Fund, that invest in securities issued by non-U.S.
issuers or other securities or instruments that are less widely traded often
involve greater settlement and operational issues and capital costs for
Authorized Participants, which may limit the availability of Authorized
Participants.
Exchange-Traded
Fund (ETF) and Other Investment Company Risk. The Fund may invest in shares
of other investment companies and ETFs. Shareholders bear both their
proportionate share of the Fund’s expenses and similar expenses of the
underlying investment company or ETF when the Fund invests in shares of another
investment company or ETF. The Fund is subject to the risks associated with the
ETF or investment company’s investments. The price and movement of an ETF
designed to track an index may not track the index and may result in a loss. In
addition, ETFs may trade at a price above (premium) or below (discount) their
net asset value, especially during periods of significant market volatility or
stress, causing investors to pay significantly more or less than the value of
the ETF’s underlying portfolio. Certain ETFs traded on exchanges may be thinly
traded and experience large spreads between the “ask” price quoted by a seller
and the “bid” price offered by a buyer.
Management
Risk. Because BIM uses a representative sampling indexing strategy, the Fund
may not be able to fully replicate the Index and may hold securities not
included in the Index. As a result, the Fund is subject to the risk that BIM’s
investment strategy, the implementation of which is subject to a number of
constraints, may not produce the intended results.
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, Authorized
Participants, market makers, counterparties or other third-parties, failed or
inadequate processes and computer, technology or systems failures. The Fund and
BIM 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.
Valuation
Risk. The debt securities in which the Fund may invest typically are valued
by a pricing service utilizing a range of market-based inputs and assumptions,
including readily available market quotations obtained from broker-dealers
making markets in such instruments, cash flows and transactions for comparable
instruments. There is no assurance that the Fund will be able to sell a
portfolio security at the price established by the pricing service, which could
result in a loss to the Fund. Pricing services generally price debt securities
assuming orderly transactions of an institutional “round lot” size, but some
trades may occur in smaller, “odd lot” sizes, often at lower prices than
institutional round lot trades. The price the Fund could receive upon the sale
of a security or other asset may differ from the Fund’s valuation of the
security or other asset and from the value used by the Index, particularly for
securities or other assets that trade in low volume or volatile markets or that
are valued using a fair value methodology as a result of trade suspensions or
for other reasons. Because non-U.S. stock exchanges may be open on days when the
Fund does not price its shares, the value of the securities or other assets in
the Fund’s portfolio may change on days or during time periods when shareholders
will not be able to purchase or sell the Fund’s shares. Authorized Participants
who purchase or redeem Fund shares on days when the Fund is holding fair-valued
securities may receive fewer or more shares, or lower or higher redemption
proceeds, than they would have received had the Fund not fair-valued securities
or used a different valuation methodology. The Fund’s ability to value
investments may be impacted by a lack of current market prices, technological
issues or errors by pricing services or other third-party service
providers.
Cybersecurity
Risk. With the increased use of technologies such as the internet to conduct
business, 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 portfolio companies to lose
value. Unlike many other types of risks faced by the Fund, these risks typically
are not covered by insurance. In general, cyber incidents can result from
deliberate attacks or unintentional events. Cyber incidents include, but are not
limited to, gaining unauthorized access to computer or digital systems
(e.g., through “hacking” or malicious software coding) for purposes of
misappropriating assets or sensitive information, “ransomware” attacks (a form
of malware designed to encrypt files on a device, rendering any files and the
systems that rely on them unusable), 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). The rapidly-evolving nature of both technologies and of
cyberattacks makes preventing and mitigating cybersecurity risks or resolving
cybersecurity incidents especially challenging, and the cost of prevention,
responses and mitigation efforts may be substantial. Recently, geopolitical
tensions may have increased the scale and sophistication of deliberate attacks,
particularly those from nation-states or from entities with nation-state
backing.
Cybersecurity
failures by, or breaches of, the systems of the Fund’s adviser, distributor and
other service providers (including, but not limited to, index and benchmark
providers, fund accountants, custodians, transfer agents and administrators),
market makers, Authorized Participants or the issuers of securities in which the
Fund invests, have the ability to cause disruptions and impact business
operations, potentially resulting in: financial losses, theft of assets,
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 or 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 and 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, the
Index Provider, market makers or Authorized Participants. The Fund and its
shareholders could be negatively impacted as a result.
A Further Discussion of Other Risks
Each Fund
may also be subject to certain other risks associated with its investments and
investment strategies.
Additional
Information on Sector Risks. The industries in which the Index components,
and thus the Fund’s investments, may be concentrated will vary as the
composition of the Index changes over time. As a result, depending on the
composition of the Index, the Fund may be exposed to the following
risks:
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● |
Consumer
Goods Industry Risk. Companies in the consumer goods sub-sector may be
strongly affected by social trends, marketing campaigns and other factors
affecting consumer demand. Governmental regulation affecting the use of
various food additives may affect the profitability of certain consumer
goods companies represented in the Underlying Index. Many consumer goods
in the U.S. may also be marketed globally, and such consumer goods
companies may be affected by the demand and market conditions in non-U.S.
countries. |
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● |
Consumer
Services Industry Risk. The success of firms in the consumer services
industry and certain retailers (including food and beverage, general
retailers, media, and travel and leisure companies) is tied closely to the
performance of the domestic and international economies, interest rates,
exchange rates and consumer confidence. The consumer services industry
depends heavily on disposable household income and consumer spending.
Companies in the consumer services industry may be subject to severe
competition, which may also have an adverse impact on their profitability.
Companies in the consumer services industry are facing increased
government and regulatory scrutiny and may be subject to adverse
government or regulatory action. Changes in consumer demographics and
preferences in the countries in which the issuers of securities held by
the Fund are located and in the countries to which they export their
products may affect the success of consumer
products. |
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● |
Healthcare
Sector Risk. The healthcare sector consists of numerous sub-sectors,
including the health facilities, health services, managed care, medical
products, and pharmaceuticals sub-sectors. The profitability of companies
in the healthcare sector may be adversely affected by the following
factors, among others: extensive government regulations, restrictions on
government reimbursement for medical expenses, rising costs of medical
products and services, pricing pressure, an increased emphasis on
outpatient and tele-health services, changes in the demand for medical
products and services, a limited number of products, industry innovation,
changes in technologies and other market developments. Many healthcare
companies are heavily dependent on patent protection. The expiration of a
company’s patents, or regulations restricting the ability of healthcare
companies to enforce its patents, may adversely affect that company’s
profitability. Many healthcare companies are subject to extensive
litigation based on product liability and similar claims. Many new
products in the healthcare sector may be subject to regulatory approvals.
