Prospectus
August
28, 2026
Invesco
Exchange-Traded Fund Trust
|
PGJ |
Invesco
Golden Dragon China ETF |
The
Nasdaq Stock Market LLC |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved
these securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
The Invesco
Golden Dragon China ETF (the “Fund”) seeks to track the investment results
(before fees and expenses) of the Nasdaq Golden Dragon China IndexTM (the
“Underlying Index”).
This table
describes the fees and expenses that you may pay if you buy, hold, and sell
shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and example
below.
|
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the
value
of your investment) | |
|
Management
Fees |
% |
|
Other
Expenses |
|
|
Total
Annual Fund Operating Expenses |
|
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. This example does not include brokerage
commissions that investors may pay to buy and sell Shares. Although your actual
costs may be higher or lower, your costs, based on these assumptions, would
be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$ |
$ |
$ |
$ |
The Fund is
an index fund that seeks
to track the
investment results of the
Underlying
Index.
As
of June 30, 2026, the
Underlying Index was comprised of 68
securities
with market capitalizations ranging from $73.8 million to $230
billion.
The Fund
employs a “full replication” methodology in seeking to track the Underlying
Index, meaning that the Fund generally invests in all of the securities
comprising the Underlying Index in proportion to their weightings in the
Underlying Index.
The
Fund is “non-diversified” and therefore is not required to meet certain
diversification requirements under the Investment Company Act of 1940, as
amended (the “1940 Act”).
Concentration
Policy. The Fund will
concentrate its investments (i.e., invest 25% or more of the value of its total
assets) in securities of issuers in any one industry or group of industries only
to the extent that the Underlying Index reflects a concentration in that
industry or group of industries. The Fund will not otherwise concentrate its
investments in securities of issuers in any one industry or group of industries.
As of April 30, 2026, the Fund had significant exposure to the consumer
discretionary sector. The Fund’s portfolio holdings, and the extent to which it
concentrates its investments, are likely to change over
time.
Principal
Risks of Investing in the Fund
The following
summarizes the principal risks of investing in the Fund.
Market
Risk. Securities
in the Underlying Index are subject to market fluctuations. You should
anticipate that the value of the Shares will decline, more or less, in
correlation with any decline in value of the securities in the Underlying Index.
Additionally, natural or environmental disasters, widespread disease or other
public health issues, war, military conflicts, acts of terrorism, economic
crises or other events could result in increased premiums or discounts to the
Fund’s net asset value (“NAV”). Certain changes in the U.S. economy in
particular, such as when the U.S. economy weakens or when its financial markets
decline, may have a material adverse effect on global financial markets as a
whole, and on the securities to which the Underlying Index has exposure.
Increasingly strained relations between the U.S. and foreign countries,
including as a result of economic sanctions and tariffs, may also adversely
affect U.S. issuers, as well as non-U.S. issuers.
During
a general downturn in the financial markets, multiple asset classes may
decline in value. When markets perform well, there can be no assurance that
specific investments held by the Underlying Index will rise in
value.
Index
Risk. Unlike many
investment companies, the Fund does not utilize an investing strategy that seeks
returns in excess of its Underlying Index. Therefore, the Fund would not
necessarily buy or sell a security unless that security is added to or removed
from, respectively, its Underlying Index, even if that security generally is
underperforming. Additionally, the Fund generally rebalances its portfolio in
accordance with its Underlying Index, and, therefore, any changes to its
Underlying Index’s rebalance schedule will typically result in corresponding
changes to the Fund’s rebalance
schedule.
| China Investment Risk. Investments in companies located or operating in Greater China (normally considered to be the geographical area that includes mainland China, Hong Kong, Macau and Taiwan) involve risks and considerations not typically associated with investments in the U.S. and other Western nations, such as greater government control over the economy; political, legal and regulatory uncertainty; nationalization, expropriation, or confiscation of property; lack of willingness or ability of the Chinese government to support the economies and markets of the Greater China region; lack of publicly available information and difficulty in obtaining information necessary for audits of, investigations into and/or litigation against Chinese companies, as well as in obtaining and/or enforcing judgments; limited legal remedies for shareholders; alteration or discontinuation of economic reforms; complex geopolitical tensions, military conflicts and the risk of war, either internal or with other countries; assertions of human rights violations by certain nations; public health |
1
| emergencies resulting in market closures, travel restrictions, quarantines or other interventions; inflation, currency fluctuations and fluctuations in inflation and interest rates that may have negative effects on the economy and securities markets of Greater China; and Greater China’s dependency on the economies of other Asian countries, many of which are developing countries. Events in any one country or region within Greater China may impact the other countries or regions or Greater China as a whole. Export growth continues to be a major driver of China’s rapid economic growth. As a result, a reduction in spending on Chinese products and services, the institution of additional tariffs, sanctions, capital controls, embargoes, trade wars, or other trade barriers (or the threat thereof), including as a result of trade tensions between China and the United States, or a downturn in any of the economies of China’s key trading partners may have an adverse impact on the Chinese economy. In addition, actions by the U.S. government, such as delisting of certain Chinese companies from U.S. securities exchanges or otherwise restricting their operations in the U.S., may negatively impact the value of such securities held by the Fund. Further, health events may cause uncertainty and volatility in the Chinese economy, especially in the consumer discretionary (leisure, retail, gaming, tourism), industrials, and commodities sectors. Additionally, the Public Company Accounting Oversight Board (“PCAOB”) has historically had difficulties in inspecting audit work papers and practices of PCAOB-registered accounting firms in China with respect to their audit work of U.S. reporting companies. These difficulties may impose significant additional risks concerning the reliability of the audits and of the information about the Chinese securities or the potential delisting of a U.S.-listed Chinese issuer due to an inability to inspect the issuer’s accounting firm. |
| Investments in Chinese companies may be made through a special structure known as a variable interest entity (“VIE”) that is designed to provide foreign investors, such as the Fund, with exposure to Chinese companies that operate in certain sectors in which China restricts or prohibits foreign investments. Investments in VIEs may pose additional risks because the investment is made through an intermediary shell company that has entered into service and other contracts with the underlying Chinese operating company in order to provide investors with exposure to the operating company, but does not represent equity ownership in the operating company. The value of the shell company is derived from its ability to consolidate the VIE into its financials pursuant to contractual arrangements that allow the shell company to exert a degree of control over, and obtain economic benefits arising from, the VIE without formal legal ownership. The contractual arrangements between the shell company and the operating company may not be as effective in providing operational control as direct equity ownership, and a foreign investor’s (such as the Fund’s) rights may be limited, including by actions of the Chinese government which could determine that the underlying contractual arrangements are invalid. While VIEs are a longstanding industry practice and are well known by Chinese officials and regulators, the structure historically has not been formally recognized under Chinese law. However, effective March 31, 2023, the China Securities Regulatory Commission (“CSRC”) released new rules and implementing guidelines that permit the use of VIE structures, provided they abide by Chinese laws and register with the CSRC. The rules, however, may cause Chinese companies to undergo greater scrutiny and may make the process to create VIEs more difficult and costly. Further, while the rules and implementing guidelines do not prohibit the use of VIE structures, this does not serve as a formal endorsement by the Chinese government. There is a risk that the Chinese government may cease to tolerate VIEs at any time, and any guidance or further rulemaking prohibiting or restricting these structures by the Chinese government, generally or with respect to specific industries, would likely cause impacted VIE-structured holding(s) to suffer significant, detrimental, and possibly permanent losses, and in turn, adversely affect the Fund’s returns and net asset value. The future of the VIE structure generally and with respect to certain industries remains uncertain. |
| From time to time, certain companies in which the Fund invests may operate in, or have dealings with, countries subject to sanctions or embargoes imposed by the U.S. government and the United Nations and/or in countries the U.S. government identified as state sponsors of terrorism. One or more of these companies may be subject to constraints under U.S. law or regulations that could negatively affect the company’s performance. Additionally, one or more of these companies could suffer damage to its reputation if the market identifies it as a company that invests or deals with countries that the U.S. government identifies as state sponsors of terrorism or subjects to sanctions. |
Equity
Risk. Equity risk
is the risk that the value of equity securities, including common stocks, may
fall due to both changes in general economic conditions that impact the market
as a whole, as well as factors that directly relate to a specific company or its
industry. Such general economic conditions include changes in interest rates,
periods of market turbulence or instability, or general and prolonged periods of
economic decline and cyclical change. It is possible that a drop in the stock
market may depress the price of most or all of the common stocks that the Fund
holds. In addition, equity risk includes the risk that investor sentiment toward
one or more industries will become negative, resulting in those investors
exiting their investments in those industries, which could cause a reduction in
the value of companies in those industries more broadly. Equity risk also
includes the risk of large-capitalization companies, which may adapt more slowly
to new competitive challenges or may be more mature and subject to more limited
growth potential, and consequently may underperform other segments of the equity
market or the market as a whole. The value of a company's common stock may
fall solely because of factors, such as an increase in production costs, that
negatively impact other companies in the same region, industry or sector of the
market. A company's common stock also may decline significantly in price over a
short period of time due to factors specific to that company, including
decisions made by its management or lower demand for the company's products or
services. For example, an adverse event, such as an unfavorable earnings report
or the failure to make anticipated dividend payments, may depress the value of
common stock.
Foreign
Investment Risk. Investments
in the securities of non-U.S. issuers involve risks beyond those associated with
investments in U.S. securities. Foreign securities may have relatively low
market liquidity, greater market volatility, decreased publicly available
information and less reliable financial information about issuers, and
inconsistent and potentially less stringent accounting, auditing and financial
reporting requirements and standards of practice, including recordkeeping
standards, comparable to those applicable to domestic issuers. Foreign
securities also are subject to the risks of possible seizure, expropriation,
nationalization, political or social instability,
changes in
economic or taxation policies or other adverse political or economic
developments (in which the Fund could lose its entire investment in a certain
market) and the difficulty of enforcing obligations in other countries,
including the possible adoption of foreign governmental restrictions such as
exchange controls. Investments in foreign securities also may be subject to
dividend withholding or confiscatory taxes, currency blockage and/or transfer
restrictions and higher transactional costs. To the extent the Fund invests in
securities denominated in foreign currencies, fluctuations in the value of the
U.S. dollar relative to the values of other currencies may adversely affect
investments in foreign securities and may negatively impact the Fund’s returns,
unless the Fund has hedged its foreign currency exposure. Currency exchange
rates may fluctuate significantly over short periods of time. Currency hedging
strategies, if used, may not always be successful. Foreign companies generally
may be subject to less stringent regulations than U.S. companies, including
financial reporting requirements and auditing and accounting controls, and may
therefore be more susceptible to fraud or corruption. There may be less public
information available about foreign companies than U.S. companies, making it
difficult to evaluate those foreign companies.
2
From
time to time, certain companies in which the Fund invests may operate in,
or have dealings with, countries subject to sanctions or embargoes imposed by
the U.S. government and the United Nations and/or in countries the U.S.
government identified as state sponsors of terrorism. One or more of these
companies may be subject to constraints under U.S. law or regulations that could
negatively affect the company’s performance. Additionally, one or more of these
companies could suffer damage to its reputation if the market identifies it as a
company that invests or deals with countries that the U.S. government identifies
as state sponsors of terrorism or is subject to
sanctions.
Emerging
Markets Investment Risk. Investments
in the securities of issuers in emerging market countries involve risks often
not associated with investments in the securities of issuers in developed
countries. Securities in emerging markets may be subject to greater price
fluctuations than securities in more developed markets. Companies in emerging
market countries generally may be subject to less stringent regulatory,
disclosure, financial reporting, accounting, auditing and recordkeeping
standards than companies in more developed countries. In addition, information
about such companies may be less available and reliable. Emerging markets
usually are subject to greater market volatility, political, social and economic
instability, uncertainty regarding the existence of trading markets and more
governmental limitations on foreign investment than are more developed markets.
Securities law in many emerging market countries is relatively new and
unsettled. Therefore, laws regarding foreign investment in emerging market
securities, securities regulation, title to securities, and shareholder rights
may change quickly and unpredictably, and the ability to bring and enforce
actions, or to obtain information needed to pursue or enforce such actions, may
be limited. In addition, the enforcement of systems of taxation at federal,
regional and local levels in emerging market countries may be inconsistent and
subject to sudden change. Investments in emerging market securities may be
subject to additional transaction costs, delays in settlement procedures,
unexpected market closures, and lack of timely information. In addition, lack of
relevant data and reliable public information, including financial information,
about securities in emerging markets may contribute to incorrect weightings and
data and computational errors when the Index Provider selects securities for
inclusion in the Underlying Index or rebalances the Underlying
Index.