The process of obtaining such approvals may be long and costly, and such
efforts ultimately may be unsuccessful. In addition, many healthcare
products and services may be impacted by changes in healthcare insurance
coverage practices and regulations. |
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● |
Industrials
Sector Risk. The industrial sector consists of numerous sub-sectors,
including the basic materials, capital goods, transportation and services
sub-sectors. Industrial companies are affected by supply and demand both
for their specific product or service and for industrial sector products
in general. Government regulation, world events, exchange rates and
economic conditions, technological developments and liabilities for
environmental damage and general civil liabilities will likewise affect
the performance of these companies. Aerospace and defense companies, a
component of the industrial sector, can be significantly affected by
government spending policies because companies involved in this sector
rely, to a significant extent, on U.S. and foreign government demand for
their products and services. Transportation securities, a component of the
industrial sector, are cyclical and have occasional sharp price movements
which may result from changes in the economy, fuel prices, labor
agreements and insurance costs. |
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● |
Oil
and Gas Industry Risk. Companies in the oil and gas sub-sector are
strongly affected by the levels and volatility of global energy prices,
oil and gas supply and demand, government regulations and policies, oil
and gas production and conservation efforts and technological change. The
oil and gas sub-sector is cyclical and from time to time may experience a
shortage of drilling rigs, equipment, supplies or qualified personnel, or
due to significant demand, such services may not be available on
commercially reasonable terms. Prices and supplies of oil and gas may
fluctuate significantly over short and long periods of time due to
national and international political changes, OPEC policies, changes in
relationships among OPEC members and between OPEC and oil-importing
nations, the regulatory environment, taxation policies, and the economies
of key energy-consuming countries. Disruptions in the oil and gas
sub-sector or shifts in energy consumption may significantly impact
companies in this sub-sector. |
|
● |
Telecom,
Media and Technology Sector Risk. The telecom, media and technology
sector consists of a number of sub-sectors, including the
telecommunications, technology and electronics and media sub-sectors.
These sectors are subject to the risks of rapid innovation and
obsolescence cycles, intellectual property theft, government regulation,
cybersecurity incidents and labor force challenges, among others. There is
significant competition for technological advances, and issuers that fail
to innovate will be adversely impacted. In addition, issuers in certain
sub-sectors require substantial capital investments to develop products
and services. While all companies may be susceptible to network security
breaches, certain companies in the telecom, media and technology sector
may be particular targets of hacking and potential theft of proprietary or
consumer information or disruptions in service, which could have a
material adverse effect on their businesses. The telecom, media and
technology sector can also be significantly affected by intense
competition for market share, including competition with alternative
technologies such as wireless communications, product compatibility and
standardization, consumer preferences, rapid product obsolescence,
research and development of new products, lack of standardization or
compatibility with existing technologies, and a dependency on patent and
copyright protections. |
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● |
Utilities
Sector Risk. The utilities sector may be adversely affected by
changing commodity prices, government regulation stipulating rates charged
by utilities, increased tariffs, changes in tax laws, interest rate
fluctuations and changes in the cost of providing specific utility
services. The utilities sector is also subject to potential terrorist
attacks, including hacks and cyber-security attacks, natural disasters and
severe weather conditions, as well as regulatory and operational burdens
associated with the operation and maintenance of nuclear facilities.
Government regulators monitor and control utility revenues and costs, and
therefore may limit utility profits. In certain countries, regulatory
authorities may also restrict a company’s access to new markets, thereby
diminishing the company’s long-term prospects. |
Risk of
Investing in Developed Countries. Investment in developed country issuers
may subject the Fund to regulatory, political, demographic, currency, security,
economic and other risks associated with developed countries. Developed
countries generally tend to rely on services sectors (e.g., the financial
services sector) as the primary means of economic growth. A prolonged slowdown
in one or more services sectors is likely to have a negative impact on economies
of certain developed countries, although economies of individual developed
countries can be impacted by slowdowns in other sectors. In the past, certain
developed countries have been targets of terrorism, and some geographic areas in
which the Fund invests have experienced strained international relations due to
territorial disputes, historical animosities, defense concerns and other
resource or security concerns. These situations may cause uncertainty in the
financial markets in these countries or geographic areas and may adversely
affect the performance of the issuers to which the Fund has exposure. Heavy
regulation of certain markets, including labor and product markets, may have an
adverse effect on certain issuers. Such regulations may negatively affect
economic growth or cause prolonged periods of recession. Many developed
countries are heavily indebted and face rising healthcare and retirement
expenses, often associated with aging populations and adverse demographic
trends. In addition, price fluctuations of certain commodities and regulations
impacting the import of commodities may negatively affect developed country
economies.
Geographic
Risk. Some of the companies in which the Fund invests are located in parts
of the world that have historically been prone to natural disasters, such as
earthquakes, tornadoes, volcanic eruptions, droughts, floods, hurricanes or
tsunamis, and are economically sensitive to environmental events. Any such event
may adversely impact the economies of these geographic areas or business
operations of companies in these geographic areas, causing an adverse impact on
the value of the Fund.
Reliance
on Trading Partners Risk. The economies of many countries or regions in
which the Fund invests are highly dependent on trade with certain key trading
partners. Reduction in spending on products and services by these key trading
partners, institution of tariffs or other trade barriers or a slowdown in the
economies of key trading partners may adversely affect the performance of any
company in which the Fund invests and have a material adverse effect on the
Fund’s performance.