Small-
and Mid-Capitalization Companies
Risk. Investing in
securities of small- and mid-capitalization companies involves greater risk than
customarily is associated with investing in larger, more established companies.
Stocks of small- and mid-capitalization companies tend to be more vulnerable to
changing market conditions, may have little or no operating history or track
record of success, and may have more limited product lines and markets, less
experienced management and fewer financial resources than larger companies.
These companies’ securities may be more volatile and less liquid than those of
more established companies. They may be more sensitive to changes in a company’s
earnings expectations and may experience more abrupt and erratic price
movements. Smaller companies’ securities often trade in lower volumes and in
many instances, are traded over-the-counter or on a regional securities
exchange, where the frequency and volume of trading is substantially less than
is typical for securities of larger companies traded on national securities
exchanges. Therefore,
the
securities of smaller companies may be subject to wider price fluctuations and
it might be harder for the Fund to dispose of its holdings at an acceptable
price when it wants to sell them. Since small- and mid-capitalization companies
typically reinvest a high proportion of their earnings in their business, they
may not pay dividends for some time, particularly if they are newer companies.
It may take a substantial period of time to realize a gain on an investment in a
small- or mid-capitalization company, if any gain is realized at
all.
Non-Diversified
Fund Risk.
The Fund is
non-diversified and can invest a greater portion of its assets in the
obligations or securities of a small number of issuers or any single issuer than
a diversified fund can. As a result, changes in the market value of a single
investment could cause
greater
fluctuations in Share price than would occur in a diversified fund. This may
increase the Fund's volatility and cause the performance of a relatively small
number of issuers to have a greater impact on the Fund's
performance.
Industry
Concentration Risk. In following
its methodology, the Underlying Index from time to time may be concentrated to a
significant degree in securities of issuers operating in a single industry or
industry group. To the extent that the Underlying Index concentrates in the
securities of issuers in a particular industry or industry group, the Fund will
also concentrate its investments to approximately the same extent. By
concentrating its investments in an industry or industry group, the Fund may
face more risks than if it were diversified broadly over numerous industries or
industry groups. Such industry-based risks, any of which may adversely affect
the companies in which the Fund invests, may include, but are not limited to,
the following: general economic conditions or cyclical market patterns that
could negatively affect supply and demand in a particular industry; competition
for resources; adverse labor relations; political or world events; obsolescence
of technologies; and increased competition or new product introductions that may
affect the profitability or viability of companies in an industry. In addition,
at times, such industry or industry group may be out of favor and underperform
other industries or the market as a
whole.
Consumer
Discretionary Sector Risk. Companies
engaged in the consumer discretionary sector are affected by fluctuations in
supply and demand, and changes in consumer preferences, social trends and
marketing campaigns. Changes in consumer spending as a result of world events,
political and economic conditions, commodity price volatility, changes in
exchange rates, imposition of import controls, increased competition, depletion
of resources and labor relations also may adversely affect these
companies.
ADR
Risk. ADRs are
certificates that evidence ownership of shares of a foreign issuer and are
alternatives to purchasing the underlying foreign securities directly in their
national markets and currencies. ADRs may be subject to certain of the risks
associated with direct investments in the securities of foreign companies, such
as currency, political, economic and market risks, because their values depend
on the performance of the non-dollar denominated underlying foreign securities.
Moreover, ADRs may not track the price of the underlying foreign securities on
which they are based, and their value may change materially at times when U.S.
markets are not open for trading.
Issuer-Specific
Changes Risk.
The
performance of the Fund depends on the performance of individual securities to
which the Fund has exposure. The value of an individual security or particular
type of security may be more volatile than the market as a whole and may perform
worse than the market as a whole, causing the value of the Fund’s securities to
decline.
Valuation
Risk.
The price the
Fund could receive upon the sale of a portfolio investment may differ from the
Fund’s valuation of the investment, particularly for investments that trade in
thin or volatile markets or that are valued using a fair valuation methodology.
Fixed income securities are often valued assuming orderly transactions of
institutional round lot size, but the Fund may hold or transact in the same
securities in smaller, odd lot sizes. Odd lots often trade at lower prices than
institutional round lots. Financial information related to securities of
non-U.S. issuers may be less reliable than information related to securities of
U.S. issuers, which may make it difficult to obtain a current price for a
non-U.S. security held by the Fund. When market quotations are not readily
available or deemed non-representative of fair value for Fund investments, those
investments are fair valued by the Adviser. There are multiple methods that can
be used to fair value a portfolio investment and such methods may involve more
subjectivity than the use of market quotations. The value established for an
investment through fair valuation may be different from what would be produced
if the investment had been valued using market quotations. In addition, there is
no assurance that the Fund could sell a portfolio
3
investment at
any time for the value ascribed to it for purposes of calculating the Fund’s net
asset value, and it is possible that the Fund could incur a loss because an
investment is sold at a discount to its ascribed value. The ability to value
investments may also be impacted by technological issues and/or errors by
pricing services or other third-party service
providers.
Non-Correlation
Risk. The Fund's
return may not match the return of the Underlying Index for a number of reasons.
For example, the Fund incurs operating expenses not applicable to the Underlying
Index, and incurs costs in buying and selling securities, especially when
rebalancing the Fund's securities holdings to reflect changes in the Underlying
Index. In addition, the performance of the Fund and the Underlying Index may
vary due to asset valuation differences and differences between the Fund's
portfolio and the Underlying Index resulting from legal restrictions, costs or
liquidity constraints.
Authorized
Participant Concentration Risk.
Only
authorized participants (“APs”) may engage in creation or redemption
transactions directly with the Fund. The Fund has a limited number of
institutions that may act as APs and such APs have no obligation to submit
creation or redemption orders. Consequently, there is no assurance that APs will
establish or maintain an active trading market for the Shares. This risk may be
heightened to the extent that securities held by the Fund are traded outside a
collateralized settlement system. In that case, APs may be required to post
collateral on certain trades on an agency basis (i.e., on behalf of other market
participants), which only a limited number of APs may be able to do. In
addition, to the extent that APs exit the business or are unable to proceed with
creation and/or redemption orders with respect to the Fund and no other AP is
able to step forward to create or redeem Creation Units (as defined below), this
may result in a significantly diminished trading market for Shares, and Shares
may be more likely to trade at a premium or discount to the Fund's NAV and to
face trading halts and/or delisting. Additionally, to the extent that the Fund
holds non-U.S. securities, such securities may have lower trading volumes or
could experience extended market closures or trading halts. To the extent that
the Fund invests in non-U.S. securities, it may face increased risks that APs
may not be able to effectively create or redeem Creation Units, or that the
Shares may be halted and/or delisted.
Market
Trading Risk.
The Fund
faces numerous market trading risks, including the potential lack of an active
market for the Shares, losses from trading in secondary markets, periods of high
volatility, and disruption in the creation/redemption process of the Fund. In
stressed market conditions, the market for Shares may become less liquid in
response to deteriorating liquidity in the markets for the Fund’s portfolio
holdings, which may cause a variance in the market price of Shares and their
underlying NAV. In addition, an exchange or market may issue trading halts on
specific securities or financial instruments. As a result, the ability to trade
certain securities or financial instruments may be restricted, which may disrupt
the Fund’s creation/redemption process, potentially affect the price at which
Shares trade in the secondary market, and/or result in the Fund being unable to
trade certain securities or financial instruments at all. In these
circumstances, the Fund may be unable to rebalance its portfolio, may be unable
to accurately price its investments and/or may incur substantial trading losses.
Any of these factors may lead to the Shares trading at a premium or discount to
the Fund's NAV.
Operational
Risk.
The Fund is
exposed to operational risks arising from a number of factors, including, but
not limited to, human error, processing and communication errors, errors of the
Fund’s service providers, counterparties or other third-parties, failed or
inadequate processes and technology or systems failures. The Fund and the
Adviser 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 these risks.
Shares
May Trade at Prices Different than NAV.
Shares trade
on a stock exchange at prices at, above or below the Fund’s most recent NAV.
The Fund’s
NAV 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 Shares
fluctuates continuously throughout trading hours on the exchange, based on both
the relative market supply of, and demand for, the Shares and the underlying
value of the Fund’s portfolio holdings. As a result, the trading prices of the
Shares may deviate from the Fund’s NAV. ANY OF THESE FACTORS, AMONG OTHERS, MAY
LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT TO
NAV.
The bar chart
below shows how the Fund has performed. The table below the bar chart shows the
Fund’s average annual total returns (before and after taxes). The bar chart
and table provide an indication of the risks of investing in the Fund by showing
how the Fund’s total returns have varied from year to year and by showing how
the Fund’s average annual total returns compared with a broad measure of market
performance and additional indexes with characteristics relevant to
the Fund. The Fund's performance reflects fee waivers, if any,
absent which performance would have been lower. Although the
information shown in the bar chart and the table gives you some idea of the
risks involved in investing in the Fund, the Fund’s past performance (before and
after taxes) is not necessarily indicative of how the Fund will perform in the
future.
Updated
performance information is available online at www.invesco.com/ETFs .
|
|
Period
Ended |
Returns |
|
|
|
- |
|
|
|
|
|
|
|
- |
Average Annual Total Returns (for the periods ended December 31, 2025)
|
|
Inception
Date |
1
Year |
5
Years |
10
Years |
|
Return
Before Taxes |
|
% |
-
% |
% |
|
Return
After Taxes on Distributions |
|
|
- |
- |
|
Return
After Taxes on Distributions and Sale of Fund
Shares |
|
|
- |
|
|
Nasdaq
Golden Dragon China Index™ deduction
for fees, expenses or taxes) |
|
|
- |
|
|
MSCI
China Index (Net) (reflects reinvested
dividends
net of withholding taxes, but reflects no
deduction
for fees, expenses or other taxes) |
|
|
- |
|
|
FTSE
China 50 Index (reflects no deduction for fees,
expenses
or taxes) |
|
|
- |
|
Management
of the Fund
Investment
Adviser. Invesco
Capital Management LLC (the “Adviser”).
4
Portfolio
Managers
The following
individuals are responsible jointly and primarily for the day-to-day management
of the Fund’s portfolio:
|
Name |
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
Peter
Hubbard |
Portfolio
Manager of the Adviser; Vice
President of
the Trust |
June
2007 |
Pratik
Doshi, CFA |
Portfolio
Manager of the Adviser |
August
2020 |
Michael
Jeanette |
Portfolio
Manager of the Adviser |
August
2008 |
Purchase
and Sale of Shares
The Fund
issues and redeems Shares at NAV only with APs and only in large blocks of
10,000 Shares (each block of Shares is called a “Creation Unit”) or multiples
thereof (“Creation Unit Aggregations”), generally in exchange for the deposit or
delivery of a basket of securities. However, the Fund also reserves the right to
permit or require Creation Units to be issued in exchange for cash. Except when
aggregated in Creation Units, the Shares are not redeemable securities of the
Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e., on a
national securities exchange) through a broker or dealer at a market price.
Because the Shares trade at market prices rather than NAV, Shares may trade at a
price greater than NAV (at a premium), at NAV, or less than NAV (at a discount).
An investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (bid) and the lowest price a
seller is willing to accept for Shares (ask) when buying or selling Shares in
the secondary market (the “bid-ask spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at
www.invesco.com/ETFs.
Tax
Information
The Fund’s
distributions generally are taxed as ordinary income, capital gains or some
combination of both, unless you are investing through a tax-advantaged
arrangement, such as a 401(k) plan or an individual retirement account, in which
case your distributions may be taxed as ordinary income when withdrawn from such
account.
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), the Fund’s distributor or its related companies
may pay the intermediary for certain Fund-related activities, including those
that are designed to make the intermediary more knowledgeable about
exchange-traded products, such as the Fund, as well as for marketing, education
or other initiatives related to the sale or promotion of Shares. These payments
may create a conflict of interest by influencing the broker-dealer or other
intermediary and your salesperson or financial adviser to recommend the Fund
over another investment. Ask your salesperson or financial adviser or visit your
financial intermediary’s website for more information.
Additional Information About the Fund’s Strategies and Risks
Principal
Investment Strategies
The Fund's
investment objective is to seek to
track the
investment results
(before fees
and expenses)
of the
Underlying Index. The Fund operates as an index fund and is not actively
managed, meaning that it does not seek to outperform the Underlying Index.