European
Economic Risk. The Economic and Monetary Union (the “eurozone”) of the
European Union (the “EU”) requires compliance by member states that are members
of the eurozone with restrictions on inflation rates, deficits, interest rates
and debt levels, as well as fiscal and monetary controls, each of which may
significantly affect every country in Europe, including those countries that are
not members of the eurozone. Additionally, European countries outside of the
eurozone may present economic risks that are independent of the indirect effects
that eurozone policies have on them. In particular, the United Kingdom’s (the
“U.K.”) economy may be affected by global economic, industrial and financial
shifts. Changes in imports or exports, changes in governmental or EU regulations
on trade, changes in the exchange rate of the euro (the common currency of
eurozone countries), changes in interest rates or other monetary policy changes,
the default or threat of default by an EU member state on its sovereign debt
and/or an economic recession in an EU member state may have a significant
adverse effect on the economies of other EU member states and their trading
partners. The European financial markets have historically experienced
volatility and adverse trends due to concerns about economic downturns or rising
government debt levels in several European countries, including, but not limited
to, Austria, Belgium, Cyprus, France, Greece, Ireland, Italy, Portugal, Spain
and Ukraine. These events have adversely affected the exchange rate of the euro
and may continue to significantly affect European countries, and these
consequences may be exacerbated by the COVID-19 pandemic.
Responses to
financial problems by European governments, central banks and others, including
austerity measures and reforms, may not produce the desired results, may result
in social unrest, may limit future growth and economic recovery or may have
other unintended consequences. Further defaults or restructurings by governments
and other entities of their debt could have additional adverse effects on
economies, financial markets and asset valuations around the world. In addition,
one or more countries may abandon the euro and/or withdraw from the EU. The
United Kingdom U.K. left the EU (“Brexit”) on January 31, 2020. The U.K.
and EU have reached an agreement on the terms of their future trading
relationship effective January 1, 2021, which principally relates to the
trading of goods rather than services, including financial services. Further
discussions are to be held between the U.K. and the EU in relation to matters
not covered by the trade agreement, such as financial services. The Fund will
face risks associated with the potential uncertainty and consequences that may
follow Brexit, including with respect to volatility in exchange rates and
interest rates. Brexit could adversely affect European or worldwide political,
regulatory, economic or market conditions and could contribute to instability in
global political institutions, regulatory agencies and financial markets. Brexit
has also led to legal uncertainty and could lead to politically divergent
national laws and regulations as a new relationship between the U.K. and EU is
defined and the U.K. determines which EU laws to replace or replicate. Any of
these effects of Brexit could adversely affect any of the companies to which the
Fund has exposure and any other assets in which the Fund invests. The political,
economic and legal consequences of Brexit are not yet fully known. In the short
term, financial markets may experience heightened volatility, particularly those
in the U.K. and Europe, but possibly worldwide. The U.K. and Europe may be less
stable than they have been in recent years, and investments in the U.K. and the
EU may be difficult to value, or subject to greater or more frequent volatility.
In the longer term, there is likely to be a period of significant political,
regulatory and commercial uncertainty as the U.K. continues to negotiate the
terms of its future trading relationships.
Secessionist
movements, such as the Catalan movement in Spain and the independence movement
in Scotland, as well as governmental or other responses to such movements, may
also create instability and uncertainty in the region. In addition, the national
politics of countries in the EU have been unpredictable and subject to influence
by disruptive political groups and ideologies. The governments of EU countries
may be subject to change and such countries may experience social and political
unrest. Unanticipated or sudden political or social developments may result in
sudden and significant investment losses. The occurrence of terrorist incidents
throughout Europe or war in the region could also impact financial markets. The
impact of these events is not clear but could be significant and far-reaching
and could adversely affect the value and liquidity of the Fund’s
investments.
The EU and
its member states have 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
European economies and many of the issuers in which the Fund invests.
Russian
Invasion of Ukraine. Russia launched a large-scale invasion of Ukraine on
February 24, 2022. The extent and duration of the military action,
resulting sanctions and resulting future market disruptions, including declines
in its stock markets and the value of the ruble against the U.S. dollar in the
region are impossible to predict, but could be significant. Any such disruptions
caused by Russian military action or other actions (e.g., cyberattacks and
espionage) or resulting actual and threatened responses to such activity,
including purchasing and financing restrictions, boycotts or changes in consumer
or purchaser preferences, sanctions, tariffs or cyberattacks on Russian entities
or individuals, including politicians, could have a severe adverse effect on the
region, including significant negative impacts on the economy and the markets
for certain securities and commodities, such as oil and natural gas, as well as
other sectors. How long such military action and related events will last cannot
be predicted. These and any related events could have significant impact on Fund
performance and the value of an investment in the Fund.
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.
Derivatives
Risk. Derivatives involve the risk that changes in their value may not move
as expected relative to changes in the value of the underlying reference they
are designed to track. The Fund may invest in derivatives to generate income,
for investment purposes and for hedging and risk management purposes.
Derivatives risk is generally more significant when derivatives are used to
enhance return or as a substitute for a cash investment option, rather than
solely to hedge the risk of a position held by the Fund.
The use of
derivatives involves risks that are in addition to, and potentially greater
than, the risks of investing directly in securities and other more traditional
assets. Derivatives also present other risks, including market risk, illiquidity
risk, counterparty risk and currency risk. OTC derivatives are generally highly
illiquid. Many derivatives, in particular OTC derivatives, are complex and their
valuation often requires modeling and judgment, which increases the risk of
mispricing or improper valuation. Valuation risk is generally more pronounced
when the Fund enters into OTC derivatives because there is generally less
reliable, objective data available about the value of such derivatives.
Incorrect valuations may result in increased cash payments to, or decreased cash
payments from, counterparties than would otherwise have been required if the
correct valuation were used, undercollateralization and/or errors in the
calculation of the Fund’s NAV.
The Fund’s
use of OTC derivatives exposes it to the risk that the counterparties will be
unable or unwilling to make timely settlement payments or otherwise honor their
obligations. An OTC derivatives contract typically can be closed only with the
consent of the other party to the contract. If the counterparty defaults, the
Fund will still have contractual remedies but may not be able to enforce them.
Because the contract for each OTC derivative is individually negotiated, the
counterparty may interpret contractual terms differently than the Fund, and if
it does, the Fund may decide not to pursue its claims against the counterparty
to avoid incurring the cost and unpredictability of legal proceedings. The Fund,
therefore, may be unable to obtain payments BIM believes are owed to it under
OTC derivatives contracts, or those payments may be delayed or made only after
the Fund has incurred the costs of litigation.