Rather, the Fund seeks to generally track the performance of the Underlying
Index as closely as possible (i.e., it seeks to obtain a high degree of
correlation with the Underlying Index and to
minimize
“tracking error” between the two). Tracking error means the variation between
the Fund’s annual return and the return of the Underlying Index. Because the
Underlying Index is a financial calculation based on a grouping of financial
instruments, while the Fund is an actual investment portfolio, the Fund may
experience tracking error for a number of reasons when tracking the performance
of the Underlying Index. For example, the Fund incurs operating expenses and
transaction costs not applicable to the Underlying Index.
As
an index fund, the Fund does not take temporary defensive positions during
periods of adverse market, economic or other conditions.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that it generally invests in all of the securities
comprising the Underlying Index in proportion to the weightings of the
securities in the Underlying Index. However, under various circumstances, it may
not be possible or practicable to purchase all of those securities in those same
weightings. In those circumstances, the Fund may purchase a sample of securities
in the Underlying Index.
A
“sampling” methodology means that the Adviser uses a quantitative analysis to
select securities from the Underlying Index universe to obtain a representative
sample of securities that have, in the aggregate, investment characteristics
similar to the Underlying Index in terms of key risk factors, performance
attributes and other characteristics. These include industry weightings, market
capitalization, return variability, earnings valuation, yield and other
financial characteristics of securities. When employing a sampling methodology,
the Adviser bases the quantity of holdings in the Fund on a number of factors,
including asset size of the Fund, and generally expects the Fund to hold less
than the total number of securities in the Underlying Index. However, the
Adviser reserves the right to invest the Fund in as many securities as it
believes necessary to achieve the Fund’s investment objective. To the extent the
Fund uses a sampling methodology, it may have a larger tracking error than if it
used a full replication methodology.
At
times, the Fund may utilize one or more additional investment techniques in
seeking to track the Underlying Index. Such techniques may include: (i)
overweighting or underweighting a component security in the Fund’s portfolio
compared to its weight in the Underlying Index, (ii) purchasing securities not
contained in the Underlying Index that the Adviser believes are appropriate to
substitute for certain securities in the Underlying Index, (iii) selling
securities included in the Underlying Index in anticipation of their removal
from the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying
Index.
The
Fund has adopted an 80% investment policy to invest its assets in the
components of the Underlying Index. In addition, securities not included in the
Underlying Index as described in (ii) and (iv) above, as well as securities
selected pursuant to a sampling methodology, may be counted towards the Fund’s
80% investment policy. Additional information about the construction of the
Underlying Index is set forth below.
Nasdaq
Golden Dragon China IndexTM
The
Underlying Index seeks to track the performance of companies based in China
(excluding Hong Kong and Taiwan) that offer the protections of being listed on a
U.S.-based exchange. To be eligible for inclusion in the Underlying Index, a
security must: (i) be issued by a company domiciled or incorporated in the
People’s Republic of China (excluding Hong Kong and Taiwan) at the time of
review, although Underlying Index constituents as of May 31, 2012 may continue
to be eligible despite not meeting this criterion; (ii) be listed on The Nasdaq
Stock Market®, the New
York Stock Exchange (“NYSE”), NYSE American or Cboe BZX Exchange; (iii) have a
minimum market capitalization of $100 million; (iv) not be classified as part of
the open end and miscellaneous investment vehicles sector of the FTSE
International Limited Industry Classification Benchmark; (v) have a minimum
three-month average daily dollar trading volume of $250,000; and (vi) have been
traded for at least three months prior to the rebalancing reference date. Nasdaq
will not include securities of issuers that have entered into a
5
definitive
merger or acquisition agreement or other pending arrangement which would likely
result in the security no longer being eligible for inclusion in the Underlying
Index; securities of issuers that are currently in bankruptcy proceedings; or
securities of issuers that Nasdaq has become aware will soon undergo a
fundamental change that makes them ineligible for inclusion in the Underlying
Index. The security types eligible for inclusion in the Underlying Index include
common stocks, ordinary shares, ADRs, shares of beneficial interest or limited
partnership interests.
The
Underlying Index is rebalanced quarterly effective after trading on the third
Friday in March, June, September and December. The Underlying Index eligibility
criteria are applied using market data as of the end of January, April, July and
October. Securities meeting the criteria are included in the Underlying Index.
The Underlying Index is a modified market capitalization weighted
index.
The
Underlying Index constituents are reweighted on a quarterly basis, based on a
company’s most recent total shares outstanding and the closing price of the
company’s stock on the last trading day in February, May, August and
November.
The
Underlying Index employs a two-stage weighting scheme. Each security's
initial weight is determined by dividing its market capitalization by the
aggregate market capitalization of all securities in the Underlying Index. At
the reweight date, the initial weights are first adjusted to ensure that the
maximum weight of any Underlying Index constituent does not exceed 8%. Next, the
Underlying Index constituents with the five largest market capitalizations
remain capped at 8%, and the excess weight is distributed proportionally across
the remaining Underlying Index constituents so that the maximum weight of each
remaining constituent does not exceed 4%. Nasdaq repeats the process, if
necessary, to derive the final weights.
Nasdaq
makes adjustments in the price and/or constituent shares driven by
corporate events such as stock dividends, stock splits and certain spin-offs and
rights issuances are adjusted on the ex-date. If the change in total shares
outstanding arising from other corporate actions is greater than or equal to
10%, Nasdaq makes the change as soon as practicable. Otherwise, if the change in
total shares outstanding is less than 10%, then all such changes are accumulated
through the end of February, May, August and November and made effective at one
time on a quarterly basis after the close of trading on the third Friday in
March, June, September and December, respectively. The constituent shares are
adjusted by the same percentage amount by which the total shares outstanding
have changed.
A
special cash dividend announced by the listing exchange, will result in
an adjustment
to the last sale price of an Underlying Index constituent prior to market open
on the ex-date for the special amount distributed. A special dividend may also
be referred to as extra, extraordinary, non-recurring, one-time or
unusual.
Ordinarily,
whenever there is a change in a constituent security or a change to the
price of a constituent due to spin-offs, rights issuances or special cash
dividends, the divisor is adjusted to ensure that there is no discontinuity in
the value of the Underlying Index which might otherwise be caused by any such
change. All changes are announced in advance and are reflected in the Underlying
Index prior to market open on the Underlying Index effective date.
The
Fund is rebalanced and reweighted in accordance with the Underlying
Index.
Principal
Risks of Investing in the Fund
The following
provides additional information regarding certain of the principal risks
identified under “Principal Risks of Investing in the Fund” in the Fund's
“Summary Information” section. Any of the following risks may impact the Fund’s
NAV which could result in the Fund trading at a premium or discount to
NAV.
Market
Risk. Securities
in the Underlying Index are subject to market fluctuations, and the Fund could
lose money due to short-term market movements and over longer periods during
market downturns. You should anticipate that the value of the Shares will
decline, more or less, in
correlation
with any decline in value of the securities in the Underlying Index. The value
of a security may decline due to general market conditions, economic trends or
events that are not specifically related to the issuer of the security or due to
factors that affect a particular industry or group of industries. During a
general downturn in the securities markets, multiple asset classes may be
negatively affected. Additionally, economies and financial markets throughout
the world have become increasingly interconnected, which increases the
likelihood that events or conditions in one region or country will adversely
affect markets or issuers in other regions or countries. Natural or
environmental disasters, widespread disease or other public health issues, war,
military conflicts, acts of terrorism, changes in trade regulation, including
tariffs or economic sanctions, economic crises or other events could result in
increased premiums or discounts to the Fund’s NAV.
Increasingly
strained relations between the U.S. and foreign countries may adversely
affect U.S. issuers, as well as non-U.S. issuers. A decrease in U.S. imports or
exports, changes in trade regulations, including the imposition of tariffs or
other economic sanctions on traditional allies or adversaries and their
responses thereto, inflation, and/or an economic recession in the U.S. may have
a material adverse affect on the U.S. economy, global financial markets as a
whole and the securities to which the Fund has exposure. Proposed and adopted
policy and legislative actions in the U.S. may impact many aspects of financial
and other regulations and may have a significant effect, including potentially
adversely, on U.S. markets generally and the value of certain securities. The
continued maintenance of elevated debt levels by the U.S. government as
projected by governmental agencies and non-governmental organizations, or the
imposition of U.S. austerity measures, could potentially constrain future
economic growth and the ability to effectively respond to economic downturns. If
these trends were to continue, they could adversely impact the U.S. economy,
global financial markets as a whole and the securities in which the Fund
invests.
Market
Disruption Risks Related to Armed Conflict and Geopolitical
Tension. As a result
of increasingly interconnected global economies and financial markets, armed
conflict and geopolitical tension between countries or in a geographic region,
for example the conflicts between Russia and Ukraine in Europe and among various
countries, paramilitary organizations, and other armed political actors in the
Middle East, have the potential to adversely impact the Fund’s investments. Such
conflicts and tensions, and other corresponding events, have had, and could
continue to have, severe negative effects on regional and global economic and
financial markets, including increased volatility, reduced liquidity, and
overall uncertainty. The negative impacts may be particularly acute in certain
sectors. The timing and duration of such conflicts and tensions, resulting
sanctions, related events and other impacts cannot be predicted. The foregoing
may result in a negative impact on Fund performance and the value of an
investment in the Fund, even beyond any direct investment exposure the Fund may
have to issuers located in or with significant exposure to an impacted country
or geographic region.
Index
Risk. Unlike many
investment companies that are “actively managed,” the Fund does not utilize an
investing strategy that seeks returns in excess of its Underlying Index.
Therefore, the Fund would not necessarily buy or sell a security unless that
security is added to or removed from, respectively, its Underlying Index, even
if that security generally is underperforming. If a specific security is removed
from its Underlying Index, the Fund may be forced to sell such security at an
inopportune time or for a price lower than the security’s current market value.
The Underlying Index may not contain the appropriate mix of securities for any
particular economic cycle. Additionally, the Fund generally rebalances its
portfolio in accordance with its Underlying Index, and, therefore, any changes
to its
Underlying
Index’s rebalance schedule will typically result in corresponding changes to the
Fund’s rebalance schedule. Further, unlike with an actively managed fund, the
Adviser does not use techniques or defensive strategies
6
designed to
lessen the impact of periods of market volatility or market decline. This means
that, based on certain market and economic conditions, the Fund’s performance
could be lower than other types of funds with investment advisers that actively
manage their portfolio assets to take advantage of or defend against market
events.
China
Investment Risk. Investments
in companies located or operating in Greater China (normally considered to be
the geographical area that includes mainland China, Hong Kong, Macau and Taiwan)
involve risks and considerations not typically associated with investments in
the U.S. and other Western nations, such as greater government control over the
economy; political, legal and regulatory uncertainty; nationalization,
expropriation, or confiscation of property; lack of willingness or ability of
the Chinese government to support the economies and markets of the Greater China
region; lack of publicly available information and difficulty in obtaining
information necessary for audits of, investigations into and/or litigation
against Chinese companies, as well as in obtaining and/or enforcing judgments;
limited legal remedies for shareholders; alteration or discontinuation of
economic reforms; complex geopolitical tensions, military conflicts and the risk
of war, either internal or with other countries; assertions of human rights
violations by certain nations; public health emergencies resulting in market
closures, travel restrictions, quarantines or other interventions; inflation,
currency fluctuations and fluctuations in inflation and interest rates that may
have negative effects on the economy and securities markets of Greater China;
and Greater China’s dependency on the economies of other Asian countries, many
of which are developing countries.
The PCAOB has
historically had difficulties in inspecting audit work papers and practices of
PCAOB-registered accounting firms in China with respect to their audit work of
U.S. reporting companies. Such issues with respect to the PCAOB inspections may
impose significant additional risks associated with investments in China,
including the risks that the audits may be less reliable, the information about
the Chinese securities may be less reliable or complete, or a U.S.-listed
Chinese issuer may be delisted if the PCAOB is unable to inspect the accounting
firm for the issuer.
Investments
in Chinese companies may be made through a special structure
known as a variable interest entity (“VIE”) that is designed to provide foreign
investors, such as the Fund, with exposure to Chinese companies that operate in
certain sectors in which China restricts or prohibits foreign investments.
Investments in VIEs may pose additional risks because the investment is made
through an intermediary shell company that has entered into service and other
contracts with the underlying Chinese operating company in order to provide
investors with exposure to the operating company, and therefore does not
represent equity ownership in the operating company. As a result, such
investment may limit the rights of an investor with respect to the underlying
Chinese operating company. VIEs allow foreign shareholders to exert a degree of
control over, and obtain economic benefits arising from, the VIE without formal
legal ownership. However, the contractual arrangements between the shell company
and the operating company may not be as effective in providing operational
control as direct equity ownership, and a foreign investor’s rights may be
limited by, for example, actions of the Chinese government which could determine
that the underlying contractual arrangements on which control of the VIE is
based are invalid. The contractual arrangement on which the VIE structure is
based would likely be subject to Chinese law and jurisdiction, which could raise
questions about how recourse is sought.
Investments
through VIEs may be affected by conflicts of interest and duties
between the legal owners of the VIE and the stockholders of the listed holding
company, which could adversely impact the value of investments. Historically,
VIEs have not been formally recognized under Chinese law; however, effective
March 31, 2023, the CSRC released new rules and implementing guidelines that
permit the use of VIE structures, provided they abide by Chinese laws and
register with the CSRC. The rules, however, may cause Chinese companies to
undergo greater scrutiny and may make the process to create VIEs more difficult
and costly. Further, while the rules and
implementing
guidelines do not prohibit the use of VIE structures, this does not serve as a
formal endorsement by the Chinese government. There is a risk that the Chinese
government may cease to tolerate VIEs at any time, and any guidance or further
rulemaking prohibiting or restricting these structures by the Chinese
government, generally or with respect to specific industries, would likely cause
impacted VIE-structured holding(s) to suffer significant, detrimental, and
possibly permanent losses, and in turn, adversely affect the underlying fund’s
returns and net asset value. The future of the VIE structure generally and with
respect to certain industries remains uncertain.
Certain
securities issued by companies located or operating in Greater China, such
as China A-shares, are subject to trading restrictions and suspensions, quota
limitations and sudden changes in those limitations, and operational, clearing
and settlement risks. Significant portions of the Chinese securities markets may
become rapidly illiquid, as Chinese issuers have the ability to suspend the
trading of their equity securities, and have shown a willingness to exercise
that option in response to market volatility and other events. The liquidity of
Chinese securities may shrink or disappear suddenly and without warning as a
result of adverse economic, market or political events, or adverse investor
perceptions, whether or not accurate.
Export
growth continues to be a major driver of China’s rapid economic growth. As a
result, a reduction in spending on Chinese products and services, the
institution of tariffs, sanctions, capital controls, embargoes, trade wars, or
other trade barriers (or the threat thereof), or a downturn in any of the
economies of China’s key trading partners may have an adverse impact on the
Chinese economy. The ongoing trade dispute, imposition of tariffs and
deterioration of trade relations between China and the United States continues
to introduce uncertainty into the Chinese economy and may result in market
volatility, reductions in international trade, the oversupply of certain
manufactured goods, substantial price reductions of goods and possible failure
of individual companies and/or large segments of China’s export industry, which
could have a negative impact on the Fund’s performance. Events such as these and
their consequences are difficult to predict and it is unclear whether further
tariffs may be imposed or other escalating actions may be taken in the future.
In addition, actions by the U.S. government, such as delisting of certain
Chinese companies from U.S. securities exchanges or otherwise restricting their
operations in the U.S., may negatively impact the value and liquidity of such
securities held by the Fund. From time to time, certain companies in which the
Fund invests may operate in, or have dealings with, countries subject to
sanctions or embargoes imposed by the U.S. government and the United Nations
and/or in countries the U.S. government identified as state sponsors of
terrorism. One or more of these companies may be subject to constraints under
U.S. law or regulations that could negatively affect the company’s performance
or require the Fund to sell (or conversely, prevent the Fund from purchasing or
selling) the securities of the company.
Additionally,
developing countries, such as those in Greater China, may subject the
Fund’s investments to a number of tax rules, and the application of many of
those rules may be uncertain. Moreover, China has implemented a number of tax
reforms in recent years, and may amend or revise its existing tax laws and/or
procedures in the future, possibly with retroactive effect. Changes in
applicable Chinese tax law could reduce the after-tax profits of the Fund,
directly or indirectly, including by reducing the after-tax profits of companies
in China in which the Fund invests. Chinese taxes that may apply to the Fund’s
investments include income tax or withholding tax on dividends, interest or
gains earned by the Fund, business tax and stamp duty. Uncertainties in Chinese
tax rules could result in unexpected tax liabilities for the Fund.
Equity
Risk.
Equity risk
is the risk that the value of equity securities, including common stocks, will
fall. The value of an equity security may fall due to changes in general
economic conditions that impact the market as a whole and that are relatively
unrelated to an issuer or its industry. These conditions include changes in
interest rates, specific periods of overall market turbulence or instability, or
general and prolonged periods of
7
economic
decline and cyclical change. An issuer's common stock in particular may be
especially sensitive to, and more adversely affected by, these general movements
in the stock market; it is possible that a drop in the stock market may depress
the price of most or all of the common stocks that the Fund holds.
In
addition, equity risk includes the risk that investor sentiment toward,
and
perceptions regarding, one or more particular industries or economic sectors
will become negative, resulting in those investors exiting their investments in
those industries, which could cause a reduction in the value of companies in
those industries or sectors more broadly. Equity risk also includes the risk of
large-capitalization companies, which may adapt more slowly to new competitive
challenges or may be more mature and subject to more limited growth potential,
and consequently may underperform other segments of the equity market or the
market as a whole. Price changes of equity securities may occur in a
particular region, industry, or sector of the market, and as a result, the value
of an issuer's common stock may fall solely because of factors, such as
increases in production costs, that negatively impact other companies in the
same industry or in a number of different industries.
Equity
risk also includes the financial risks of a specific company, including
that the value of the company's securities may fall as a result of factors
directly relating to that company, such as decisions made by its management or
lower demand for the company's products or services. In particular, the common
stock of a company may decline significantly in price over short periods of
time. For example, an adverse event, such as an unfavorable earnings report, may
depress the value of common stock; similarly, the common stock of an issuer may
decline in price if the issuer fails to make anticipated dividend payments
because, among other reasons, the issuer experiences a decline in its financial
condition.
Foreign
and Emerging Markets Investment Risk. Investments
in foreign securities involve risks that are beyond those associated with
investments in U.S. securities, and investments in securities of issuers in
emerging market countries involve risks not often associated with investments in
securities of issuers in developed countries. Fluctuations in the value of the
U.S. dollar relative to the values of other currencies may adversely affect
investments in foreign and emerging market securities. Foreign and emerging
markets may have greater concentration in a few industries, resulting in greater
vulnerability to regional and global trade conditions. Emerging market countries
may also have higher rates of inflation or deflation and more rapid and extreme
fluctuations in inflation rates and greater sensitivity to interest rate
changes. Issuers in emerging markets also may have relatively low market
liquidity, decreased publicly available and less reliable information, and
inconsistent and less stringent regulatory, disclosure, accounting, auditing and
financial reporting requirements and standards of practice, including
recordkeeping standards, comparable to those applicable to issuers in more
developed markets. As a result, the nature and quality of such information may
vary. The ability to conduct adequate due diligence in emerging markets may be
limited. In addition, certain emerging market countries may impose material
limitations on inspection, investigation and enforcement capabilities which can
hinder the PCAOB’s ability to engage in independent oversight or inspection of
accounting firms located in or operating in certain emerging markets. There is
no guarantee that the quality of financial reporting or the audits conducted by
audit firms of emerging market issuers meet PCAOB standards.
Foreign
and emerging market securities also are subject to the risks of expropriation,
nationalization or other adverse political or economic developments and the
difficulty of enforcing obligations in other countries. Investments in foreign
and emerging market securities also may be subject to dividend withholding or
confiscatory taxes, currency blockage and/or transfer restrictions and higher
transactional costs. Emerging markets are subject to greater market volatility,
lower trading volume, political, social and economic instability, uncertainty
regarding the existence of trading markets and more governmental limitations on
foreign investment than more
developed
markets. In addition, securities in emerging markets may be subject to greater
price fluctuations than securities in more developed markets. Securities law in
many emerging market countries is relatively new and unsettled. Therefore, laws
regarding foreign investment in emerging market securities, securities
regulation, title to securities, and shareholder rights may change quickly and
unpredictably. The ability to bring and enforce actions in emerging market
countries, or to obtain information needed to pursue or enforce such actions,
may be limited, and shareholder claims may be difficult or impossible to pursue.
In addition, the taxation systems at the federal, regional and local levels in
emerging market countries may be less transparent and inconsistently enforced,
and subject to sudden change. Emerging market countries may have a higher degree
of corruption and fraud than developed market countries, as well as
counterparties and financial institutions with less financial sophistication,
creditworthiness and/or resources. Investments in emerging market securities may
also be subject to delays in settlement procedures, unexpected market closures,
and lack of timely information. Lack of relevant data and reliable public
information, including financial information, about securities in emerging
markets may contribute to incorrect weightings and data and computational errors
when the Index Provider selects securities for inclusion in the Underlying Index
or rebalances the Underlying Index.
Each
country has different laws specific to that country that impact investments,
which may increase the risks to which investors are subject. Country-specific
rules or legislation addressing investment-related transactions may inhibit or
prevent certain transactions from transpiring in a particular
country.
From
time to time, certain companies in which the Fund invests may operate in,
or have dealings with, countries subject to sanctions or embargoes imposed by
the U.S. government and the United Nations and/or in countries the U.S.
government identified as state sponsors of terrorism. One or more of these
companies may be subject to constraints under U.S. law or regulations that could
negatively affect the company’s performance.
Furthermore,
foreign exchanges and broker-dealers generally are subject to
less government and exchange scrutiny and regulation than their U.S.
counterparts. Differences in clearance and settlement procedures in foreign
markets may cause delays in settlement of the Fund's trades effected in those
markets and could result in losses to the Fund due to subsequent declines in the
value of the securities subject to the trades. Depositary receipts also involve
substantially identical risks to those associated with investments in foreign
securities. Additionally, the issuers of certain depositary receipts,
particularly unsponsored or unregistered depositary receipts, have no obligation
to distribute shareholder communications to the holders of such receipts or to
pass through to them any voting rights with respect to the deposited
securities.
Small-
and Mid-Capitalization Companies
Risk. Investing in
securities of small- and mid-capitalization companies involves greater risk than
customarily
is
associated
with
investing in
larger, more established companies. Stocks of small- and mid-capitalization
companies tend to be more vulnerable to changing market conditions, may have
little or no operating history or track record of success, and may have more
limited product lines and markets, less experienced management
and fewer
financial resources than larger companies. These companies’ securities may be
more volatile and less liquid than those of more established
companies.
They may be
more sensitive to changes in a company’s earnings expectations and may
experience more abrupt and erratic price movements. Smaller companies’
securities often trade in lower volumes and in many instances, are traded
over-the-counter or on a regional securities exchange, where the frequency and
volume of trading is substantially less than is typical for securities of larger
companies traded on national securities exchanges. Therefore, the securities of
smaller companies may be subject to wider price fluctuations and it might be
harder for the Fund to dispose of its holdings at an acceptable price when it
wants to sell them. In addition, investors
might seek to
trade Fund shares based on their knowledge
or
understanding of
the value of
smaller company securities
(this is
sometimes
8
referred to
as “price arbitrage”), which could interfere with the efficient management of
the Fund. Since
small- and
mid-capitalization companies typically reinvest a high proportion of their
earnings in their business, they may not pay dividends for some time,
particularly if they are newer companies.
It may take a
substantial period of time to realize a gain on an investment in a small- or
mid-capitalization company, if any gain is realized at all. The relative sizes
of companies may change over time as the securities market changes, and
the
Fund is not
required to sell the securities of companies whose market capitalizations have
grown or decreased due to market fluctuations.
Non-Diversified
Fund Risk.
The Fund is
non-diversified and can invest a greater portion of its assets in the
obligations or securities of a small number of issuers or any single issuer than
a diversified fund can. As a result, changes in the market value of a single
investment could cause greater fluctuations in Share price than would occur in a
diversified fund. This may increase the Fund’s volatility and cause the
performance of a relatively small number of issuers to have a greater impact on
the Fund’s performance.