Derivatives
can be used for hedging (attempting to reduce risk of an investment position by
offsetting that investment position with another) or non-hedging purposes,
including to enhance returns. Hedging with derivatives may increase expenses,
and there can be no assurance that a hedging strategy will be effective to
reduce risk. If a hedging counterparty is unable or unwilling to make timely
settlement payments or otherwise honor its obligations under a derivative used
for hedging, the relevant Fund will have unhedged exposure to the underlying
investment that the Fund intended to hedge, which could adversely impact the
Fund. While hedging can reduce or eliminate the risk of losses, it can also
reduce or eliminate the opportunity for gains, and hedging may cause or increase
losses if the market moves in a manner different from that anticipated by the
Fund or if the cost of the derivative outweighs the benefit of the hedge. The
use of derivatives for non-hedging purposes may be considered more speculative
than other types of investments.
The Fund may
invest a significant portion of its investments in derivatives with a limited
number of counterparties, and events affecting the creditworthiness of any of
those counterparties may have a pronounced effect on the Fund. The Fund may be
required to provide more margin for its derivatives investments during periods
of market disruptions or stress.
The Fund’s
use of derivatives may not be effective or have the desired results. Moreover,
suitable derivatives will not be available in all circumstances. BIM may decide
not to use derivatives to hedge or otherwise reduce the Fund’s risk exposures,
potentially resulting in losses for the Fund.
Because many
derivatives have embedded leverage (i.e., a notional value in excess of the
assets needed to establish and/or maintain the derivative position), adverse
changes in the value or level of the underlying reference asset may result in a
loss substantially greater than the amount invested in the derivative
itself.
The Fund’s
use of derivatives may be subject to special tax rules, which are in some cases
uncertain under current law and could affect the amount, timing and character of
distributions to shareholders. See “Dividends and Distributions”
below.
Specific
risks involved in the use of certain types of derivatives in which the Funds may
invest include:
Futures
Risk. A purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract. There can be no guarantee
that there will be a correlation between price movements in the futures
contracts and in the securities or index positions underlying them. Futures
exchanges may limit the amount of fluctuation permitted in certain futures
contract prices during a single trading day. Once the daily limit has been
reached in a futures contract subject to the limit, no more trades may be made
on that day at a price beyond that limit. The daily limit governs only price
movements during a particular trading day and therefore does not limit potential
losses because the limit may work to prevent the liquidation of unfavorable
positions. There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures contract, and the Fund would remain
obligated to meet margin requirements until the position is closed.
Options
Risk. A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived and well-executed
options program may be adversely affected by market behavior or unexpected
events. Successful options strategies may require the anticipation of future
movements in securities prices or other economic factors of the underlying
investments. No assurances can be given that BIM’s judgment in this respect will
be correct.
The market
price of written options will be affected by many factors, including changes in
the market price or other economic attributes of the underlying investment;
changes in the realized or perceived volatility of the relevant market and
underlying investment; and the time remaining before an option’s
expiration.
The market
price of options, particularly OTC options, may be adversely affected if the
market for the options becomes less liquid or smaller. The Fund may close out a
written option position by buying the option instead of letting it expire or be
exercised. There can be no assurance that a liquid market will exist when the
Fund seeks to close out an option position by buying or selling the option.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or clearinghouse
may not at all times be adequate to handle current trading volume; or (vi) a
regulator or one or more exchanges could, for economic or other reasons, decide
to discontinue the trading of options (or a particular class or series of
options) at some future date. If trading were discontinued, the secondary market
on that exchange (or in that class or series of options) would cease to
exist.
The Fund’s
options positions will be marked to market on each day that the Fund strikes its
NAV. The Fund’s options transactions will be subject to limitations established
by each of the exchanges, boards of trade or other trading facilities on which
such options are traded. These limitations govern the maximum number of options
in each class that may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options that the Fund may sell or purchase may be
affected by options sold or purchased by other investment advisory clients of
BIM. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits and may impose
certain other sanctions.
Swaps
Risk. The use of swaps involves investment techniques and risks that are
different from those associated with portfolio security transactions. These
instruments typically are not traded on exchanges; under recently adopted rules
and regulations, however, transactions in some types of swaps (including
interest rate swaps and credit default swaps on North America and European
indices) are required to be centrally cleared (“cleared swaps”). For OTC swaps,
there is a risk that the other party to certain of these instruments will not
perform its obligations to the Fund or that the Fund may be unable to enter into
offsetting positions to terminate its exposure or liquidate its position under
certain of these instruments when it wishes to do so. Such occurrences could
result in losses to the Fund.
Swap
agreements may be subject to contractual restrictions on transferability and
termination and they may have terms of greater than seven days. The Fund’s
obligations under a swap agreement will generally be accrued daily (offset
against any amounts owed to that Fund under the swap).
Portfolio Holdings Information
A
description of the Trust’s policies and procedures with respect to the
disclosure of each Fund’s portfolio securities is available in the Funds’
Statement of Additional Information (“SAI”). Each Fund discloses its portfolio
holdings daily at www.bondbloxxetf.com. Fund fact sheets provide
information regarding each Fund’s top holdings and may be requested by calling
(800) 896-5089.
Management
Investment
Adviser. As investment adviser, BIM has overall responsibility for the
general management and administration of the Funds. BIM provides an investment
program for the Funds and manages the investment of each Fund’s
assets.
Pursuant to
the Investment Advisory Agreement between BIM and the Trust (entered into on
behalf of each Fund), BIM is responsible for substantially all expenses of the
Funds, except the management fees, interest expenses, taxes, expenses incurred
with respect to the acquisition and disposition of portfolio securities and the
execution of portfolio transactions, including brokerage commissions,
distribution 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 Funds, BIM is paid a management fee from
each Fund based on a percentage of each Fund’s average daily net assets, at the
annual rate of [ ]% for the BondBloxx BBB Rated 1-5 Year Corporate
Bond ETF, [ ]% for the BondBloxx BBB Rated 5-10 Year Corporate Bond
ETF and [ ]% for the BondBloxx BBB Rated 10+ Year Corporate Bond ETF.
BIM may from time to time voluntarily waive and/or reimburse fees or expenses in
order to limit total annual fund operating expenses (excluding acquired fund
fees and expenses, if any). Any such voluntary waiver or reimbursement may be
eliminated by BIM at any time.
BIM is
located at 700 Larkspur Landing Circle, Suite 250, Larkspur, CA 94939. As of
[ ], 2023, BIM and its affiliates have provided investment advisory
services and have approximately $[ ] million in assets under
management. BIM and its affiliates may trade and invest for their own accounts
in the actual securities and types of securities in which a Fund may also
invest, which may affect the price of such securities.
A discussion
regarding the basis for the approval by the Trust’s Board of Trustees (the
“Board”) of the Investment Advisory Agreement with BIM will available in each
Fund’s first Semi-Annual Report for the period ended [ ],
2023.
Portfolio
Manager. Elya Schwartzman, Portfolio Manager, is responsible for the
day-to-day management of the Funds and their investments. Mr. Schwartzman is a
co-founder of BIM. Prior to joining BIM in 2021, Mr. Schwartzman was the
president & founder of ESIC LLC, a consulting firm specializing in fixed
income ETF portfolio management, strategy, and infrastructure. From 2010 to
2019, Mr. Schwartzman was a director at BlackRock, Inc., where he oversaw a
portfolio management team and was responsible for over $200 billion in ETFs and
other global bond portfolios, while developing systems and technology for the
ETF ecosystem. Prior, Mr. Schwartzman was a senior portfolio manager at State
Street Global Advisors, where he guided the initial launch of fixed income ETFs
and managed active high yield funds. Mr. Schwartzman holds a US patent on a
system for processing ETF custom baskets, developed during his time with
BlackRock. Mr. Schwartzman received his MBA in quantitative finance from the
Sloan School of Management (MIT).
The Funds’
SAI provides additional information about the Portfolio Manager’s compensation,
other accounts managed by the Portfolio Manager and the Portfolio Manager’s
ownership (if any) of shares in the Funds.
Administrator,
Custodian and Transfer Agent. Brown Brothers Harriman & Co. (“BBH”) is
the administrator, custodian and transfer agent for the Funds.
Conflicts
of Interest. An investment in a Fund is subject to a number of actual or
potential conflicts of interest. For example, BIM and/or its affiliates provide
a variety of different services to the Funds, for which the Funds compensate
them. As a result, BIM and/or its affiliates have an incentive to enter into
arrangements with the Funds, and face conflicts of interest when balancing that
incentive against the best interests of the Funds. BIM and/or its affiliates
also face conflicts of interest in their service as investment adviser to other
clients, and, from time to time, make investment decisions that differ from
and/or negatively impact those made by BIM on behalf of the Funds. Affiliates of
BIM may provide a broad range of services and products to their clients. In
certain circumstances by providing services and products to their clients, these
affiliates’ activities will disadvantage or restrict and/or benefit these
affiliates. BIM may also acquire material non-public information which would
negatively affect BIM’s ability to transact in securities for the Funds. BIM and
the Funds have adopted policies and procedures reasonably designed to
appropriately prevent, limit or mitigate conflicts of interest. In addition,
many of the activities that create these conflicts of interest are limited
and/or prohibited by law, unless an exception is available. For more information
about conflicts of interest, see the Potential Conflicts of Interest section in
the SAI.
Shareholder Information
Additional
shareholder information, including how to buy and sell shares of the Funds, is
available free of charge by calling toll-free: (800) 896-5089 or visiting our
website at www.bondbloxxetf.com.
Buying
and Selling Shares. Shares of the Funds may be acquired or redeemed directly
from the Funds only in Creation Units or multiples thereof, as discussed in the
Creations and Redemptions section of this Prospectus. Only an Authorized
Participant may engage in creation or redemption transactions directly with the
Funds. Once created, shares of the Funds generally trade in the secondary market
in amounts less than a Creation Unit.
Shares of
each Fund are listed on a national securities exchange for trading during the
trading day. Shares can be bought and sold throughout the trading day like
shares of other publicly-traded companies. The Trust does not impose any minimum
investment for shares of a Fund purchased on an exchange or otherwise in the
secondary market.
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 a 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 “bid-ask spread,” that is,
any difference between the bid price and the ask price. The bid-ask spread
varies over time for shares of a 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). A Fund’s bid-ask 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.
Because
shares of the Funds are listed for trading on a national securities exchange,
the Board has adopted a policy of not monitoring for frequent purchases and
redemptions of Fund shares (“frequent trading”) that appear to attempt to take
advantage of a potential arbitrage opportunity presented by a lag between a
change in the value of each Fund’s portfolio securities after the close of the
primary markets for the Fund’s portfolio securities and the reflection of that
change in the Fund’s NAV (“market timing”), because the Fund sells and redeems
its shares directly through transactions that are in-kind and/or for cash,
subject to the conditions described below under Creations and
Redemptions.
The national
securities exchange on which each Fund’s shares are listed is open for trading
Monday through Friday and is closed on weekends and the following holidays (or
the days on which they are observed): New Year’s Day, Martin Luther King, Jr.
Day, Presidents’ Day, Good Friday, Memorial Day, Juneteenth National
Independence Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day. The Funds’ primary listing exchange is NYSE Arca.
Section 12(d)(1)
of the 1940 Act restricts investments by investment companies, including foreign
investment companies, in the securities of other investment companies.
Registered investment companies are permitted to invest in each 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 each Fund beyond the limitations of
Section 12(d)(1), the registered investment company must enter into an
agreement with the Trust. Foreign investment companies are permitted to invest
in the Funds only up to the limits set forth in Section 12(d)(1), subject
to any applicable SEC no-action relief.
Book
Entry. Shares of the Funds are held in book-entry form, which means that no
stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of, and holds legal title to, all outstanding shares
of the Funds.