Industry
Concentration Risk. In following
its methodology, the Underlying Index from time to time may be concentrated to a
significant degree in securities of issuers operating in a single industry or
industry group. To the extent that the Underlying Index concentrates in the
securities of issuers in a particular industry or industry group, the Fund will
also concentrate its investments to approximately the same extent. By
concentrating its investments in an industry or industry group, the Fund may
face more risks than if it were diversified broadly over numerous industries or
industry groups. Such industry-based risks, any of which may adversely affect
the companies in which the Fund invests, may include, but are not limited to,
the following: general economic conditions or cyclical market patterns that
could negatively affect supply and demand in a particular industry, competition
for resources, adverse labor relations, political or world events, obsolescence
of technologies, and increased competition or new product introductions that may
affect the profitability or viability of companies in an industry. In addition,
at times, such industry or industry group may be out of favor and underperform
other industries or the market as a whole. Information about the Fund’s exposure
to a particular sector, industry, industry group or sub-industry (as applicable)
is available in the Fund’s Annual and Semi-Annual Reports to Shareholders on the
Fund’s website, and on required forms filed with the SEC.
Consumer
Discretionary Sector Risk. Companies
engaged in the consumer discretionary sector are affected by fluctuations in
supply and demand and changes in consumer demographics and preferences. The
success of consumer product manufacturers and retailers is tied closely to the
performance of domestic and international economies. Moreover, changes in
consumer spending as a result of world events, political and economic
conditions, commodity price volatility, changes in interest and exchange rates,
imposition of import controls, increased competition, depletion of resources and
labor relations also may adversely affect these companies. Companies in the
consumer discretionary sector depend heavily on disposable household income and
consumer spending and may be strongly affected by social trends and marketing
campaigns. These companies may be subject to severe competition, which may have
an adverse impact on their profitability.
ADR
Risk. ADRs are
certificates that evidence ownership of shares of a foreign issuer and are
alternatives to purchasing the underlying foreign securities directly in their
national markets and currencies. ADRs may be subject to certain of the risks
associated with direct investments in the securities of foreign companies, such
as currency, political, economic and market risks, because their values depend
on the performance of the non-dollar denominated underlying foreign securities.
Moreover, ADRs may not track the price of the underlying foreign securities on
which they are based, and their value may change materially at times when U.S.
markets are not open for trading.
Certain
countries may limit the ability to convert ADRs into the underlying
foreign securities and vice versa, which may cause the securities of the foreign
company to trade at a discount or premium to the market price of the related
ADR. ADRs may be purchased through “sponsored” or “unsponsored” facilities. A
sponsored facility is established jointly by a depositary and the issuer of the
underlying security. A depositary may establish an unsponsored facility without
participation by the issuer of the deposited security. Unsponsored receipts may
involve higher expenses and may be less liquid. Holders of unsponsored ADRs
generally bear all the costs of such facilities, and the depositary of an
unsponsored facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to pass
through voting rights to the holders of such receipts in respect of the
deposited securities.
Issuer-Specific
Changes Risk.
The
performance of the Fund depends on the performance of individual securities to
which the Fund has exposure. The value of an individual security or particular
type of security may be more volatile than the market as a whole and may perform
worse than the market as a whole, causing the value of the Fund’s 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 or other factors. Issuers may, in times of distress or at
their own discretion, decide to reduce or eliminate dividends, which may also
cause their stock prices to decline.
Valuation
Risk.
Many factors
may influence the price at which the Fund could sell a particular portfolio
investment. The price the Fund could receive upon the sale of a portfolio
investment may differ from the Fund’s valuation of the investment, particularly
for investments that trade in thin or volatile markets or that are valued using
a fair valuation methodology. Fixed income securities are often valued assuming
orderly transactions of institutional round lot size, but the Fund may hold or
transact in the same securities in smaller, odd lot sizes. Odd lots often trade
at lower prices than institutional round lots. Financial information related to
securities of non-U.S. issuers may be less reliable than information related to
securities of U.S. issuers, which may make it difficult to obtain a current
price for a non-U.S. security held by the Fund.
To
the extent that the investments held by the Fund trade on foreign exchanges or
in foreign markets that may be closed when the securities exchange on which the
Fund’s shares trade is open, there are likely to be deviations between the
current price of such investment and the last quoted price for the investment
(i.e., the Fund’s quote from the closed foreign market). When market quotations
are not readily available or deemed non-representative of fair value for Fund
investments, those investments are fair valued by the Adviser. There are
multiple methods that can be used to fair value a portfolio investment, and such
methods may involve more subjectivity than the use of market quotations. The
value established for an investment through fair valuation may be different from
what would be produced if the investment had been valued using market
quotations.
In
addition, there is no assurance that the Fund could sell a portfolio
investment at
any time for the value ascribed to it for purposes of calculating the Fund’s net
asset value, and it is possible that the Fund could incur a loss because an
investment is sold at a discount to its ascribed value. Purchases or redemptions
of Fund shares made on days when the Fund is holding fair valued investments may
result in receiving a greater or lesser number of shares, or higher or lower
redemption proceeds, than would have been received if the Fund did not hold fair
valued investments or if the Adviser had used a different methodology to fair
value those investments. The ability to value investments may also be impacted
by technological issues and/or errors by pricing services or other third-party
service providers.
Non-Correlation
Risk.
The Fund’s
returns may not match the returns of the Underlying Index (that is, it may
experience tracking error) for a number of reasons. For example, the Fund incurs
operating expenses not applicable to the Underlying Index and incurs costs in
buying and selling
9
securities,
especially when rebalancing securities holdings to reflect changes in the
Underlying Index. To the extent that the Fund has recently commenced operations
and/or otherwise has a relatively small amount of assets, such transaction costs
could have a proportionally greater impact on the Fund. Additionally, if the
Fund uses a sampling methodology, it may result in returns for the Fund that are
not as well-correlated with the return of the Underlying Index as would be the
case if the Fund purchased all of the securities in the Underlying Index in the
proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the
Underlying Index resulting from legal restrictions, costs or liquidity
constraints. Additionally, if the Fund issues or redeems Creation Units
principally for cash, it will incur higher costs in buying or selling securities
than if it issued and redeemed Creation Units principally in-kind, which may
contribute to tracking error. The Fund may fair value certain of the securities
it holds. To the extent the Fund calculates its NAV based on fair value prices,
the Fund’s ability to track the Underlying Index may be adversely affected.
Since the Underlying Index is not subject to the tax diversification
requirements to which the Fund must adhere, the Fund may be required to deviate
its investments from the securities contained in, and relative weightings of,
the Underlying Index. The Fund may not invest in certain securities included in
the Underlying Index due to liquidity constraints. Liquidity constraints also
may delay the Fund’s purchase or sale of securities included in the Underlying
Index. For tax efficiency purposes, the Fund may sell certain securities to
realize losses, causing it to deviate from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents
of the
Underlying Index. However, at times, the Adviser may not fully invest the Fund’s
assets in constituents of the Underlying Index, such as during times of
increased market volatility or other unusual or unexpected circumstances, during
periods of Underlying Index rebalances, or due to cash flows into the Fund, the
need to retain a reserve of cash to meet redemptions and expenses, or low Fund
assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their
proprietary accounts and for client accounts also may adversely impact the
Fund’s ability to track the Underlying Index. For example, in regulated
industries, certain emerging or international markets and under corporate and
regulatory ownership definitions, there may be limits on the aggregate amount of
investment by affiliated investors that may not be exceeded, or that may not be
exceeded without the grant of a license or other regulatory or corporate
consent, or, if exceeded, may cause the Adviser, the Fund or other client
accounts to suffer disadvantages or business restrictions. As a result, the Fund
may be restricted in its ability to acquire particular securities due to
positions held by the Fund and the Adviser’s affiliates.
Authorized
Participant Concentration Risk.
Only APs may
engage in creation or redemption transactions directly with the Fund. The Fund
has a limited number of institutions that may act as APs, and such APs have no
obligation to submit creation or redemption orders. Consequently, there is no
assurance that APs will establish or maintain an active trading market for the
Shares. The risk may be heightened to the extent that securities held by the
Fund are traded outside a collateralized settlement system. In that case, APs
may be required to post collateral on certain trades on an agency basis (i.e.,
on behalf of other market participants), which only a limited number of APs may
be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the
Fund and no other AP is able to step forward to create or redeem Creation Units,
this may result in a significantly diminished trading market for Shares, and
Shares may be more likely to trade at a premium or discount to NAV and to face
trading halts and/or delisting. Additionally, to the extent that the Fund holds
non-U.S. securities, such securities may have lower trading volumes or could
experience extended market closures or
trading
halts. To the extent that the Fund invests in non-U.S. securities, it may face
increased risks that APs may not be able to effectively create or redeem
Creation Units, or that the Shares may be halted and/or delisted.
Market
Trading Risk.
The Fund
faces numerous market trading risks, including losses from trading in secondary
markets, periods of high volatility and disruption in the creation/redemption
process of the Fund. Although Shares are listed for trading on a securities
exchange, there can be no assurance that an active trading market for Shares
will develop or be maintained by market makers or APs, that Shares will continue
to trade on any such exchange or meet the requirements for listing on an
exchange. Any of these factors, among others, may lead to the Shares trading at
a premium or discount to their NAV. As a result, an investor could lose money
over short or long periods. Further, the Fund may experience low trading volume
and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume
and market liquidity (including for the underlying securities held by the Fund)
and are generally lower if Shares have more trading volume and market liquidity
and higher if Shares have little trading volume and market
liquidity.
In
stressed market conditions, the market for Shares may become less liquid in
response to deteriorating liquidity in the markets for the Fund’s portfolio
holdings, which may cause a variance in the market price of Shares and their
underlying NAV. In addition, an exchange or market may issue trading halts on
specific securities or financial instruments. As a result, the ability to trade
certain securities or financial instruments may be restricted, which may disrupt
the Fund’s creation/redemption process, potentially affect the price at which
Shares trade in the secondary market, and/or result in the Fund being unable to
trade certain securities or financial instruments at all. In these
circumstances, the Fund may be unable to rebalance its portfolio, may be unable
to accurately price its investments and/or may incur substantial trading
losses.
Operational
Risk.
The Fund is
exposed to operational risks arising from a number of factors, including, but
not limited to, human error, processing and communication errors, errors of the
Fund’s service providers, counterparties or other third-parties, failed or
inadequate processes and technology or systems failures. The rapid development
and increasingly widespread use of artificial intelligence and related
technologies could exacerbate the risks arising from these factors. The Fund and
the Adviser 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 these risks.
Shares
May Trade at Prices Different than NAV.
Shares trade
on a stock exchange at prices at, above or below the Fund’s most recent NAV. The
Fund’s NAV 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
Shares fluctuates continuously throughout trading hours on the exchange, based
on both the relative market supply of, and demand for, the Shares and the
underlying value of the Fund’s portfolio holdings. As a result, the trading
prices of the Shares may deviate from the Fund’s NAV. ANY OF THESE FACTORS,
AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV.
The Adviser cannot predict whether the Shares will trade below, at or above the
Fund’s 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, APs, or other market participants, or periods of
significant market volatility or stress, may result in trading prices for the
Shares that differ significantly from the value of the Fund’s underlying
holdings, with the result that investors may pay significantly more or receive
significantly less than the underlying value of the Shares bought or sold. This
can be reflected as a spread between the bid and ask prices for the Fund quoted
during the day or a premium or discount in the closing price from the Fund’s
NAV. Additionally, APs may be less willing to create or redeem the Shares if
there
10
is a lack of
an active market for such Shares or the Fund’s underlying investments, which may
contribute to the Shares trading at a premium or discount.
Non-Principal
Investment Strategies
The
Fund
may invest in
securities (including other funds) not included in the Underlying Index, and in
money market instruments, including repurchase agreements and other funds,
including affiliated funds, that invest exclusively in money market instruments
(subject to applicable limitations under the 1940 Act or exemptions therefrom),
convertible securities, structured notes (notes on which the amount of principal
repayment and interest payments is based on the movement of one or more
specified factors, such as the movement of a particular security or securities
index) and in futures contracts, options, options on futures contracts or other
derivatives. The Fund may use futures contracts, options, options on futures
contracts and other derivatives, convertible securities and structured notes to
seek performance that corresponds to the Underlying Index, to seek to hedge
portfolio risk and to manage cash flows. Derivatives and other instruments that
provide investment exposure to the components of the Underlying Index and
derivatives that provide investment exposure to one or more market risk factors
associated with such investments may be included in the Fund's 80% investment
policy.
The
Adviser anticipates that it may take approximately two business days (a
business day is any day that the NYSE is open) for additions to and deletions
from the Underlying Index to fully settle in the portfolio composition of the
Fund.