Investors
owning shares of the Funds are beneficial owners as shown on the records of DTC
or its participants. DTC serves as the securities depository for shares of the
Funds. DTC participants include securities brokers and dealers, banks, trust
companies, clearing corporations and other institutions that directly or
indirectly maintain a custodial relationship with DTC. As a beneficial owner of
shares, you are not entitled to receive physical delivery of stock certificates
or to have shares registered in your name, and you are not considered a
registered owner of shares. Therefore, to exercise any right as an owner of
shares, you must rely upon the procedures of DTC and its participants. These
procedures are the same as those that apply to any other securities that you
hold in book-entry or “street name” form.
Share
Prices. The trading prices of a Fund’s shares in the secondary market
generally differ from the Fund’s daily NAV and may be affected by market forces
such as the supply of and demand for Fund shares and underlying securities held
by the Fund, interest rate changes, economic conditions and other
factors.
Determination
of Net Asset Value. The NAV of each Fund normally is determined once daily
Monday through Friday, generally as of the regularly scheduled close of business
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 of the Fund’s assets
at the time of closing, provided that (i) any Fund assets or liabilities
denominated in currencies other than the U.S. dollar are translated into U.S.
dollars at the prevailing market rates on the date of valuation as quoted by one
or more data service providers and (ii) U.S. fixed-income assets may be valued
as of the announced closing time for trading in fixed-income instruments in a
particular market or exchange. The NAV of each 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 each Fund are determined
pursuant to valuation policies and procedures approved by the Board and
administered by BIM. As of the date of this prospectus, BIM serves as each
Fund’s valuation designee for purposes of compliance with Rule 2a-5 under
the 1940 Act.
Each Fund
values fixed-income portfolio securities at the midpoint between the bid and ask
prices, or at current market price quotations provided by dealers, or at prices
(including evaluated prices) supplied by the Fund’s approved independent
third-party pricing services, each in accordance with valuation policies and
procedures approved by the Board. Pricing services may use matrix pricing or
valuation models that utilize certain inputs and assumptions to derive values.
Pricing services generally value fixed-income securities assuming orderly
transactions of an institutional round lot size, but the Fund may hold or
transact in such securities in smaller odd lot sizes. Odd lots often trade at
lower prices than institutional round lots. An amortized cost method of
valuation may be used with respect to debt obligations with sixty days or less
remaining to maturity unless BIM determines in good faith that such method does
not represent fair value.
Generally,
trading in money market instruments is substantially completed each day at
various times prior to the close of business on the NYSE. The values of such
securities used in computing the NAV of the Fund are determined as of such
times.
When market
quotations are not readily available or are believed by BIM to be unreliable,
the Funds’ investments are valued at fair value. Fair value determinations are
made by BIM in accordance with policies and procedures approved by the Board.
BIM 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 BIM determines, in its reasonable
business judgment prior to or at the time of pricing the Funds’ assets or
liabilities, that the event is likely to cause a material change to the closing
market price of one or more assets or liabilities held by the Funds.
Fair value
represents a good faith approximation of the value of an asset or liability. The
fair value of an asset or liability held by a Fund is the amount the Fund might
reasonably expect to receive from the current sale of that asset or the cost to
extinguish that liability in an arm’s-length transaction. Valuing a Fund’s
investments using fair value pricing may result in prices that are based on
subjective judgments, which may lead to prices that may differ materially 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. Use of fair value prices and certain current market valuations
could result in a difference between the prices used to calculate a Fund’s NAV
and the prices used by the Index, which, in turn, could result in a difference
between the Fund’s performance and the performance of the Index. f
Summary
of Certain Provisions of the Declaration of Trust
The
Declaration of Trust requires that before bringing any derivative action on
behalf of the Funds, Shareholders must make a pre-suit demand upon the Board to
bring the subject action unless such effort is not likely to succeed. A pre-suit
demand is shall only be deemed not likely to succeed if a majority of the Board,
or a majority of any committee established to consider the merits of such
action, is composed of Trustees who are not “independent trustees” (as such term
is defined in the Delaware Statutory Trust Act). In addition, unless demand is
excused, Shareholders in the aggregate holding at least 10% of the Trust’s
outstanding Shares (or at least 10% of the outstanding shares of the Fund to
which the action relates) must join the request for the Board to commence such
action. In addition to all suits, claims or other actions (collectively,
“claims”) that under applicable law must be brought as derivative claims, any
claim that affects all shareholders of Fund equally, that is, proportionately
based on their number of shares in such Fund, must be brought as a derivative
claim irrespective of whether such claim involves a violation of the
shareholders’ rights under the Declaration of Trust or any other alleged
violation of contractual or individual rights that might otherwise give rise to
a direct claim. The foregoing requirements do not apply to claims brought under
the federal securities laws.
The
Declaration of Trust provides that any suit, action or proceeding brought by or
in the right of any shareholder seeking to enforce any provision of, or based on
any matter arising out of, or in connection with, the Declaration of Trust, the
Trust or any Fund must be brought exclusively in the United States District
Court for the Northern District of California or, solely with respect to matters
relating to the organization or internal affairs of the Trust or as otherwise
required by law, the Court of Chancery of the State of Delaware to the extent
there is subject matter jurisdiction in such court for the claims asserted or,
if not, in the Superior Court of Delaware. The foregoing provisions will not
apply to claims brought under the federal securities laws.
Shareholders
also waive the right to jury trial to the fullest extent permitted by law. The
exclusive jurisdiction provision and the waiver of jury trials limit a
shareholder’s ability to litigate a claim in the jurisdiction and in a manner
that may be more favorable to the shareholder. A court may choose not to enforce
these provisions of the Declaration of Trust.
Reference
should be made to the Declaration of Trust on file with the SEC for the full
text of these provisions.
Dividends
and Distributions
General
Policies. Dividends from net investment income, if any, generally are
declared and paid at least once a month by each 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 each Fund. The
Trust reserves the right to declare special distributions if, in its reasonable
discretion, such action is necessary or advisable to preserve its status as a
regulated investment company or to avoid imposition of income or excise taxes on
undistributed income or realized gains.
Dividends
and other distributions on shares of each Fund are distributed on a pro
rata basis to beneficial owners of such shares. Dividend payments are made
through DTC participants and indirect participants to beneficial owners then of
record with proceeds received from the Funds.