The
Fund’s investment objective and 80%
investment policy are non-fundamental policies that the Board of Trustees (the
“Board”) of the Invesco Exchange-Traded Fund Trust (the “Trust”) may change
without shareholder approval upon 60 days’ prior written notice to
shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in the Fund’s
Statement of Additional Information (“SAI”) under the section “Investment
Restrictions.”
Borrowing
Money
The Fund may
borrow money up to the limits set forth in the Fund’s SAI under the section
“Investment Restrictions.”
Securities
Lending
The Fund may
lend its portfolio securities to brokers, dealers, and other financial
institutions. In connection with such loans, the Fund receives liquid collateral
equal to at least 102% (105% for international securities) of the value of the
loaned portfolio securities. This collateral is marked-to-market on a daily
basis.
Additional
Risks of Investing in the Fund
The Fund may
also be subject to certain other non-principal risks associated with its
investments and investment strategies. The following provides additional
non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund
generally expects to make in-kind redemptions to avoid being taxed at the fund
level on gains on the distributed portfolio securities. However, from time to
time, the Fund reserves the right to effect redemptions for cash, rather than
in-kind. In such circumstances, the Fund may be required to sell portfolio
securities to obtain the cash needed to distribute redemption proceeds.
Therefore, the Fund may recognize a capital gain and/or incur brokerage costs on
these sales that might not have been incurred if the Fund had made a redemption
in-kind, which may decrease the tax efficiency of the Fund compared to utilizing
an in-kind redemption process. Also, to the extent any transaction costs are not
offset by transaction fees imposed on APs, such costs will
decrease the
Fund's NAV.
Convertible
Securities Risk. A
convertible security generally is a preferred stock that may be converted within
a specified period of time into common stock. Convertible securities
nevertheless remain subject to the risks of both debt securities and equity
securities. As with other equity securities, the value of a convertible security
tends to increase as the price
of the
underlying stock goes up, and to decrease as the price of the underlying stock
goes down. Declining common stock values therefore also may cause the value of
the Fund’s investments to decline. Like a debt security, a convertible security
provides a fixed-income stream and also tends to decrease in value when interest
rates rise. Moreover, many convertible securities have credit ratings that are
below investment grade and are subject to the same risks as lower-rated debt
securities, which are considered to have more speculative characteristics and
greater susceptibility to default or decline in market value than investment
grade (or higher-rated) securities.
Cybersecurity
Risk.
With the
increased use of technologies such as the Internet and artificial intelligence
to conduct business, the Fund, like all companies, may be susceptible to
operational, information security and related risks. Cybersecurity incidents
involving the Fund and its service providers (including, without limitation, the
Adviser, fund accountant, custodian, transfer agent and financial
intermediaries) have the ability to cause disruptions and impact business
operations, potentially resulting in financial losses, impediments to trading,
the inability of Fund shareholders to transact business, violations of
applicable privacy and other laws, regulatory fines, penalties, reputational
damage, reimbursement or other compensation costs, and/or additional compliance
costs. Similar adverse consequences could result from cybersecurity incidents
affecting issuers of securities in which the Fund invests, counterparties with
which the Fund engages, governmental and other regulatory authorities, exchanges
and other financial market operators, banks, brokers, dealers, insurance
companies, other financial institutions and other parties. The rapid development
and increasingly widespread use of artificial intelligence and related
technologies could increase the effectiveness of any such cybersecurity
incidents and exacerbate related risks. The Fund and its shareholders could be
negatively impacted as a result.
Derivatives
Risk. The Fund may
invest in derivatives, including futures contracts, options, and options on
futures contracts, as applicable. Derivatives are financial instruments that
derive their value from an underlying asset, such as a security, index or
exchange rate. Their use is a highly specialized activity that involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. Derivatives may be riskier than other types
of investments and may be more volatile, less tax efficient and less liquid than
other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset or to
seek to hedge a portfolio risk. If the Fund uses derivatives to seek to “hedge”
a portfolio risk, the change in value of a derivative may not correlate as
expected with the underlying asset being hedged, and it is possible that the
hedge therefore may not succeed. In addition, given their complexity,
derivatives may be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest rate
risk, and market risk. Credit risk refers to the possibility that a counterparty
will be unable and/or unwilling to perform under the agreement. Interest rate
risk refers to fluctuations in the value of an asset resulting from changes in
the general level of interest rates. Over-the-counter derivatives are also
subject to counterparty risk (sometimes referred to as “default risk”), which is
the risk that the other party to the contract will not fulfill its contractual
obligations.
Derivatives
may be especially sensitive to changes in economic and market
conditions, and their use may give rise to a form of leverage. Leverage may
cause the portfolio of the Fund to be more volatile than if the portfolio had
not been leveraged because leverage can exaggerate the effect of any increase or
decrease in the value of securities and other instruments held by the Fund. For
some derivatives, such leverage could result in losses that exceed the original
amount invested in the derivative. The Fund’s use of derivatives may be limited
by the requirements for taxation of the Fund as a regulated investment company,
as well as by regulatory changes.
Index
Provider Risk.
The Fund
seeks to track the investment results, before fees and expenses, of the
Underlying Index, as published by the
11
Index
Provider. There is no assurance that the Index Provider will compile the
Underlying Index accurately, or that the Underlying Index will be determined,
comprised or calculated accurately. While the Index Provider gives descriptions
of what the Underlying Index is designed to achieve, the Index Provider
generally does not provide any warranty or accept any liability in relation to
the quality, accuracy or completeness of data in the Underlying Index, and it
generally does not guarantee that the Underlying Index will be in line with its
methodology. Errors made by the Index Provider with respect to the quality,
accuracy and completeness of the data within the Underlying Index may occur from
time to time and may not be identified and corrected by the Index Provider for a
period of time, if at all. Therefore, gains, losses or costs associated with
Index Provider errors will generally be borne by the Fund and its
shareholders.
Index
Rebalancing Risk. Pursuant to
the methodology that the Index Provider uses to calculate and maintain the
Underlying Index, a security may be removed from the Underlying Index in the
event that it does not comply with the eligibility requirements of the
Underlying Index. As a result, the Fund may be forced to sell securities at
inopportune times or for prices other than at current market values or may elect
not to sell such securities on the day that they are removed from the Underlying
Index, due to market conditions or otherwise. Due to these factors, the
variation between the Fund’s annual return and the return of the Underlying
Index may increase significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional ad
hoc rebalances to the Underlying Index, for example, to correct an error in the
selection of index constituents. When the Fund in turn rebalances its portfolio,
any transaction costs and market exposure arising from such portfolio
rebalancing will be borne by the Fund and its shareholders. Unscheduled
rebalances also expose the Fund to additional tracking error risk. Therefore,
errors and additional ad hoc rebalances carried out by the Index Provider may
increase the Fund’s costs and market exposure.
Large
Shareholder Risk.
Certain
shareholders, including a third party investor, the Adviser or an affiliate of
the Adviser, an AP, a lead market maker, or another entity, may from time to
time own a substantial amount of Shares or may invest in the Fund and hold its
investment for a limited period of time solely to facilitate the commencement of
the Fund or to facilitate the Fund achieving a specified size or scale. There
can be no assurance that any large shareholder would not redeem its investment.
Dispositions of a large number of Shares by these shareholders may adversely
affect the Fund’s liquidity and net assets to the extent such transactions are
executed directly with the Fund in the form of redemptions through an AP, rather
than executed in the secondary market. These redemptions may also force the Fund
to sell portfolio securities when it might not otherwise do so, which may
negatively impact the Fund’s NAV and increase the Fund’s brokerage costs.
Further, such sales may accelerate the realization of taxable income and/or
gains to shareholders, or the Fund may be required to sell its more liquid Fund
investments to meet a large redemption, in which case the Fund’s remaining
assets may be less liquid, more volatile, and more difficult to price. To the
extent the Fund permits cash purchases, large purchases of Shares may adversely
affect the Fund’s performance to the extent that the Fund is delayed in
investing new cash and is required to maintain a larger cash position than it
ordinarily would. To the extent these large shareholders transact in shares on
the secondary market, such transactions may account for a large percentage of
the trading volume on the Fund’s exchange and may, therefore, have a material
upward or downward effect on the market price of the Shares. To the extent the
Fund permits redemptions in cash, the Fund may hold a relatively large
proportion of its assets in cash in anticipation of large redemptions, diluting
its investment returns.
Leverage
Risk. To the
extent that the Fund borrows money it may be leveraged. Leveraging generally
exaggerates the effect on NAV of any increase or decrease in the market value of
the Fund’s portfolio securities. Borrowing creates interest expenses and other
expenses (e.g., commitment fees) for the Fund that affect the Fund’s
performance.
Money
Market Funds Risk. Money market
funds are subject to management fees and other expenses, and the Fund's
investments in money market funds will cause it to bear proportionately the
costs incurred by the money market funds' operations while simultaneously paying
its own management fees and expenses. An investment in a money market fund is
not a bank account and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency; it is possible to lose
money by investing in a money market fund. To the extent that the Fund invests
in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the
impact of significant fluctuations in assets as a result of the cash sweep
program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money
market funds that do not meet the definition of a “retail money market fund” or
“government money market fund” under the 1940 Act are required to transact at a
floating NAV per share (i.e., in a manner similar to how all other non-money
market mutual funds transact), instead of at a $1.00 stable share price. Money
market funds may also impose liquidity fees in certain circumstances, including
times of market stress or heavy redemptions. If the Fund invested in a money
market fund with a floating NAV, the impact on the trading and value of the
money market instrument may negatively affect the Fund's return
potential.
Natural
Disaster/Epidemic Risk. Natural or
environmental disasters, such as earthquakes, fires, floods, hurricanes,
tsunamis and other severe weather-related phenomena generally, and widespread
disease, including pandemics and epidemics, have been and may be highly
disruptive to economies and markets, adversely impacting individual companies,
sectors, industries, markets, currencies, interest and inflation rates, credit
ratings, investor sentiment, and other factors affecting the value of the Fund’s
investments. Additionally, if a sector or sectors in which the Underlying Index
is concentrated is negatively impacted to a greater extent by such events, the
Fund may experience heightened volatility. Given the increasing interdependence
among global economies and markets, conditions in one country, market, or region
are increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have
a significant adverse impact on the value of the Fund’s
investments.
Repurchase
Agreements Risk. Repurchase
agreements are agreements pursuant to which the Fund acquires securities from a
third party with the understanding that the seller will repurchase them at a
fixed price on an agreed date. Repurchase agreements may be characterized as
loans secured by the underlying securities. If the seller of securities under a
repurchase agreement defaults on its obligation to repurchase the underlying
securities, as a result of its bankruptcy or otherwise, the Fund will seek to
dispose of such securities, which could involve costs or delays. If the seller
becomes insolvent and subject to liquidation or reorganization under applicable
bankruptcy or other laws, the Fund’s ability to dispose of the underlying
securities may be restricted. If the seller fails to repurchase the securities,
the Fund may suffer a loss to the extent proceeds from the sale of the
underlying securities are less than the repurchase prices.
Risks
of Futures and Options. The Fund may
enter into U.S. futures contracts, options and options on futures contracts to
simulate full investment in the Underlying Index, or to manage cash flows. The
Fund will not use futures or options for speculative purposes. The Fund intends
to use futures and options contracts to limit its risk exposure to levels
comparable to direct investment in securities.
An
option gives a holder the right to buy or sell a specific security or
instrument,
including a futures contract, at a specified price within a specified period of
time. An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in the underlying futures contract at
a specified price at any time prior to the expiration date of the option.
Exchanges can limit the number of futures or
12
options
positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the Fund’s strategies. Options are
subject to correlation risk, and the successful use of options depends on the
investment adviser’s ability to predict correctly future price fluctuations and
the degree of correlation between the markets for options and the underlying
instruments. Options are also particularly subject to leverage risk and can be
subject to liquidity risk. Because option premiums paid or received by the Fund
are small in relation to the market value of the investments underlying the
options, the Fund is exposed to the risk that buying and selling options can be
more speculative than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide for the
future delivery of a specified amount of a specific instrument at a specified
future price and date, or for cash settlement (payment of the gain or loss on
the contract). Futures contracts are subject to the risk of imperfect
correlation between movements in the price of the instruments and the price of
the underlying securities. Because futures contracts project price levels in the
future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying Index. In the event of adverse
price movements, the Fund would remain required to make daily cash payments to
maintain its required margin. There is no assurance that a liquid secondary
market will exist for any particular futures contract at any particular time.