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 each Fund for reinvestment
of their dividend distributions. Beneficial owners should contact their broker
to determine the availability and costs of the service and the details of
participation therein. Brokers may require beneficial owners to adhere to
specific procedures and timetables. If this service is available and used,
dividend distributions of both income and realized gains will be automatically
reinvested in additional whole shares of a Fund purchased in the secondary
market.
Taxes.
As with any investment, you should consider how your investment in shares of
a Fund will be taxed. The tax information in this Prospectus is provided as
general information, based on current law. There is no guarantee that shares of
the Funds will receive certain regulatory or accounting treatment. You should
consult your own tax professional about the tax consequences of an investment in
shares of the Funds.
Unless your
investment in Fund shares is made through a tax-exempt entity or tax-deferred
retirement account, such as an IRA, in which case your distributions generally
will be taxable when withdrawn, you need to be aware of the possible tax
consequences when the Funds make distributions or you sell Fund
shares.
Taxes on
Distributions. Distributions from a Fund’s net investment income, including
distributions out of the Fund’s net short-term capital gains, if any, are
taxable to you as ordinary income. The Funds’ distributions of net long-term
capital gains, if any, in excess of net short-term capital losses are taxable as
long-term capital gains, regardless of how long you have held the shares.
Long-term capital gains are eligible for taxation at a maximum rate of 15% or
20% for non-corporate shareholders, depending on whether their income exceeds
certain threshold amounts. Distributions from the Funds are subject to a 3.8%
U.S. federal Medicare contribution tax on “net investment income,” for
individuals with incomes exceeding $200,000 ($250,000 if married and filing
jointly) and of estates and trusts. In general, your distributions are subject
to U.S. federal income tax for the year when they are paid. Certain
distributions paid in January, however, may be treated as paid on
December 31 of the prior year.
If a Fund’s
distributions exceed its 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 Funds’
minimum distribution requirements, but not in excess of the Funds’ earnings and
profits, will be taxable to shareholders and will not constitute nontaxable
returns of capital. A return of capital distribution generally will not be
taxable but will reduce the shareholder’s cost basis and will result in a higher
capital gain or lower capital loss when those shares on which the distribution
was received are sold. Once a shareholder’s cost basis is reduced to zero,
further distributions will be treated as capital gain, if the shareholder holds
shares of the Funds as capital assets.
If you are
neither a resident nor a citizen of the U.S. or if you are a non-U.S. entity
(other than a pass-through entity to the extent owned by U.S. persons), a Fund’s
ordinary income dividends (which include distributions of net short-term capital
gains) will generally be subject to a 30% U.S. federal withholding tax, unless a
lower treaty rate applies provided that withholding tax will generally not apply
to any gain or income realized by a non-U.S. shareholder in respect of any
distributions of long-term capital gains or upon the sale or other disposition
of shares of the Funds.
Separately,
a 30% withholding tax is currently imposed on U.S.-source dividends, interest
and other income items paid to (i) foreign financial institutions, including
non-U.S. investment funds, unless they agree to collect and disclose to the U.S.
Internal Revenue Service (“IRS”) information regarding their direct and indirect
U.S. account holders and (ii) certain other foreign entities, unless they
certify certain information regarding their direct and indirect U.S. owners. To
avoid withholding, foreign financial institutions will need to (i) enter into
agreements with the IRS that state that they will provide the IRS information,
including the names, addresses and taxpayer identification numbers of direct and
indirect U.S. account holders; comply with due diligence procedures with respect
to the identification of U.S. accounts; report to the IRS certain information
with respect to U.S. accounts maintained, agree to withhold tax on certain
payments made to non-compliant foreign financial institutions or to account
holders who fail to provide the required information; and determine certain
other information concerning their account holders, or (ii) in the event that an
applicable intergovernmental agreement and implementing legislation are adopted,
provide local revenue authorities with similar account holder information. Other
foreign entities may need to report the name, address, and taxpayer
identification number of each substantial U.S. owner or provide certifications
of no substantial U.S. ownership, unless certain exceptions apply.
If you are a
resident or a citizen of the U.S., by law, backup withholding will apply to your
distributions and proceeds if you have not provided a taxpayer identification
number or social security number and made other required
certifications.
Taxes
When Shares are Sold. Currently, any capital gain or loss realized upon a
sale of Fund shares is generally treated as a long-term gain or loss if the
shares have been held for more than one year. Any capital gain or loss realized
upon a sale of Fund shares held for one year or less is generally treated as
short-term gain or loss, except that any capital loss on the sale of shares held
for six months or less is treated as long-term capital loss to the extent that
capital gain dividends were paid with respect to such shares. Any such capital
gains, including from sales of Fund shares or from capital gain dividends, are
included in “net investment income” for purposes of the 3.8% U.S. federal
Medicare contribution tax mentioned above.
The
foregoing discussion summarizes some of the consequences under current U.S.
federal tax law of an investment in the Funds. 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 Funds under all
applicable tax laws.
Creations
and Redemptions. Prior to trading in the secondary market, shares of each
Fund are “created” at their NAV by authorized participants (each an “Authorized
Participant”) that have entered into an agreement with the Funds’ distributor,
[Foreside Fund Services LLC] (the “Distributor”). Shares are available only in
block-size Creation Units or multiples thereof.
A creation
transaction, which is subject to acceptance by the Distributor and a 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
any 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 may, in
certain circumstances, offer Creation Units partially or solely for cash. Except
when aggregated in Creation Units, shares are generally 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 Funds’
SAI.
The prices
at which creations and redemptions occur are based on the next calculation of
NAV after a creation or redemption order is received in proper form under the
authorized participant agreement and related AP procedures.
Only an
Authorized Participant may create or redeem Creation Units with a Fund.
Authorized Participants may create or redeem Creation Units for their own
accounts or for the accounts of 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 a Fund’s instructions or may not be
executed at all, or the Fund may not be able to place or change
orders.
To the
extent a Fund engages in in-kind transactions, the Fund intends to comply with
the U.S. federal securities laws in accepting securities for deposit and
satisfying redemptions with redemption securities by, among other means,
assuring that any securities accepted for deposit and any securities used to
satisfy redemption requests will be sold in transactions that would be exempt
from registration under the 1933 Act. Further, an Authorized Participant that is
not a “qualified institutional buyer,” as such term is defined in Rule 144A
under the 1933 Act, will not be able to receive restricted securities eligible
for resale under Rule 144A.