Futures markets are highly volatile and the use of futures may increase the
volatility of the Fund’s NAV. Futures are also subject to leverage risk and
liquidity risk. The risk of loss in trading futures contracts potentially is
unlimited.
Securities
Lending Risk.
Securities
lending involves a risk of loss because the borrower may fail to return the
securities in a timely manner or at all. If the Fund lends its securities and is
unable to recover the securities loaned, it may sell the collateral and purchase
a replacement security in the market. Lending securities entails a risk of loss
to the Fund if and to the extent that the market value of the loaned securities
increases and the collateral is not increased accordingly. Any cash received as
collateral for loaned securities will be invested in an affiliated money market
fund. This investment is subject to market appreciation or depreciation and the
Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments
in structured notes involve risks including interest rate risk, credit risk and
market risk. Interest rate risk refers to fluctuations in the value of a note
resulting from changes in the general level of interest rates. When the general
level of interest rates goes up, the prices of notes tend to go down. Credit
risk refers to the possibility that the issuer of a note will be unable and/or
unwilling to make timely interest payments and/or repay the principal on its
debt. Depending on the factors used, changes in interest rates and movement of
such factors may cause significant price fluctuations. Structured notes may be
less liquid than other types of securities and more volatile than the reference
factor underlying the note. This means that the Fund may lose money if the
issuer of the note defaults, as the Fund may not be able to readily close out
its investment in such notes without incurring losses.
Trading
Issues Risk.
Investors
buying or selling Shares in the secondary market may pay brokerage commissions
or other charges, which may be a significant proportional cost for investors
seeking to buy or sell relatively small amounts of Shares. Moreover, trading in
Shares on The Nasdaq Stock Market® LLC (the
“Exchange”) may be halted due to market conditions or for reasons that, in the
view of the Exchange, make trading in Shares inadvisable. In addition, trading
in Shares on the Exchange is subject to trading halts caused by extraordinary
market volatility pursuant to the Exchange’s “circuit breaker” rules. There can
be no assurance that the requirements of the Exchange necessary to maintain the
listing of the Fund will continue to be met or will remain unchanged. Foreign
exchanges may be open on days when Shares are not priced, and therefore, if the
Fund holds securities that are primarily listed on such exchanges, the value of
such securities in the Fund’s portfolio may change on days when shareholders
will not be able to purchase or sell Shares.
Tax Structure of ETFs
Unlike
interests in conventional mutual funds, which typically are bought and sold only
at closing NAVs, Shares are traded throughout the day in the secondary market on
a national securities exchange, and are created and redeemed principally in-kind
in Creation Units at each day’s next calculated NAV. These in-kind arrangements
are designed to protect shareholders from the adverse effects on the Fund’s
portfolio that could arise from frequent cash creation and redemption
transactions. In a conventional mutual fund, redemptions can have an adverse tax
impact on taxable shareholders because the mutual fund may need to sell
portfolio securities to obtain cash to meet such redemptions. These sales may
generate taxable gains that must be distributed to the shareholders of the
mutual fund, whereas the Shares’ in-kind redemption mechanism generally will not
lead to such taxable events for the Fund or its shareholders.
The
Fund may recognize gains as a result of rebalancing its securities holdings to
reflect changes in the securities included in the Underlying Index. The Fund
also may be required to distribute any such gains to its shareholders to avoid
adverse federal income tax consequences. For information concerning the tax
consequences of distributions, see the section entitled “Dividends, Other
Distributions and Taxes” in this prospectus.
Portfolio Holdings
A description
of the Trust's policies and procedures with respect to the disclosure of the
Fund’s portfolio holdings is available in the Fund’s SAI, which is available at
www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at
3500 Lacey Road, Suite 700, Downers Grove, IL 60515. Invesco Capital
Management LLC serves as the investment adviser to the Invesco Actively Managed
Exchange-Traded Commodity Fund Trust, Invesco Actively Managed Exchange-Traded
Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund
Trust II, Invesco Exchange-Traded Self-Indexed Fund Trust,
Invesco India
Exchange-Traded Fund Trust and Invesco QQQ TrustSM, Series 1, a
family of ETFs, with combined assets under management of $980.2 billion as of
June 30, 2026.
As
the Fund’s investment adviser, the Adviser has overall responsibility
for selecting
and continuously monitoring the Fund’s investments, managing the Fund’s business
affairs, and providing certain clerical, bookkeeping and other administrative
services for the Trust.
Portfolio
Managers
The Adviser
uses a team of portfolio managers, investment strategists and other investment
specialists in managing the Fund. This team approach brings together many
disciplines and leverages the Adviser's extensive resources. In this regard,
Peter Hubbard, Pratik Doshi, CFA and Michael Jeanette (the “Portfolio Managers”)
are jointly and primarily responsible for the day-to-day management of the
Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with other team members
to focus on certain asset classes, implementing investment strategies and
researching and reviewing investment strategies.
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be
appropriate.
■
Peter
Hubbard, Portfolio Manager of the Adviser and Vice President of the Trust, has
been responsible for the management of the Fund
13
since June
2007. He has been responsible for the management of certain funds in the Invesco
family of ETFs since June 2007 and has been associated with the Adviser since
2005.
■
Pratik Doshi,
CFA, Portfolio Manager of the Adviser, has been responsible for the management
of the Fund since August 2020. He has been responsible for the management of
certain funds in the Invesco family of ETFs since October 2019 and has been
associated with the Adviser since 2018.
■
Michael
Jeanette, Portfolio Manager of the Adviser, has been responsible for the
management of the Fund since August 2008. He has been responsible for the
management of certain funds in the Invesco family of ETFs since August 2008 and
has been associated with the Adviser since 2008.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and
the Portfolio Managers' ownership of Shares.
Advisory
Fees
Pursuant to
an investment advisory agreement between the Adviser and the Trust (the
“Investment Advisory Agreement”), the Fund pays the Adviser for its services an
annual fee equal to 0.50% of its average daily net assets (the “Advisory
Fee”).
The
Fund is responsible for all of its own expenses, including, but not limited to,
the investment advisory fees, costs of transfer agency, custody, fund
administration, legal, audit and other services, interest, taxes, Acquired Fund
Fees and Expenses, if any, brokerage commissions and other expenses connected
with executions of portfolio transactions, licensing fees related to the
Underlying Index, any distribution fees or expenses, litigation expenses, fees
payable to the Trust’s Board members and officers who are not “interested
persons” of the Trust or the Adviser, expenses incurred in connection with the
Board members’ services, including travel expenses and legal fees of counsel for
those members of the Board who are not “interested persons” of the Trust or the
Adviser and extraordinary expenses, including proxy expenses (except for such
proxies related to: (i) changes to the Investment Advisory Agreement, (ii) the
election of any Board member who is an “interested person” of the Trust, or
(iii) any other matters that directly benefit the Adviser).
The
Trust and the Adviser have entered into an Amended and Restated Excess
Expense Agreement (the “Expense Agreement”) on behalf of the Fund pursuant to
which the Adviser has agreed to waive fees and/or pay Fund expenses to the
extent necessary to prevent the operating expenses of the Fund (excluding
interest expenses, licensing fees, offering costs (as defined below), brokerage
commissions and other trading expenses, taxes, Acquired Fund Fees and Expenses,
if applicable, and extraordinary expenses) from exceeding 0.60% of its average
daily net assets per year (the “Expense Cap”), at least until August 31,
2028.
The
offering costs excluded from the Expense Cap for the Fund are: (a) initial legal
fees pertaining to the Shares offered for sale; (b) initial SEC and state
registration fees; and (c) initial fees paid to be listed on an
exchange.
The
Expense Agreement provides that the fees waived and/or expenses borne by the
Adviser are subject to recapture by the Adviser for up to three years from the
date the fees were waived or the expenses were incurred, but no recapture
payment will be made by the Fund if it would result in the Fund exceeding (i)
the Expense Cap or (ii) the expense cap in effect at the time the fees and/or
expenses subject to recapture were waived and/or borne by the
Adviser.
The
Fund may invest in money market funds that are managed by affiliates of
the Adviser and other funds (including ETFs) managed by the Adviser or
affiliates of the Adviser (collectively, “Underlying Affiliated Investments”).
The indirect portion of the advisory fees that the Fund incurs through such
Underlying Affiliated Investments is in addition to the Advisory Fee payable to
the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory
Fee payable by the Fund in an amount equal to the lesser of: (i) 100% of the net
advisory fees earned by the Adviser or an
affiliate of
the Adviser that are attributable to the Fund's Underlying Affiliated
Investments or (ii) the Advisory Fee available to be waived. This waiver does
not apply to the Fund's investment of cash collateral received for securities
lending. This waiver is in place through at least August 31, 2028, and there is
no guarantee that the Adviser will extend it past that date. This waiver is not
subject to recapture.
A
discussion regarding the Board’s basis for approving the Investment Advisory
Agreement with respect to the Fund is available on the Fund’s website and in the
Fund’s report filed on Form N-CSR for the fiscal year ended April 30,
2026.
How to Buy and Sell Shares
The Fund
issues or redeems its Shares at NAV per Share only in Creation Units or Creation
Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange.
Shares can be bought and sold throughout the trading day like other publicly
traded shares. There is no minimum investment. Although Shares generally are
purchased and sold in “round lots” of 100 Shares, brokerage firms typically
permit investors to purchase or sell Shares in smaller “odd lots,” at no per
share price differential. When buying or selling Shares through a broker, you
will incur customary brokerage commissions and charges, and you may pay some or
all of the spread between the bid and the offered price in the secondary market
on each leg of a round trip (purchase and sale) transaction.
The Shares
trade on the Exchange under the symbol “PGJ.”
Share prices
are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their Shares
for redemption directly to the Fund, at NAV per Share, only in Creation Units or
Creation Unit Aggregations, and in accordance with the procedures described in
the SAI.
Under
normal circumstances, the Fund will pay out redemption proceeds to a
redeeming AP within one day after the AP’s redemption request is received, in
accordance with the process set forth in the Fund’s SAI and/or as set forth in
the agreement between the AP and the Fund’s distributor, or as otherwise agreed
to by the Fund and the AP. However, the Fund reserves the right, including under
stressed market conditions, to take up to seven days after the receipt of a
redemption request to pay an AP, all as permitted by the 1940 Act. If the Fund
has foreign investments in a country where local market holiday(s) prevent the
Fund from delivering such foreign investments to an AP in response to a
redemption request, the Fund may take up to 15 days after the receipt of the
redemption request to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used
for redemptions will be raised from the sale of portfolio assets or may come
from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A
securities, an AP that is not a “qualified institutional buyer,” as such term is
defined under Rule 144A of the Securities Act of 1933, as amended (the
“Securities Act”), will not be able to receive those Rule 144A
securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book
Entry
Shares 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 all
outstanding Shares and is recognized as the record owner of all Shares for all
purposes.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares.
Participants in DTC include securities brokers and dealers, banks,
14
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 stocks that you hold in
book entry or “street name” form.
Share
Trading Prices
The trading
prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market
forces of supply and demand, economic conditions and other factors may affect
the trading prices of Shares.
Frequent Purchases and Redemptions of Shares
Shares may be
purchased and redeemed directly from the Fund only in Creation Units by APs. The
vast majority of trading in Shares occurs on the secondary market and does not
involve the Fund directly. In-kind purchases and redemptions of Creation Units
by APs and cash trades on the secondary market are unlikely to cause many of the
harmful effects of frequent purchases or redemptions of the Shares. Cash
purchases and/or redemptions of Creation Units, however, can result in increased
tracking error, disruption of portfolio management, dilution to the Fund and
increased transaction costs, which could negatively impact the Fund’s ability to
achieve its investment objective, and may lead to the realization of capital
gains. These consequences may increase as the frequency of cash purchases and
redemptions of Creation Units by APs increases. However, direct trading by APs
is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of
Creation Units to cover the custodial and other costs the Fund incurs in
effecting trades. In addition, the Adviser monitors trades by APs for patterns
of abusive trading and the Fund reserves the right not to accept orders from APs
that the Adviser has determined may be disruptive to the management of the Fund,
or otherwise are not in the best interests of the Fund. For these reasons, the
Board has not adopted policies and procedures with respect to frequent purchases
and redemptions of Shares.
Dividends, Other Distributions and Taxes
Dividends
and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid quarterly by
the Fund. The Fund also intends to distribute its net realized capital gains, if
any, to shareholders annually. Dividends and other distributions may be declared
and paid more frequently to comply with the distribution requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and
to avoid a federal excise tax imposed on regulated investment
companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option
available.