Creations
and redemptions must be made through a firm that is either a member of the
Continuous Net Settlement System of the National Securities Clearing Corporation
or a DTC participant that has executed an agreement with the Distributor with
respect to creations and redemptions of Creation Unit aggregations. Information
about the procedures regarding creation and redemption of Creation Units
(including the cut-off times for receipt of creation and redemption orders) is
included in the Funds’ SAI.
Because new
shares may be created and issued on an ongoing basis, at any point during the
life of a Fund a “distribution,” as such term is used in the 1933 Act, may be
occurring. Broker-dealers and other persons are cautioned that some activities
on their part may, depending on the circumstances, result in their being deemed
participants in a distribution in a manner that could render them statutory
underwriters 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 Funds on an agency
basis. The Distributor does not maintain a secondary market in shares of the
Funds. The Distributor has no role in determining the policies of the Funds or
the securities that are purchased or sold by the Funds. The Distributor’s
principal address is [Three Canal Plaza, Suite 100, Portland, Maine
04101].
BIM or its
affiliates expect in the future to make payments to broker-dealers, registered
investment advisers, banks or other intermediaries (together, “intermediaries”)
related to marketing activities and presentations, educational training
programs, conferences, the development of technology platforms and reporting
systems, data provision services, or their making shares of the Funds and
certain other BondBloxx funds available to their customers generally and in
certain investment programs. Such payments, which may be significant to the
intermediary or its representatives, are not made by the Funds. Rather, such
payments are expected to be made by BIM or its affiliates from their own
resources, which come directly or indirectly in part from fees paid by the
BondBloxx funds complex. Payments of this type are sometimes referred to as
revenue-sharing payments. A financial intermediary may make decisions about
which investment options it recommends or makes available, or the level of
services provided, to its customers based on the payments or other financial
incentives it is eligible to receive. Therefore, such payments or other
financial incentives offered or made to an intermediary create conflicts of
interest between the intermediary (or its representatives) and its customers and
may cause the intermediary to recommend the Funds or other BondBloxx funds over
another investment. More information regarding these payments is contained in
the Funds’ SAI. Please contact your salesperson or other investment
professional for more information regarding any such payments his or her firm
may receive from BIM or its affiliates.
Financial Highlights
The Funds
are newly organized and have not yet commenced operations. Accordingly,
financial highlights are not available as of the date of this
prospectus.
Index Provider
The Index is
owned, maintained and administered by [ ]. [ ] is not
affiliated with the Trust, BIM, BBH, the Distributor or any of their respective
affiliates.
BIM or its
affiliates have entered into a license agreement with the Index Provider to use
the Index. BIM, or its affiliates, sublicenses rights in the Index to the Trust
at no charge.
Disclaimers
[INDEX
PROVIDER RELATED DISCLAIMERS TO COME]
Shares of
the Funds are not sponsored, endorsed or promoted by [NYSE Arca]. [NYSE Arca]
makes no representation or warranty, express or implied, to the owners of shares
of the Funds or any member of the public regarding the ability of the Funds to
track the total return performance of the Index or the ability of the Index to
track stock market performance. [NYSE Arca] is not responsible for, nor has it
participated in, the determination of the compilation or the calculation of the
Index, nor in the determination of the timing of, prices of, or quantities of
shares of the Funds to be issued, nor in the determination or calculation of the
equation by which the shares are redeemable. [NYSE Arca] has no obligation or
liability to owners of shares of the Funds in connection with the
administration, marketing or trading of the shares of the Funds.
[NYSE
Arca] does not guarantee the accuracy and/or the completeness of the Index or
any data included therein. [NYSE Arca] makes no warranty, express or implied, as
to results to be obtained by the Trust on behalf of the Funds as licensee,
licensee’s customers and counterparties, owners of shares of the Funds, or any
other person or entity from the use of the Index or any data included therein in
connection with the rights licensed as described herein or for any other
use.
[NYSE
Arca] makes no express or implied warranties and hereby expressly disclaims all
warranties of merchantability or fitness for a particular purpose with respect
to the Index or any data included therein. Without limiting any of the
foregoing, in no event shall [NYSE Arca] 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.
The past
performance of the Index is not a guide to future performance. BIM and its
affiliates do not guarantee the accuracy or the completeness of the Index or any
data included therein and BIM and its affiliates shall have no liability for any
errors, omissions or interruptions therein. BIM and its affiliates make no
warranty, express or implied, to the owners of shares of the Funds or to any
other person or entity, as to results to be obtained by the Funds from the use
of the Index or any data included therein. Without limiting any of the
foregoing, in no event shall BIM or its affiliates have any liability for any
special, punitive, direct, indirect, consequential or any other damages
(including lost profits), even if notified of the possibility of such
damages.
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Information
on each Fund’s net asset value, market price, premiums and discounts, and
bid-ask spreads can be found at www.bondbloxxetf.com. Copies of the Prospectus,
SAI and recent shareholder reports can be found on our website at
www.bondbloxxetf.com. For more information about the Funds, you may request a
copy of the SAI. The SAI provides detailed information about the Funds and is
incorporated by reference into this Prospectus. This means that the SAI, for
legal purposes, is a part of this Prospectus.
Additional
information about each Fund’s investments will be available in the Fund’s Annual
and Semi-Annual Reports to shareholders. In the Fund’s Annual Report, you will
find a discussion of the market conditions and investment strategies that
significantly affected the Fund’s performance during the last fiscal
year.
If you have
any questions about the Trust or shares of the Funds or you wish to obtain the
SAI, Semi-Annual or Annual Report free of charge, please:
Reports and
other information about the Funds are available on the EDGAR database on the
SEC’s website at www.sec.gov, and copies of this information may be obtained,
after paying a duplicating fee, by electronic request at the following e-mail
address: [email protected].
No person
is authorized to give any information or to make any representations about each
Fund and its shares not contained in this Prospectus and you should not rely on
any other information. Read and keep this Prospectus for future
reference.
©2023
BondBloxx Investment Management Corporation. All rights reserved.
Investment
Company Act File No.: 811-23731