Taxes
The Fund
intends to qualify each year as a regulated investment company (“RIC”) and, as
such, is not subject to entity-level tax on the income and gain it distributes.
If you are a taxable investor, dividends and distributions you receive generally
are taxable to you whether you reinvest distributions in additional Shares or
take them in cash. Every year, you will be sent
information
showing the amount of dividends and distributions you received during the prior
calendar year. In addition, investors in taxable accounts should be aware of the
basic tax points listed below:
Fund
Tax Basics
■
The Fund
earns income generally in the form of dividends or interest on its investments.
This income, less expenses incurred in the operation of the Fund, constitutes
the Fund’s net investment income from which dividends may be paid to
shareholders. If you are a taxable investor, distributions of net investment
income generally are taxable to you as ordinary income.
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund
with a high portfolio turnover rate (a measure of how frequently assets within
the fund are bought and sold) is more likely to generate short-term capital
gains than a fund with a low portfolio turnover rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no
matter how long you have owned your Shares.
■
A portion of
income dividends paid by the Fund may be reported as qualified dividend income
eligible for taxation by individual shareholders at long-term capital gain
rates, provided certain holding period requirements are met. These reduced rates
generally are available for dividends derived from the Fund’s investment in
stocks of domestic corporations and qualified foreign corporations. If the Fund
invests primarily in debt securities, either none or only a nominal portion of
the dividends paid by the Fund will be eligible for taxation at these reduced
rates.
■
The use of
derivatives by the Fund may cause the Fund to realize higher amounts of ordinary
income or short-term capital gain, distributions from which are taxable to
individual shareholders at ordinary income tax rates rather than at the more
favorable tax rates for long-term capital gain.
■
Distributions
declared to shareholders with a record date in October, November or December—if
paid to you by the end of January—are taxable for federal income tax purposes as
if received in December.
■
Any long-term
or short-term capital gains realized on the sale of your Shares will be subject
to federal income tax.
■
If the Fund
is terminated, a shareholder will receive a liquidating distribution(s) which
should be treated as payment in exchange for the Shares held by the shareholder.
As a result, each shareholder should recognize gain or loss in an amount equal
to the difference between the shareholder’s adjusted tax basis in his or her
shares and the liquidating distribution(s) he or she receives, except to the
extent the Shares are held in a tax-advantaged arrangement. A liquidating
distribution may be subject to backup withholding as described
below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the
shareholder’s Shares, subject to certain exceptions for exempt recipients.
Please contact the broker (or other nominee) that holds your Shares with respect
to reporting of your cost basis and available elections for your
account.
■
At the time
you purchase your Shares, the Fund’s NAV may reflect undistributed income or
undistributed capital gains. A subsequent distribution to you of such amounts,
although constituting a return of your investment, would be taxable. Buying
Shares just before the Fund declares an income dividend or capital gains
distribution is sometimes known as “buying a dividend.” In addition, the Fund’s
NAV may, at any time, reflect net unrealized appreciation, which may result in
future taxable distributions to you. On the date that distributions of net
investment income and net realized capital gains are paid, the NAV of your
Shares will decrease by the per Share amount of the distribution
paid.
15
■
By law, if
you do not provide the Fund with your proper taxpayer identification number and
certain required certifications, you may be subject to backup withholding on any
distributions of income, capital gains, or proceeds from the sale of your
Shares. The Fund also must withhold if the IRS instructs it to do so. When
withholding is required, the amount will be 24% of any distributions or proceeds
paid.
■
An additional
3.8% Medicare tax is imposed on certain net investment income (including
ordinary dividends and capital gain distributions received from the Fund and net
gains from taxable dispositions of Shares) of U.S. individuals, estates and
trusts to the extent that such person’s “modified adjusted gross income” (in the
case of an individual) or “adjusted gross income” (in the case of an estate or
trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported
by you on, and paid with, your federal income tax return.
■
You will not
be required to include the portion of dividends paid by the Fund derived from
interest on U.S. government obligations in your gross income for purposes of
personal and, in some cases, corporate income taxes in many state and local tax
jurisdictions. The percentage of dividends that constitutes dividends derived
from interest on federal obligations will be determined annually. This
percentage may differ from the actual percentage of interest received by the
Fund on federal obligations for the particular days on which you hold
shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state
and local income taxes.
■
If the Fund
qualifies to pass through the tax benefits from foreign taxes it pays on its
investments, and elects to do so, then any foreign taxes it pays on these
investments may be passed through to you. You will then be required to include
your pro rata share of these taxes in gross income, even though not
actually received by you, and will be entitled either to deduct your share of
these taxes in computing your taxable income, or to claim a foreign tax credit
for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special certification
requirements to avoid U.S. backup withholding and claim any treaty benefits, and
estate taxes may apply to an investment in the Fund.
■
Under the
Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed
on income dividends made by the Fund to certain foreign entities, referred to as
foreign financial institutions or non-financial foreign entities, that fail to
comply (or be deemed compliant) with extensive reporting and withholding
requirements designed to inform the U.S. Department of the Treasury of
U.S.-owned foreign investment accounts. After December 31, 2018, FATCA
withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of
Shares; however, based on proposed regulations issued by the IRS, which can be
relied upon currently, such withholding is no longer required unless final
regulations provide otherwise (which is not expected). The Fund may disclose the
information that it receives from its shareholders to the IRS, non-U.S. taxing
authorities or other parties as necessary to comply with FATCA or similar laws.
Withholding also may be required if a foreign entity that is a shareholder of
the Fund fails to provide the Fund with appropriate certifications or other
documentation concerning its status under FATCA.
■
To the extent
the Fund invests in an underlying fund that is taxed as a RIC, please see the
section titled “Taxes – Taxation of the Funds” in the Fund’s SAI for more
information regarding the tax consequences of such investment.
■
The above
discussion concerning the taxability of Fund dividends and distributions and of
sales of Shares is inapplicable to investors that
generally are
exempt from federal income tax, such as retirement plans that are qualified
under Section 401 and 403 of the Code and individual retirement accounts
(“IRAs”) and Roth IRAs.
Taxes
on Purchase and Redemption of Creation Units
To the extent
that the Fund permits in-kind transactions, an AP that exchanges equity
securities for a Creation Unit generally will recognize a capital gain or loss
equal to the difference between the market value of the Creation Units at the
time of exchange (plus any cash received by the AP as part of the issue) and the
sum of the AP's aggregate basis in the securities surrendered plus any cash
component paid. Similarly, an AP that redeems a Creation Unit in exchange for
securities generally will recognize a capital gain or loss equal to the
difference between the AP's basis in the Creation Units (plus any cash paid by
the AP as part of the redemption) and the aggregate market value of the
securities received (plus any cash received by the AP as part of the
redemption). The IRS, however, may assert that a loss realized upon an exchange
of securities for a Creation Unit, or of a Creation Unit for securities, cannot
be deducted currently under the rules governing “wash sales” or on the ground
that there has been no significant change in the AP's economic position. An AP
exchanging securities should consult its own tax advisor(s) with respect to
whether wash sale rules apply and when a loss otherwise might not be
deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally is
treated as long-term capital gain or loss if the Shares have been held for more
than one year and as short-term capital gain or loss if the Shares have been
held for one year or less, assuming that such Creation Units are held as a
capital asset. If you purchase or redeem one or more Creation Units, you will be
sent a confirmation statement showing how many Shares you purchased or sold and
at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an
investment in the Fund. It is not a substitute for personal tax advice. You also
may be subject to state, local and/or foreign tax on the Fund's distributions
and sales and/or redemptions of Shares. Consult your personal tax advisor(s)
about the potential tax consequences of an investment in the Shares under all
applicable tax laws.
Distributor
Invesco
Distributors, Inc. (the “Distributor”) serves as the distributor of Creation
Units for the Fund on an agency basis. The Distributor does not maintain a
secondary market in Shares. The Distributor is an affiliate of the
Adviser.
Net Asset Value
The NAV for
the Fund will be calculated and disseminated daily on each day that the NYSE is
open for trading. The Bank of New York Mellon (“BNY”) normally calculates the
Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally
4:00 p.m., Eastern time). The Fund’s NAV is based on prices at the time of
closing, and 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.
NAV is calculated by deducting all of the Fund’s liabilities from the total
value of its assets and then dividing the result by the number of Shares
outstanding, rounding to the nearest cent. Generally, the portfolio securities
are recorded in the NAV no later than the trade date plus one day. In
determining NAV, expenses are accrued and applied daily and securities and other
assets for which market quotations are readily available and reliable are valued
at market value. The Trust’s Board has designated the Adviser to fair value the
Fund’s portfolio securities and other assets for which market quotations are not
readily
16
available and
reliable or deemed non-representative of fair value in accordance with
Board-approved policies and related Adviser procedures (the “Valuation
Procedures”), subject to the Board’s oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day
as of the close of the exchange where the security primarily trades. Securities
of investment companies that are not exchange-traded (e.g., open-end mutual
funds) are valued using such company’s end-of-business day NAV per share,
whereas securities of investment companies that are exchange-traded are valued
at the last trade price or official closing price on the exchange on which they
primarily trade. Deposits, other obligations of U.S. and non-U.S. banks and
financial institutions, and cash equivalents are valued at their daily account
value. Fixed-income securities (including convertible securities) normally are
valued on the basis of prices provided by independent pricing services. Pricing
services generally value fixed-income securities assuming orderly transactions
of institutional round lot size, but the Fund may hold or transact in the same
securities in smaller, odd lot sizes. Odd lots often trade at lower prices than
institutional round lots, and their value may be adjusted accordingly. Futures
contracts are valued at the daily settlement price set by an exchange on which
they are principally traded. U.S. exchange-traded options are valued at the mean
between the last bid and asked prices from the exchange on which they
principally trade. Non-U.S. exchange-traded options are valued at the final
settlement price set by the exchange on which they trade. Options not listed on
an exchange and swaps generally are valued using pricing provided from
independent pricing services. Private securities will be valued using prices
provided by independent pricing services or by another method that the Adviser,
in its judgment, believes better reflects the security’s fair value in
accordance with the Valuation Procedures. Foreign exchange-traded equity
securities are valued at their market value if market quotations are available
and reliable. The Adviser may use various pricing services to obtain market
quotations as well as fair value prices. The Adviser may discontinue the use of
any pricing service at any time.
At
times, a listed security’s market price may not be readily available.
Moreover,
even when market quotations are available for a security, they may be stale or
unreliable. A security’s last market quotation may become stale because, among
other reasons, (i) the security is not traded frequently, (ii) the security
ceased trading before its exchange closed; (iii) market or issuer-specific
events occurred after the security ceased trading; or (iv) the passage of time
between when the security’s trading market closes and when the Fund calculates
its NAV caused the quotation to become stale. A security’s last market quotation
may become unreliable because of (i) certain issuer- or security-specific
events, including a merger or insolvency, (ii) events which affect a
geographical area or an industry segment, such as political events or natural
disasters, or (iii) market events, such as a significant movement in the U.S.
market. When a security’s market price is not readily available or deemed
non-representative of fair value, or the Adviser determines, in its judgment,
that such price is stale or unreliable, the Adviser will value the security at
fair value in good faith using the Valuation Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods may
change from time to time. Consequently, while such determinations may be made in
good faith, it may nevertheless be more difficult for the Adviser to accurately
assign a daily value, and Fund securities that are fair valued may be subject to
greater fluctuation in their value from one day to the next than would be the
case if market quotations were used. Because of the inherent uncertainties of
valuation, and the degree of subjectivity in such decisions, it is possible that
a fair value determination for a security is materially different than the value
that could be realized upon the sale of the security. There is no assurance that
the Fund could sell a portfolio security for the value established for it at any
time, and it is possible that the Fund would incur a loss if a security is sold
at a discount to its established value. Because the Fund seeks to track the
Underlying Index, the use of fair value pricing could result in a difference
between the
prices used to calculate the Fund’s NAV and the prices used by the Underlying
Index, which may increase the Fund’s tracking error.
Fund Service Providers
BNY, 240
Greenwich Street, New York, New York 10286, is the administrator, custodian,
transfer agent and fund accounting and dividend disbursing agent for the
Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago,
Illinois 60606, and 2000 K Street, NW, Suite 700, Washington, D.C. 20006, serves
as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the
Fund’s independent registered public accounting firm. PwC is responsible for
auditing the annual financial statements of the Fund and assists in the
preparation and/or review of the Fund’s federal and state income tax
returns.
17
